A STUDY ON

I] COMPARISON OF PROCESSES AND SYSTEMS OF TOP PHARMACEUTICAL COMPANIES IN INDIA

II]

EMPLOYEE PRACTICES FOLLOWED IN PHARMACEUTICAL COMPANIES OF RUSSIA, UKRAINE & BRAZIL

By RASHMI D. NAIR A project report submitted in partial fulfillment of the requirements for Master of Business Administration of Ahmedabad Education Society Post Graduate Institute of Business Management, Gujarat University July 2006

DECLARATION
I hereby declare that the project report entitled A STUDY ON

I] COMPARISON OF PROCESSES AND SYSTEMS OF TOP PHARMACEUTICAL COMPANIES IN INDIA II] EMPLOYEE PRACTICES FOLLOWED IN PHARMACEUTICAL COMPANIES OF RUSSIA, UKRAINE & BRAZIL Submitted in partial fulfillment of the requirements for the degree of MASTER OF BUSINESS ADMINISTRATION To AESPGIBM, Gujarat University, is my original work and not submitted for the award pf any other degree, diploma, or other similar title of prizes.

Place: Ahmedabad Date: 15/07/06

Rashmi D. Nair MBA-01-27

CERTIFICATE

This is to certify that the project report entitled A STUDY ON I] COMPARISON OF PROCESSES AND SYSTEMS OF TOP PHARMACEUTICAL COMPANIES IN INDIA II] EMPLOYEE PRACTICES FOLLOWED IN PHARMACEUTICAL COMPANIES OF RUSSIA, UKRAINE & BRAZIL Submitted in partial fulfillment of the requirements for the degree of MASTER OF BUSINESS ADMINISTRATION To AESPGIBM, Gujarat University RASHMI D. NAIR

Has worked under my supervision and guidance and that no part of this report has been submitted for the award of any other degree, diploma or other similar titles or prizes and that the work has not been published in any journal or magazine. Certified by: (Guides name)

ACKNOWLEDGEMENT

It is not because things are difficult that we do not dare; it is because we do not dare that they are difficult. - Seneca When I came to take this project, the first reaction was Oh God! But then gradually when I started working on it, I realized that its not hard as it had seemed, as I had so many people who were ready to guide and help me whenever needed. I take this opportunity to thank: (1) My guide Ms. Neetu Wadhawan, Senior Manager (HR), Zydus Cadila for her guidance and administrative support. Madam, your help and support were pivotal in timely completion of my project. (2) Ms. Poonam Dhat and Mr. Mihir Gohil of Dial for Health, Zydus Cadila for allowing me to use their computer facilities. (3) My Husband, Dr. Dinesh Nair, who helped me in every area. (4) All the respondents, who responded to my questionnaire and at the same time, provided me with crucial information about their companies. (5) The employees of Zydus Cadila, who were helpful and co-operative. (6) My parents.

INDEX
Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. Content PART I: Comparison of Processes and Systems of Top Pharmaceutical Companies in India Introduction to Human Resource Management Pharmaceutical Sector in India Ranbaxy Laboratories Dr. Reddys Laboratories Cipla Sun Pharmaceuticals Lupin Laboratories Nicholas Piramal Zydus Cadila GlaxoSmithKline Novartis Theoretical Comparisons of HR policies Questionnaire Comparison of HR policies Based on the responses Conclusions PART II: Study of Employee Practices Followed in Pharmaceutical Companies Of Russia, Ukraine and Brazil Russia (a) Introduction (b) Pharmaceutical Sector in Russia ( c) HRM in Pharmaceutical Sector in Russia 1. Recruiting 2.Methods used in selecting new employees 3. Labor Code 4. Employee Development 5. Managerial Appraisals 6. Monetary Benefits 7. Non-Monetary Benefits 8. Work Environment 10. Feedback Systems 11. Employee Retention 12. Expatriate Employee Environment 13. Organizational Culture 14. Exit 4 Page No. 2 3 5 8 13 19 21 22 26 28 33 37 42 44 46 47 49

18.

51 52 58 63 64 65 65 67 67 68 68 70 70 72 73 75

(d) Conclusion 19. Ukraine (a) Introduction (b) Pharmaceutical Sector in Ukraine (c) HRM in Pharmaceutical Sector of Ukraine 1. Labor Code 2. Expatriate Personnel 3. Social Security 4. Taxation 5. Organizational Culture 6. Employee Ownership (d) Conclusions Brazil (a) Introduction (b) Pharmaceutical Sector in Brazil ( c) Indian Pharmaceutical Companies in Brazil (d) HRM in Pharmaceutical Sector of Brazil 1. Organizational Culture 2. Job Evaluation 3. Remuneration and Retention 4.Salary Increases 5. Long Term Incentives 6. Performance Appraisals 7. Efficiency of Training Programs 8. Internal Communication 9. Benefits Offered (e) Conclusions BIBLIOGRAPHY GLOSSARY ANNEXURE

76 78 80 85 87 87 89 89 91 91 92 93 95 99 103 103 104 104 107 107 108 108 108 109 110 111 113 114

20.

21. 22. 23.

PART I

COMPARISON OF PROCESSES AND SYSTEMS OF TOP PHARMACEUTICAL COMPANIES IN INDIA

INTRODUCTION

Human Resource Management (HRM) is both an academic theory and a business practice. It is based on the notion that employees are firstly human, and secondly should not be treated as a basic business resource. HRM is also seen as an understanding of the human aspect of a company and its strategic importance. HRM is seen as moving on from a simple "personnel" approach (or was supposed to) because it is preventative of potential problems, and secondly it should be a major aspect of the company philosophy, in which all managers and employees are champions of HRM-based policies and philosophy. Contemporary organizations face constant pressure to enhance levels of service and productivity whilst also improving levels of cost efficiency. The volatility of external environment and the rapid pace of technological change increasingly demand innovative means of improving business performance and securing competitive advantage. Human resources are increasingly recognized as the prime source of competitive advantage and the need for effective people management is more important than before. While much has been written about strategic human resource management and its contribution to organizational performance, real life examples of what works and what doesnt remain thin on the ground. Sometimes, HR professionals and senior managers are likely to face overwhelming pressure to follow trends or apply quick fixes to a wide range of people management challenges and it can be difficult to get impartial advice about what to change and how to change it in order to create lasting result. In the past, people working in organizations were given attention merely in administering the necessary conditions of work. The traditional concept of personnel management was based on a very narrow view of human motivation. It was thought that human beings are primarily motivated by comforts and salary and necessary attention may be given to rationalize these so that people do not get dissatisfied. It is now being increasingly realized that people working in organizations are human beings. They have their own needs, motivation and expectations and that their contribution to the organization is much more than that of any other resource that is being used. HRM systems are path dependent since they consist of policies that have evolved over time. A competitor may understand that a particular HRM system is valuable. However, because such systems are unlikely to work the same way if they were removed from the context where they are operating, a competitor cannot simply buy HRM systems in a market. In addition, to copy an HRM system successfully, it is necessary to understand how all relationships inside the system work. Because HRM systems are invisible assets, it is difficult to develop this needed understanding. Also, there it is difficult to think of a good substitute for a well developed HRM system.

PHARMACEUTICAL SECTOR OF INDIA

In Asia, India and China are seen as the pharmaceutical hubs as they provide major opportunities for drug research and development but for very different reasons. As per the Boston Consulting Group, Indian pharmaceutical companies are growing at a very rapid pace. Indias R&D costs are half those of China. It has well educated English speakers and much shorter administrative delays to approve clinical trials than in China. In India it takes three to nine months to clear a clinical trial compared with nine months to a year in China. In China the R&D is mostly financed by the government, while in India, it is chiefly funded by several pharmaceutical groups. As per Mr. Rajesh Srivastava, President, Fine Chemicals & CRAMS, Jubilant Organosys Ltd., R&D and manufacturing outsourcing activities in India had begun to attract big pharma MNCs and India has the potential to emerge as a global pharma hub. There are several challenges faced by the US and European players like maintaining focus on core activities like IPR and branding, drying up of the R&D pipeline, competition from generics for off-patent products which forces the companies to explore low cost options etc. These challenges are driving the companies to tap the advantages offered by India in terms of cost, availability of skilled chemists, process engineering skills, chemistry knowledge, international regulatory compliance & IPR protection etc. The global pharma firms are seeking to enter into collaborations with Indian players to leverage Indias advantage in discovery chemistry capabilities. Also, Indian companies are seen aggressive on global platform through activities like overseas acquisitions, takeovers, consolidations etc. Saturation in domestic market is being covered by aggressive exports. Top Indian pharmaceutical companies are shifting a major part of their manufacturing bases to major pharmaceutical markets of the world as the export is becoming the key to higher profits. Exploding generic 4

markets in the US and Europe as a result of the patent expiry of a number of blockbuster molecules was the starting point to march towards the developed world for establishing manufacturing facilities. The new patent regime and the consequent pressure to find resources for spending on new molecular research also forced the Indian companies to look overseas markets for support. Indian companies are currently focusing on mergers and acquisitions, filing of DMFs and ANDAs in the regulated markets, partnering with global giants, undertaking contract research and setting up own manufacturing facilities. The top pharmaceutical companies in India are difficult to be designated very accurately as there are several criteria to be matched. Also, it was difficult to obtain the recent survey details since all the data are paid ones and the companies generally would not give the full report to the trainees for various administrative reasons. Hence, the respondent here took several survey data conducted in the years 2004 and 2005 from old issues and the Internet.

As per the ORG-MARG ratings in March 2006 based on the quarterly sales in India, the ratings are as follows: Table 1: Top Ten Pharmaceutical Manufacturers in I Quarter of 2006 Sr. No. % of the Market In March 2006 Total Market 100 GlaxoSmithKline 5.58 Cipla 5.11 Sun Pharmaceuticals 3.03 Nicholas Piramal 2.62 Ranbaxy 2.55 Alkem 2.54 Dr. Reddys 2.37 Laboratories Zydus Cadila 2.28 Lupin Labs 2.26 Aventis Pharma 2.12 Manufacturers % change in Net Profit 0.5 0.6 1.1 0.8 0.8 1.5 1.6 0.3 2.1 -

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

The following companies were selected for studying the HR practices as the possible closest competitors of Zydus Cadila. The Indian companies are: (1) Ranbaxy Laboratories (2) Dr. Reddys Laboratories (3) Cipla (4) Sun Pharmaceuticals (5) Lupin (6) Nicholas Piramal 5

The Multi-Nationals selected are: (1) GlaxoSmithKline (2) Novartis The procedure followed by the respondent for conducting the study is given below in steps: (1)Finding out the annual reports 2004-2005 of the companies from the Internet and personal contacts in the pharmaceutical industry (2) Studying the HR practices as mentioned in the Annual reports as well as reported on the companys websites (3) Making theoretical notes of the HR policies followed by these companies (4) Formulating HR questionnaire on Microsoft Excel Worksheet (5) E-mailing of the questionnaire to personal contacts as well as official contacts of the selected companies. Universe selected comprises of 5 employees in each company ranging from executive level to the managerial level and mostly from Marketing area and Research & Development area (6) Collection of the primary data (7) Comparison of the primary and secondary data and tallying them (8) Results and Discussions (9) Conclusions Given below are the details of the companies selected and the HR policies as reported on their company website and annual report of 2004-2005.

RANBAXY LABORATORIES LIMITED

Ranbaxy Laboratories Limited (RLL), Indias largest pharmaceutical company, headquartered in India, is an integrated research based, international pharmaceutical company, producing a wide range of quality, affordable generic medicines, trusted by healthcare professionals and patients across geographies. It is ranked amongst the top ten generic companies worldwide. RLL, is a public limited company which was incorporated in India on June 16, 1961 and went public in 1973. The Company and its subsidiaries (collectively referred to as the Group) operate as an integrated international pharmaceutical organization with businesses encompassing the entire value chain in the marketing, production and distribution of dosage forms and active pharmaceutical ingredients. The members of the Board of Directors are Mr. Tejendra Khanna (Chairman), Mr. Vivek Bharat Ram, Mr. Gurcharan Das, Dr. P.S.Joshi, Mr. Nimesh N.Kampani, Mr. V.K.Kaul, Mr. Vivek Mehra, Mr. Ravi Mehrotra, Mr. Harpal Singh, Mr. Shivinder Mohan Singh & Mr. Surendra Daulet Singh. CEO & Managing Director of the Group is Mr. Malvinder Mohan Singh. 6

Dr. Brian W Tempest is the Chief Mentor and Executive Vice-Chairman. The Regional Headquarters of the Group are situated in Gurgaon(India), London (U.K), New Jersey (USA),Sao Paulo (Brazil) and Singapore. The Group presently has manufacturing facilities in seven countries India, the USA, Ireland, China, Malaysia, Nigeria and Vietnam. The Groups major markets are India, the USA, Europe, Russia/CIS and South Africa. The R&D activities of the Group are carried out at its facilities in Gurgaon, near New Delhi, India.

There are nearly 22 100% shareholding entities of the Group located in India, The Netherlands, South Africa, the USA, UK, France Ireland and Hong Kong. The Companys shares are listed for trading on the BSE and NSE and its Global Depository Receipts are listed on the Luxembourg Stock Exchange. The Groups head office is located in Delhi whereas its corporate office is located in Gurgaon. The top 10 molecules of the company are Co-amoxlclav, Amoxicillin, Ciprofloxacin, Cephalexin, Simvastatin, Isotretinion, Cefacior, Clarithromycin, Cefpodoxime Proxetill and Ketorolac Tromethamine. Since the Group operated in regulated, semi-regulated and unregulated markets, its products are checked and approved by regulatory authorities like USFDA (United Stated Food & Drug Administration), MHRA -UK(Medicines & Healthcare Products Regulatory Agency), ANVISA Brazil, the WHO Geneva (World Health Organization), Cologne Regional Administration Germany, China (Provincial Drug Authorities & the State Food & Drug Administration) etc. The manufacturing units located all over the world comply with GMP (Good Manufacturing Practices) norms. The total number of patents filed reached 338 at the end of 2004. The Company was the first from India to file Para IV ANDAs in the USA. The Company filed 36 ANDAs (Abbreviated New Drug Application) with the USFDA and received 16 approvals at the end of 2004. Overall global regulatory filings stood at 852 during 2004-2005. There are 9 marketing arms of RLL through which they market their basket of products. These are Pharma, Stancare, Croslands, Rexcel, Solus, Rextar, Blue R, Ranbaxy Cardio-Vascular and Super speciality.

HUMAN RESOURCE MANAGEMENT Ranbaxy was ranked amongst the Top Ten Companies to work for based on the metrics for HR effectiveness, in a survey conducted by Business Today, a renowned weekly in India in November 2005. There are more than 10,000 multi-cultural employees spread across 49 countries, working concurrently across time zones. * Organization values: Values are to the organization what character is to an individual. The values that are held so closely by the employees at Ranbaxy are as follows: * Uphold the highest ethical integrity in all business transactions * Achieving customer satisfaction is fundamental to our business * Provide products and services of the highest quality * Practice dignity and equity in relationships and provide opportunities for our people to realize our full potential. * Ensure profitable growth and enhance the wealth of the shareholders. * Foster mutually beneficial relations with all business partners * Manage operations with high concern for safety and environment * Be a responsible corporate citizen These values have been translated in Values in Action (VIA) which drive the Companys recruitment, development and appraisal process. These VIA are * Performance Focus * Customer Responsiveness * Entrepreneurial Drive * Trustworthiness * People Development * Organizational Culture: In order to build a seamless organization, Ranbaxy has invested in robust systems and processes that knit people together, encouraging them to pursue a common goal. At Ranbaxy, the management believes in creating an environment that builds a committed workforce pursuing a shared vision of excellence. There is a commonly understood and shared vision that knits the organization together. There is a Code of Conduct that clearly defines ethics for performance, behavior at work and relationships. This code was communicated to all the employees across the globe in several languages. * Employee Retention: Several employee engagement programmes through town hall meetings and other team activities with a view to better understand employee expectations are conducted by the Company.

The Company has mentoring and coaching processes at each level which are interactive and feedback based. This helps the employees in understanding their career needs. To institutionalize and facilitate the process of career and succession planning, the management is building an inventory of human resources. This involves the mapping of people skill sets and marrying them with the requirements of the organizations. Also, the management is building an on-line database of employees and has put in an e-HR system that uses SAP as the platform. As a result, a large number of employee information is readily available on the intranet. This also makes the employee services more responsive and robust. In Ranbaxy, the employees are provided autonomy in taking decisions. Individuals are given responsibility quite early in their careers and their actions impact the business. This helps in fostering a culture of entrepreneurship within the organization. Creativity is promoted in every part of the organization. Genuine mistakes are considered as a part of learning and evaluated risk taking is encouraged. The global spread of Ranbaxy and the blazing growth in business provides ample opportunities for the employees to build careers in various fields. The managers generally have the opportunity to live and work in different countries. Such international experience helps them to better understand the complex business and grow both personally and professionally. There is a Ranbaxy Leadership Model that focuses on strengthening the leadership qualities across the organization. The model first prepares the individuals to deal with the self and then with others. As the manager matures, the model facilitates the individual to become a business leader by understanding and appreciating the multiple facets of business. Finally, the managers become ready to lead and drive change an ultimate test of a persons leadership skills. The Strategic Learning Partners support the development initiatives. At Ranbaxy, managing and shaping the careers of the employees are viewed as high priority. * Training: The Management Trainee Programme was developed to develop and nurture young talent. A committee specially constituted for the development evaluates the work of the management trainees. The committee members coach and mentor them during the training period and prepare them for the regular challenges of a regular job. Each of the management trainee, irrespective of his/her discipline, gets an opportunity to work and get exposed to sales, R&D, manufacturing. They also work on live business projects in their own area of specialization. Projects are also undertaken in cross functional area to build a holistic understanding of business. To prepare the trainees for global challenges each has to undertake an extensive ten week assignment away from their home country. This helps in developing a global mindset in the trainees. * Employee Benefits: In Ranbaxy, along with the salary, the employee also receives a wide range of benefits that one expects from a big company combined 9

with the local working conditions and legislations in the country the employee is working in. Some the benefits include Group Life Insurance, Health Insurance, Stock Ownerships, Pension Plans etc. The Company ensures that the employees and their dependents get adequate financial protection on solid and long term care basis.

Dr. REDDYS LABORATORIES

Dr. Reddys Laboratories was established by Dr. Anji Reddy in Hyderabad in 1984. Dr. Reddys Laboratories (DRL) was the first Asia-Pacific pharmaceutical outside Japan and the sixth Indian company to be listed on the New York Stock Exchange. The company is into API and intermediates, Branded finished dosages, Generic finished dosages, Specialty and Discovery Research. The main markets are India, the U.S.A, Europe, Russia and China. The company has 6 API plants and 7 Formulation plants i.e. total 13 manufacturing units. DRL has joint ventures and subsidiaries in South Africa, Brazil, China, France, the Netherlands, Russia, Singapore, U.K. and the U.S.A. It has representative offices in Kazakhstan, Romania, Sri Lanka, Ukraine and Vietnam. Head office is in Hyderabad. Board of directors are as follows: Whole time directors are- (1.) Dr. Anji Reddy (Chairman), (2.) Mr. G.V. Prasad (Vice Chairman and CEO) (3.) Satish Reddy (Managing Director and CEO) Independent Directors are : Dr. Omkar Goswami, Mr. P.N. Devarajan, Mr. Ravi Bhoothalongam, Dr. V.Mohan, Dr. Krishna Palepu and Mr. Anupam Puri. DRL has filed over 65 US DMFs and 45 ANDAs till 2005-06. DRL has filed over 306 international dossiers in branded finished dosages segment. . It had increased its R&D budget by 14% of its total revenue at Rs. 2803 million. DRL is listed on the BSE, NSE and the New York Stock Exchange (NYSE). Chart 1: Revenue from Key Markets (US $ million) 10

Source: Dr. Reddys Annual Report 2004-2005

120 100 80 60 40 20 0 Russia Europe North America

Although around 58% of DRLs revenues come from generic drugs, the company was committed to the WTO-compliance long before the 2005 bill took effect, and most of these products were already off-patent. DRL has long been a research oriented firm, preceeding many of its peers in setting up a New Drug Development Research (NDDR) in 1993 and out licensing its first compound just four years later. The Company enjoys a front-end commercial infrastructure in the U.S, China, Europe and Russia representing individually and cumulatively a large market for Companys generic and innovative products (as and when they mature). HUMAN RESOURCE MANAGEMENT Today, DRL is widely recognized as an employer of choice, reflected in the prestigious accolades for their people practices and their employee brand. The company was ranked seventh- the only pharmaceutical company to make it to top 10-in The Best Companies to Work for in India, a survey conducted by Business India, Mercer and TNS. It was also ranked 11th among The Top 25 Best Employers in India in a survey conducted by Hewitt associates and CNBC India. The company was also ranked as the 6th Most Respected Company in a survey conducted among all companies in India by BusinessWorld. There are more than 6000 employees of nearly 35 nationalities employed by DRL all over the world. The org itself is divided into 8 SBUs. Each SBU has its own HR team. While the unit HR reports to the respective heads there is also a professional linkage between corporate HR and the unit HR. *Organizational Development: At DRL as a part of the Companys drive to embed excellence into all key processes, it had adopted Dr. Reddys Execution Excellence Model, which is built around the companys core values and integrating its core purpose and vision. This model provides a framework of how people, processes and strategy can be interlinked for sustainable improvement. The company has identified processes and organization-wide practices which it needs to excel in for 11

sustainable business results. The various initiatives adopted across the organization as a part of this pursuit comprise of: * A globalized matrix structure vertically segmented across geographies and businesses * The integration of product development in APIs, generics and branded finished dosages with accelerated new product rollouts derived through a combination of technical powers and process excellence. * Shared Services Organization (EST. In 1994): To leverage people, process and technology to attain a process excellence in the areas of finance, human resource management and other enabling processes. The Six Sigma Efficiency was rolled out and it is reported that already an efficiency of 4 sigma (99.3 % transaction accuracy) was achieved enabling high savings. A 3S Excellence Model was also anchored wherein the objective was to leverage SOX (Sarbanes Oxley Act) as an opportunity, SAP as a platform and Shared Services as a model to achieve an all-round excellence in business processes. * Project Pragati This was initiated to drive cost improvements to retain cost competitiveness in order to compete effectively. An implementation in 3 phases helped the company to generate savings of Rs.448 million in last three years. * Project Rachna Initiated for the internalization for the project management framework and a greater alignment of the R&D teams to costs and timelines. As a result the company has achieved a reduction in the cycle time for the development of new products. * Project Disha For gearing up its supply chain to build up a cost effective global supply chain that is highly responsive and driven by customer needs. * Project Suraksha for the compliance of the Section 404 relating to corporate governance of the Sarbanes Oxley Act (SOX). *Core Purpose: To help people lead healthier lives. *Vision: To become a discovery led global pharmaceutical company. *Core Values : * * * * * Quality Respect for individual Innovation & Continuous Learning Collaboration & Teamwork Harmony & Social Responsibility

The companys HR philosophy, pivoted around innovation, entrepreneurship and globalization, seeks to continually enhance these qualities. As the company absorbs from its success and setbacks, it enhances its agility, speed and execution intelligence. Hence this culture with a difference would definitely ensure that it would successfully leverage its rich people resources to address to the challenge of the future. The HRM strategy of the company derived from its business strategy is rooted in its three elements of Talent, Commitment and Relationship. The company had 12

strengthened its people capability management through a number of initiatives which are given below: * Development of process-obsessed and metric-tracked talent acquisition practice It is an innovative selection methodology to ensure that the company attracts and retains the best talent in the market. This focused and selective acquisition ensured an offer-to-acceptance ratio of around 96%. It launched Parichay, a referral plan aimed at encouraging the existing employees to introduce prospective new employees within the companys guidelines. It also introduced a Project Internship Program rolled out across top management campuses across India and the U.S.A. This would enable to company to track down the prospective talented candidates as soon as possible. * Career Development: The Company gives great importance to providing a work culture that allows its members the space to learn, innovate, experiment and grow. It puts a premium on innovation, freedom to think differently and individual responsibility. The company provides platforms that help in multi-directional growth of its employees. It also routinely sponsors employees for training in external institutions to help them to increase their skill bandwidth. The company has over the years, created a culture that empowers, values that inspire and a career proposition that encourages meritocracy. Its differentiated career management approach builds employability and competence rather than mere vertical mobility. Career Centre is an e-recruitment portal that ensures internal career mobility and makes all job positions available to anyone with an attitude and aptitude within the organization. Unique Career Design Workshops are frequently held for middle to senior level managers to help them recognize and match their latent strengths with their career preferences. The Management Development Program (MDP) is also part of the talent management initiative. An annual program, it helps identify leaders. MDP creates a pool of talented employees who are high performers in their present position and also have the potential to handle challenges and greater responsibility. MDP creates a career path for promising executives by offering options for growth and development, besides opportunities for moving up the corporate ladder. * Ankur DRLs virtual Corporate University: The thrust area here is Leadership Development at all Areas and Functions. The following initiatives are offered to the employees and their family members 1. Leadership Development Programs (Basic and Advanced) 2. Long Term Education Programs (MSc in Pharm.Chem and MBA in Executive Pharm Management) 3. Certification programs in Intellectual Property Management and Project Management. 4. Training programs 5. Organizational Development Initiatives like Values Week, 360 degree feedback, Organizational Climate Survey, Code of Business and Ethics Rollouts etc. 6. Family programs 7. Learning resources like Library and e-Campus 13

8. Knowledge sharing platform like Technical Conclave, Cutting Edge, Pragya Forum in API, Gurukul etc. * Performance Enhancement: To manage individual performance the company had developed a thorough in house performance enhancement and coaching tool also called PerfECT. This is focused on employee development and performance enhancement through mentoring, coaching and performance appraisals. This also is a good platform for the employees to share ideas, dreams and expectations amongst themselves. *Employee Motivation: Employees are constantly motivated by the company in form of awards like Excellence Awards, Best Team Award, Best Managed Workplace Award, Best Team Contribution in Social Environment Award, Best Quality Driving Team Award etc. * Internal Communication: The Company implemented the SAP-HR module in 2004-2005 and also created an Employee Services Team that would provide a single window response to all HR transaction processing. The company shares news, successes, challenges and developments with its associates in the form of electronic communication from the CEO and an in-house magazine called Elixir. *Organizational Culture: At DRL a culture is fostered that is * Customer focused and high performance driven * Entrepreneurial & Innovative * Egalitarian & Trusting * Flexible & Adaptive

CIPLA
Cipla was founded in 1935 in Mumbai by Khwaja Abdul Hamied. Full form of Cipla is The Chemical, Industrial & Pharmaceutical Laboratories. Cipla is the second largest pharma company in India. It deals in raw materials, intermediates, prescription drugs, Over The Counter products and Animal Health Care products. It is managing its entire manufacturing business from India and exporting more than 45 per cent of its total income to various countries. Cipla has received approvals from major regulatory bodies like USFDA, MHRA, PIC Germany, the WHO, ANVISA, SIDC Slovak Republic and Department of Health, Canada. It is reported that the spendings on the R&D are around 4 % of its total income. Dr. Yusuf K.Hamied is the Chairman and the Managing Director. Joint Managing Directors are Mr.M.K.Hamied and Mr. AMar Lulla. 14

Non-executive Directors are Dr. M.K.Gurjar, Mr. V.C.Kotwal, Dr. H.R.Manchanda, Mr. S.A.Pinto, Mr.M.R.Raghavan and Mr.Ramesh Shroff. It is a privately held company. % of shares for Indian promoters is around 40.94% and there are nil foreign promoters. Cipla now distributes its 800 odd products in over 140 countries like the USA, a number of countries in Europe, Africa, Australia, Latin America and the Middle East. Cipla burst into the international scene in 2000 with Triomune, an AIDS treatment between $300 and $800 per year that infringed upon patents held by several companies who were selling the cocktail for $12,000 per year. Cipla did not report having a research program.

Cipla continues to grow at a very healthy pace with an overall growth of more than 57% in income from operations for the quarter ended March 2006. During the I quarter of 2006, the international business as well as the domestic business have recorded a remarkable growth of more than 56% and 63% respectively. Exports in 2005-2006 was reported to be Rs.10,500 million. The major segments include anti-asthamatics, cardiovasculars, antibiotics, anti depressants,anti-retrovirals,etc. Ciplas manufacturing facilities have been approved by the following regulatory authorities: USFDA, UKMHRA, TGA(Australia), MCC(South Africa), NIP(Hungary), PIC(Germany), WHO, Department of Health (Canada), State Institute for Control of Drugs (Slovak Republic) and ANVISA (Brazil). HUMAN RESOURCE MANAGEMENT No data about the HR policies and practices being followed are available on the Internet and the annual reports.

15

SUN PHARMACEUTICALS
Sun Pharmaceuticals was started in 1993. Mr.Dilip Sanghvi is the Chairman and Managing Director. Mr. Sudhir Valia abd Sailesh Desai are the whole time Directors. Mr. S.M.Dadha, Mr. Hasmukh Shah,Mr. Keki Mistry and Mr. Ashwin Dani are the non-executive Directors. The Company is a listed company on the BSE and the NSE. The manufacturing facilities have approvals from several regulatory bodies like USFDA, UKMHRA, ANVISA, INVIMA, South Africa MCC, OHSAS 18001:1999 etc. There are 14 product divisions offering a wide range of products. These are Synergy, Symbiosis, Ortus, Sirius, Sun, Sun Oncology, Inca, Solares, Azura, Arian, Milmet, Avesta, Spectra and Radiant. The company has subsidiaries in Russia, USA, Bangladesh, Brazil and Mexico. The company has global operations in India, Mexico, Russia, British Virgin Islands, Bangladesh, Brazil and the USA. The company exports to around 26 countries around the globe. contributes more than 80% of its total revenue. HUMAN RESOURCE MANAGEMENT There is data available on the Internet and the annual report except an online company magazine called Sunwaad that carries several articles by the employees. Mission statement is Innovation Inspired. Domestic Market

LUPIN LABORATORIES
Lupin Laboratories was commenced in 1968 by Lupin Group. It has its manufacturing bases in India and Thailand. finished dosages. It is mainly into APIs and

It markets in India, CIS comprising of Ukraine, Russia, Belarus, Kazakhstan, Uzbekistan and Azerbaijan, countries in Latin America, Africa and Middle East; i.e. operating in 50countries. It has subsidiaries in the USA, Thailand, Hong-Kong and South-Africa. 16

The gross sales as reported in the Annual report of 2005-2006 comprised of 54% from domestic market, 23% from exports to semi-regulated markets and 23% from exports to regulated markets. The different product divisions are Pinnacle, Endeavour, Lupin and Herbal. The companys main office is in Mumbai. Dr. D.B.Gupta is the Chairman. Dr. Kamal Sharma is the Managing Director. Mr. M.D.Gupta is the Executive Director. Rest of the Board of Directors consist of Ms.Vinita Gupta, Mr. P.K.Kaul, Dr.K.U.Mada, Mr. D.K. Contractor, Mr. Marc Desaedeleier, Mr. Sunil Nair, Dr. Vijay Kelkar and Mr. R.A.Shah The company has filed 14 ANDAs, 15 DMFs, 2e-DMFs, 4 COS, 294 dossiers and 2 INDs. The manufacturing facilities has got approvals from regulatory bodies like USFDA, TGA(Australia), ANVISA etc.

HUMAN RESOURCE MANAGEMENT *Vision: Innovation Led Transnational Pharmaceutical Company. *Core Values: * High performance * Integrity * Enhancing happiness *Customer orientation *Entrepreneurship * Team building * Commitment

As on March 31, 2005, the company had 4259 employees. *Recruiting: In 2004-2005, in order to infuse freshness and to foster the intellectual capital base, the company initiated Young Leaders Programme to address the rapid and growing need for R&D talent. *Organizational Culture: One of the key drivers that have been reported which retains talent and even motivates the homecoming of senior executives who had departed earlier is the work environment which is seen as being fair, consistent and humane. The work environment at Lupin is collegial, challenging and rewarding. Mentoring is a tradition here. Several top management executives have been groomed and they have grown professionally along with the company. 17

*Training: Innumerable training programmes were conducted in 2004-2005 across the organization covering subjects like soft skills, communications, leadership, time management, TQM, team building, creating and managing brands, problem solving skills etc. *Career Opportunity Programme: The Company has an internal talent promotion scheme. This enables employees to have the first opportunity at all new positions that get created either due to resignation, expansions or new setups. The company also acquaints talented employees in diverse multifunctional skills and competencies so that the employees can actualize their career aspirations. The company believes that it is ready to lose an employee to another job in the company itself than to another company. *Employee Benefits and Initiatives: Apart from the remunerations and bonuses. The company had implemented ESOPS branded as Partners in Progress, in 20042005. Under the plan, 174 employees in the grade of Managers and above were offered 377150 options. The coverage covers 25 % of the managerial population. Initiatives taken by the company to attract, nurture and retain best talents include: *Young Leaders Program * Career Opportunity Program * Grooming of high potential high performance employee * Instituting awards for scientific excellence in research * Motivate through ESOPs. * Capability Development: An Organization Capability Development Cell has been developed at Lupin Labs. This is an organization building process that entails envision the future talent pipeline in line with the current growth plans. The slogan of this cell is, Create, enhance and sustain people capabilities in our quest to outwit, outplay and outlast our competitors. An Organization Capability Matrix has been developed which is structured around building technical, behavioral and functional skills. The entire framework is built on competencies which form the base of capability development. These are further divided into (a) Think (Cognitive Competency Cluster), (b) Act (Enterprise Cognitive Cluster) and (c) Interact ( Interpersonal Cognitive Cluster)

*Peoples Initiatives: Young @ LRP was launched as a subcommittee of Parivartan, the group which works towards making Lupin Labs a great place to work. The activity areas comprise of Literary, Sports and Entertainment.

18

*Talent Management: Figure 1: Talent Management Framework adopted at Lupin.

CAREER LADDER

TALENT BAND

TALENT MANAGEM E-NT

TALENT SEGMENTATION

COMPETENCE CLUSTER

Talent Pool developed at Lupin is actually the inventory of skills of the employees. This lays the foundation between a strategy and successful execution of the strategy. The entire process of determining a persons skills is performance driven.

NICHOLAS PIRAMAL
Nicholas Piramal India Limited (NPIL) was formed in 1988 when Pirmal Goup of India acquired Nicholas Labs from Sara Lee. NPIL is part of the Rs. 2500 crore (US $ 500 million) Piramal Enterprises (PEL), one of India's largest diversified business houses with interests in Retailing, Textiles, Auto-components and Engineering. NPIL head office is situated in Mumbai. Consolidated sales turnover in 2005-2006 was US$ 313million.

19

The company deals in 9 theraupatic areas cardiovasculars, neuropsychiatry, oncology, diabetes management, NSAIDS, anti-infectives, respiratory, dermatology and G.I.s. The company has approvals from USFDA, Korean FDA, Irish Medicine Board, SAMCC, etc. Mr. Ajay Piramal is the Chairman. Apart from Mr. Piramal, the Board of Directors consists of Dr.Swati Piramal, Mr. Praneet Singh, Mr. Michael Fernandes, Mr. Rajesh Khanna, Mr. Y.H.Malegam, Mr.S.Ramadorai, Mr. Deepak Satwalekar, Mr. R.A.Shah, Mr. N.Vaghul and Mr. Keki Dadiseth. The company is listed on the BSE and the NSE. HUMAN RESOURCE MANAGMENT *Mission: Making a difference to Quality of Life by reducing the burden of disease. *Vision: To become the most admired pharmaceutical company in India with leadership in market share, research and profits by:* Building distinctive sales and marketing capabilities * Evolving from Licensing to global launch of own patented products * Inculcating a high performance culture * Being a partner of choice * Always adhering to own values * Encouraging innovation and nurturing intellectual capital * To seek quantum growth to lead in the domestic market and enhance international presence Value Proposition of the company is NPIL Pharma aspires to be the trusted partner for phrama companies offering world class services across product life cycles. The total standalone manpower increased from 5989 to 6590 in 2005-2006. *Organization Development: In keeping with the Merger & Acquisition ethos, the company has built a culture where diversity thrives, thanks to its skill of integrating acquisitions quickly and efficiently, contrary to most practices in industry. NPIL has set up a culture wherein talent at all levels with leadership potential can be spotted quickly and potential leaders presented with an opportunity to grow. The company aims to recruit and retain quality professionals. It provides them with a high performance oriented and challenging work culture. The work culture is focused on high performance, innovation, entrepreneurship and empowerment. The company has recently delayered management to create growth and entrepreneurial 20

opportunity. Entrepreneurial spirit among middle and senior management is encouraged with high levels of empowerment. *Employee Development: The Company follows detailed performance management system. The employees are rewarded with performance linked variable pay and stock options. *Internal Communication: Communication is a priority for top management. The company's Chairman regularly shares successes and triumphs with the company as a whole through personalized meetings and digital house-journals, which reach to more than 3,000 employees.

ZYDUS CADILA
In 1995, Cadila Laboratories bifurcated into two different groups one led by Mr. Indravadan Modi and another by Mr. Ramanbhai Patel. The name Cadila is shared by both the groups. Cadila Pharmaceuticals is under the Modi Group whereas Cadila Healthcare/ Zydus Cadila is under Mr. Pankaj Patel (Son of Mr.Ramanbhai Patel). Mr. Pankaj Patel is the Chairman and Managing Director. The Board of Directors consist of Mr. Mukesh Patel, Mr. Pranlal Bhogilal, Mr. Sharvil Patel, Mr. H.K.Bilpodiwala, Mr. H. Dhanrajgir and Mr. A.S.Diwanji. Main office is in Ahmedabad. Core domestic divisions of the company are: 1. Zydus Cadila 2. Zydus Alidac 3. Zydus Medica 4. Zydus Biogen 5. Zydus Neurosciences 6. Consumer Product Divisions 7. Zydus Pathline 8. Phytosurge 9. Zydus CND 10. Indon Healthcare 11. German Remedies 12. Recon Healthcare Ltd

As per ORG-MARG (Feb 2005), the company is the 5th largest player in the domestic phama market with a market share of 3.9%.

21

The company had filed 12 ANDAs with the USFDA in 2003-04, that made it the first Indian company with the largest number of filings in the very first year. The total number of ANDAs filed with the USFDA are24. The company had filed 16 DMFs in 2004-2005 taking the total upto 28 DMFs. It is said that the company has the largest DMF filings by any Indian Company in the JanMarch 2005 quarter. The company had also filed in 2004-2005 5 COS taking the cumulative filings to 6. The manufacturing facilities have got approvals from regulatory bodies such as USFDA, ANVISA, UKMHRA, DCGI, etc. The company is into producing branded finished dosages for domestic formulations, APIs, Generics both in regulated and semi regulated markets, contract manufacturing, clinical research, Biotechnology research, Novel Drug Delivery Research, and New Molecular Entity research. Total revenue in 2004-2005 was Rs.11, 253 million out of which Rs.1818 million were contributed by exports of APIs and intermediates. Net profits for the year were Rs.1314 million. Following are the subsidiaries and Joint Ventures of the company: 1. Zydus France SAS (by acquisition of Alpharma France in 2003) 2. Zydus Healthcare LLC (USA Subsidiary) 3. Zydus Pharmaceuticals (U.S.A) Inc.(JV to market generics in USA) 4. Zydus Healthcare Brasil Limitada (Subsidiary in Brazil) 5. Zydus International Pvt. Ltd.(Subsidiary in Ireland) 6. Zydus Atlanta Healthcare Pvt. Ltd. (JV with Atlanta Pharma AG of Germany) 7. Sarabhai Zydus Animal Health Ltd. (JV with Sarabhai Enterprises, India) 8. SCI Immopharm 9. Zydus Healthcare SA (Pty) Ltd. (Subsidiary in South Africa) 10. MoU for 50:50 JV between Zydus Cadila and M/s Mayne Pharma (Pty)Ltd (Australia)

HUMAN RESOURCE MANAGEMENT *Core Belief: We build People to build our Business. *Mission statement: We are dedicated to life in all its dimensions. Our world is shaped by a passion for innovation, commitment to partners and concern for people in an effort to create a healthier community globally.

22

*Vision statement: One of Indias leading healthcare players, we aim to be a global research driven company by 2020. We shall achieve sales of $400 million by 2006 and We shall be a top 10 global generic company with strong R&D pipeline and sales in excess of $ 1 billion by 2010. *Capability Development: The Company had launched the Organizational Development Program In 2003-2004 in order to achieve peak performance. There were three critical areas that were identified 1. Delivery of 100% performance by keeping a tight check on the fitness parameters such as costs, timelines etc. 2. Developing leaders who can drive performance and take the organization onto a new sphere of excellence i.e. delivering 100% Q-onQ (Quarter on Quarter) performance 3. Focusing on business health that can drive top-line and bottom-line growth and improve operating margins To achieve these goals, a dedicated Organization Development Cell has been set up. *Training: In 2004-2005, around 2539 employees were enrolled in various training programs. The company routinely also sends its employees for further training and specialization in various areas like operations, marketing, OB/OD and HR. In 2004-2005, the company organized over 15 GMP(Good Manufacturing Practices) programs for all the members of the manufacturing plants to make GMP an inherent part of the work culture. * Employee Development: Apart from training and sponsoring education programs, the company is interested in building leaders. For this The Zydus Leadership Competency Model was developed.

Figure 2: Zydus Leadership Competency Model

23

ENTREPRENEURSHIP

PEOPLE DEVELOPMENT ZYDUS LEADER

NETWORKING

BUSINESS PLANNING

RESULT FOCUS

STRATEGIC THINKING

*Internal Communication: Internal Communication is done through intranet. ZEMS is Zydus Employee Management System. This is one kind of employee inventory system in which the details of employees are kept. Internal communication between the management and employees is kept through internal magazine called ZYDAN NEWS. Employees are referred to as Zydans.

GLAXOSMITHKLINE
GlaxoSmithKline (GSK) is a research based company with a wide portfolio of pharmaceutical products. Headquartered in the UK and presence in nearly 70 24

countries, (GSK) is one of the industry leaders, with an estimated seven per cent of the world's pharmaceutical market. It can also be said to be one of the oldest MNCs in India. The establishment of GSK can be traced back to 1919 A.D. when trading links with India for the supply of medicines were established. The company is now in its 82nd year of its operations in India In India, the Company has a formidable presence in the domestic pharmaceuticals market with a market share of above 6.5% (as per ORG IMS Stockist Audit, December MAT 2005). GSK India markets a wide range of ethical formulations and is the leader in therapeutic areas of respiratory, dermatology and vaccines, besides having a significant presence in areas of gastroenterology, dietary supplements, gynecology, neurology, cardiovascular and intensive care. GSK India is also the undisputed leader in the animal health and fine chemicals businesses. Total sales of the company in 2005-2006 were Rs.1485 crores. Net sales of the pharmaceutical business segment of the company was Rs.1257 crores constituting 85% of the total company sales. The company has four manufacturing units in India at Thane,Nasik, Mysore and Bangalore. Mr. D.S. Parekh is the Chairman of GSK-India. Chairman. Mr. S.Kalyansundaram is the Managing Director. Executive Directors are Dr.A.Banerjee and Mr.M.B.Kapadia. Non-Executive Directors are Dr.M.Reilly, Mr.P.Parsonson, Mr.P.V.Nayak and Mr. P.Bains Independent Directors are Mr.V.Narayanan , Mr. R.R.Bajaj, and Mr. N.Kaviratne. HUMAN RESOURCE MANAGEMENT GSK employs 100,000 people in 116 countries. In 2003, GSK was named as Indias most respected pharmaceutical company conducted by the BusinessWorld and the Indian Market Research Bureau. *Spirit of GSK: We undertake our quest with the enthusiasm of entrepreneurs, excited by the constant search for innovation. We value performance achieved with integrity. We will attain success as a world class global leader with each and every one of our people contributing with passion and an unmatched sense of urgency. * Mission: GSKs mission is to improve the quality of human life by enabling people to do more, feel better and live longer. *Vision: Our vision for the future is powered by our business drivers. It finds purpose and direction with our strategic intent. It is guided by our corporate culture 25 Mr. V. Thyagarajan is the Vice

that places people and capabilities as the pivot that changes and transforms situations. *Business Drivers: The Company intends to beat competition by achieving excellence in areas that are considered as the primary drivers for the business: 1. New Product Portfolio 2. Intellectual property 3. Product Commercialization 4. Global Competitor 5. Operational Excellence *Culture and values: the GSK spirit: GSK places great emphasis not only on what the employees achieve, but also on how they deliver their achievements. Integrity is critical and given high importance. The culture and values are summed up in the GSK spirit that defines the qualities the company expects all its employees to embrace: performance with integrity entrepreneurial spirit focus on innovation a sense of urgency passion for achievement

The company believes that its mission and spirit would help its employees deal with new challenges and maintain a clear focus. Each of businesses worldwide is raising awareness of the GSK spirit, helping employees to understand and adopt its principles through workshops, team meetings, presentations and awards. *Career development: The Company is committed to rewarding, developing and retaining talent. Given below are a few of the initiatives that the company undertakes (a) The GSK Experience- An interactive induction program is planned right from the day the employee joins the organization. (b)Performance and Development Planning -The company has a global Performance and Development Planning process (PDP) to help the employee at all stages of his/her career. PDP is a powerful tool for matching employees personal success to the success of the business. (c) Career Innovation Zone- Career Innovation Zone is an online resource that an employee can access freely at any time from work or home. It offers a wealth of interactive tools and tips to help the employees work out the potential career directions and choices. (d) myLearning It is an online course catalogue. myLearning allows the employee to work with his/her manager to create a customized learning plan and to take advantage of the wide variety of instructor-led and eLearning courses, including a number of customized Leadership Development offerings. (e)Coaching and feedback- The Company believes in fostering a culture of ongoing coaching and feedback for all employees. A variety of formal and informal 26

resources are available including a 360-degree feedback process and external coaching. Mentoring is encouraged either formally or informally. (f)On-the-job development - On-the-job development means opportunities for "stretch" assignments, secondments, and access to the companys cross business job posting databases that help in recognizing the internal talents. *Talent review and succession planning: The Company places a high priority on its ability to develop talent and enthusiasm in its employees. Through succession planning high-potential employees are identified and encouraged and it is ensured that they have a career path that meets their and the companys needs. *Employment practices: The company, by creating a positive working environment, offering competitive reward packages that emphasize performance, providing opportunities for training and advancement, and by listening and responding to employees feedback, ensures that the employees remain motivated and talent is retained in the company.

INNOVATI ON INNOVATI ON

COST

SERVICE

QUALITY / REGULATORY ASSURANCE OF SUPPLY

27

NOVARTIS
Novartis AG, headquartered in Basel, Switzerland, is Swiss holding company. It owns, directly or indirectly, 100% of all significant operating companies. Each affiliated Novartis Group Company is operated as a separate legal entity. Novartis was created in 1996 through the merger of Ciba-Geigy and Sandoz. It comprises of three divisions: Pharmaceuticals, which comprises our activities in innovation-driven prescription medicines Sandoz, which comprises our activities in generic prescription drugs Consumer Health, which comprises activities in OTC, Animal Health, Medical Nutrition, Gerber (formerly Infant & Baby) and CIBA Vision. Novartis derived from the Latin novae artes, means new skills. It is a Fortune 500 company. With an employee strength of over 80,000, Novartis has 360 independent affiliates across 140 countries. The Pharmaceutical Division consists of the following therapeutic areas: General Medicines, cardiovascular & metabolism, ABGHI (Arthritis, bone, gastrointestinal, hormone replacement therapies, urinary incontinence), neuroscience, respiratory, dermatology, infectious diseases, specialty Medicines (oncology & Hematology), transplantation, immunology and ophthalmics. Novartis India Limited is a 51% subsidiary of Novartis AG. It has revenues of about US$ 109 million and around 1000 employees. Novartis Indias business operations comprise of pharmaceuticals, generics, OTC and animal health. Novartis was the first pharma company to be awarded the first prize for Corporate Social Responsibility in the mid-size company category in February 2004 by The Energy and Resources Institute (TERI). The factors for success of Novartis in India are as follows: * Strong Parental Support in terms of introduction of its new research based products. * Focusing on few brands * Improving sales force and promotions * Expanding business to new territories (covers 500 territories and plans to cover more than 90 in 2006-2007) * Commitment to corporate social responsibility Main office is located in Mumbai. There are no manufacturing units as of now. The subsidiary is involved in marketing Novartis products in India.

HUMAN RESOURCE MANAGEMENT 28

*Mission: We want to discover, develop and successfully market innovative products to cure diseases, to ease suffering, and to enhance the quality of life. We also want to provide a shareholder return that reflects outstanding performance and to adequately reward those who invest ideas and work in our company. *Vision: Medicines for Unmet Medical Needs. *Aspirations: We want to be recognized for having a positive impact on people's lives with our products, meeting needs and even surpassing external expectations. We strive to create sustainable earnings growth, ranking in the top quartile of the industry and securing long-term business success. We want to build a reputation for an exciting workplace in which people can realize their professional ambitions. We strive for a motivating environment where creativity and effectiveness are encouraged and where cutting-edge technologies are applied. In addition, we want to contribute to society through our economic contribution, through the positive environmental and social benefits of our products, and through open dialogue with our stakeholders. *HR Mission Statement: We are committed to building sustainable competitive advantage for Novartis through the quality, the capability, and ultimately the performance of our people. We aspire to be a world class HR function recognized for its business focus and its support to Novartis management and associates. *Organizational Capabilities: The Company believes in building organizational Capabilities in 4 areas: 1. External Focus: on customers, markets, competitors, and technologies. 2. Innovation: result of professional competence, creativity, motivation, and the right to make mistakes and take calculated risks 3. People: invest to attract and retain leaders, professionals, and to develop associates. The company values competence, professionalism, and a positive attitude. It recognizes and rewards high performance at every level in the organization. By fostering teamwork and collaboration the management enhances learning throughout the organization. Thus, interaction is promoted across functions, geographies, and hierarchies. Candour, trust and integrity are encouraged, and the importance of open, continuous communication is recognized. *Values & Behaviors: The Company strives at being: results driven customer and quality focused innovative and creative 29

competent dedicated to best-practice leadership fast, clear, action oriented, taking initiative expecting empowerment and accountability committed to our work and self-disciplined living a culture of mutual respect, candor, trust, integrity, and loyalty open in communication, to partnership and collaboration, and be compassionate

*Leadership Standards: Within Novartis leadership standards are the criteria that are applied in order to select and develop leaders setting clear directions and aligning people and teams around common objectives energizing people and teams showing passion for the 3 C's (consumers, customers, competition) exercising good judgement and driving change to our competitive advantage striving for superior results and generating a passion to win constantly building our talent pipeline inspiring continuous pursuit of improvements and breakthrough thinking displaying analytical and conceptual thinking

*GO!: is a structured orientation process created to effectively integrate new associates into Novartis during the critical first six months of employment. The GO! process provides tools, standards and accountabilities that work together to help ensure that new associates experience a positive and productive orientation. Additionally, the GO! process provides the support, tools and resources needed to fast-track new associate transition into Novartis and manage development expectations that lead to solid performance and career success. It is an online learning portal through which employees can contact each other through geographies. *Employee Motivation: Field force productivity is improved through training and productivity oriented incentives. Unique learning methods encourage participants to discuss their own real business issues. In November 2004, Novartis Corporate Learning Institution was accredited by the European Foundation for Management Development. Novartis is the first pharmaceutical company to receive efmd accreditation and was awarded the quality label because it has demonstrated that it meets international standards in the provision of learning programs for managers. Personal and business targets are set in line with global Division and Business Unit objectives. A primary goal of Novartis' total compensation structure is that total 30

compensation should directly reflect both individual and Novartis performance. This pay for performance approach leads to total compensation at superior levels for high performers. The company holds workshops on High Performance Organization. HR toolkits are provided to the managers. There is a Novartis Call Centre & Role Excellence which is focused on raising organization productivity. Since the company does marketing in India, a Management Power House has been established. The objective is to ensure that state of art marketing execution is followed by introducing vigorous fact-based, decision making at the HQ, region and country level. The F A R projects introduced the concept of resolving business issues using pooled talents and skills across functions and units. HR initiatives such as the Assessment & Development centre and concepts such as Pay for Performance and other reward and recognition systems are done to motivate the employees. *Employee Benefits: The Novartis benefits programs are an integral part of the total compensation policy and strategy and designed to meet the challenges of an evolving competition for talent on a global scale. Benefits are aligned with local legislation and practices in each country and generally include pension plans, group life insurance, and medical plans. Some programs offer flexible mechanisms to tailor appropriate coverage for current and future needs and are established to provide a sound framework of security for Novartis associates.

THEORETICAL COMPARISON OF HR POLICIES

The HR policies of the 7 Indian companies and 2 Multinational companies are compared theoretically. Theoretically means that comparison of the HR policies 31

mentioned in the annual reports and on the internet i.e. those policies that the company has disclosed to the public.
Sr. No 1. 2. 3. 4.

Practices

Ranbaxy

Dr.Reddy s

Cipla

Sun Pharma

Lupi n Labs

Nicholas Piramal

Zydus Cadila

GSK

Novartis

Vision Statement Mission Statement Org. Values Org. capability Development programs Induction/ Orientation Programs Performance appraisals Training programs Career Development Programs Employee Motivation through awards Mentoring & coaching Encouragement Of internal Talent Succession Planning Exposure to International Experiences Internal communication through intranets and magazines

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes

N.A N.A N.A N.A N.A N.A N.A N.A N.A N.A N.A N.A N.A N.A

N.A Yes N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. Yes

Yes No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes

Yes Yes Yes Yes No Yes No No Yes No Yes No No Yes

Yes Yes Yes Yes No Yes Yes Yes Yes No No No No Yes

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

5.

6. 7. 8.

9.

10. 11.

12. 13.

14.

N.A. Yes

Note:

Yes means that the topic has been mentioned either in the annual reports or on the website. No means that the topic has not been mentioned in the annual reports and on the website. N.A. means that the information pertaining to the topic is not at all available anywhere, neither in the annual report, website nor any literature. 32

QUESTIONAIRE
To compare that whether the policies mentioned were actually followed, an HR questionnaire was made. This questionnaire was formatted in such a manner that it looked unobtrusive yet at the same time would be able to get the details out. The student here had to contact minimum 5 people from each of the companies mentioned and in a time span of around 4-6 weeks using both personal and official contacts. And since the contacted personnel were in different cities in India-Baroda, Ahmedabad, Mumbai, Hyderabad, Gurgaon and Delhi, e-mails were sent. The contacted personnel were from the R&D and Marketing divisions of the companies. The questionnaire had been made on an MS excel worksheet. This was so that the person could fill it in 5 to 10 minutes by just clicking on the option boxes and also so that this could be send through e-mail. A word document or adobe document did not have the facility of option boxes and since people do not take much interest in getting the questionnaires filled up, it had to be short consisting of 23 questions. 11 questions were of the options ranging from false to true and rest 12 questions were of Yes/No kind.

33

The contacted person had to download the questionnaire, fill it up by selecting the option boxes and then send it back to the respondent as an attachment with the email. Annexure: Questionnaire Analysis of the Questionnaire: The first 10 questions were of 0 (Not at all true), 1 (somewhat true), 2 (partially true), 3(likely true) OR 4 (absolutely true) type. If the respondent selected 0 or 1 it meant that he/she is not agreeing with the topic. If he/she selected 3 or 4 it meant that he/she agreed. And, if the respondent selected 2, it meant that he/she is not sure whether the topic is in agreement or not. The next 11 questions were of Yes/No type. The respondent had to select either Yes or No and this gave a clearer picture than the previous set of questions. The questions were formatted but had the same overall content as in the previous set of questions. This set was formulated to verify whether the respondent is clear in what he/she is selecting the option. There are certain questions in both the sets which were not repeated as the answer would be directly understood, whereas some questions were repeated in another format to get a clear picture. Since only 5 respondents were selected or could be contacted, each response carried weightage. The questions were based on 11 criteria that were being checked. Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Criteria Question Nos. in the Questionnaire Entrepreneurship A(a), A(j) Employee Development A(b), B(e),B(f) Training A( c) Performance Appraisals A(d) Mentoring and Coaching A(e), B( c) Clear internal communication A(f), A(i), B(j), B(k) Organizational Development A(k), B(k), A(g), A(h) Succession Planning A(l), B(i) Employee benefits and B(b), B(h) incentives Career Planning B(d) Employee Motivation B(a), B(g)

For e.g: If out of 5 respondents agreed that Creativity is encouraged here (Ques A(a)) by selecting option 3 or 4, it meant that they are agreeing. Each positive response carries 1 point and each negative 0 point. Now in certain criteria, we can 34

see that there are some common questions. If the respondent gave a positive answer to all the questions of that criterion, it is considered as one point. Whereas, if for certain questions they are agreeing and for certain they are not, in the same criteria, then such a response would be considered as nil. Based on the above discussion, the responses were hence calculated. The responses are given as below:

COMPARISON OF HR POLICIES ON THE BASIS OF RESPONSES

On the basis of the responses from the employees of the companies the following data has been obtained: Sr. No
No. of responden ts

Practices

Ranbax y

Dr. Reddys

Cipl a

Sun Pharm a

Lupi n Labs

Nichola s Piramal

Zydu s Cadil a

GSK

Novarti s

5
Clear internal Communication Training Performance Appraisals Employee Development Organization Development Entrepreneurshi p Mentoring & Coaching Succession Planning Employee benefits & incentives Career planning Employee motivation

5 4 5 5 3 3 3 5 3 3 4 4 42

5 2 0 2 2 0 2 0 0 3 0 2 13

5 2 4 5 3 1 2 4 0 4 2 4 31

5 3 5 5 3 2 3 4 1 5 2 4 37

5 2 0 4 2 1 1 4 0 4 0 3 21

5 3 1 5 2 3 3 3 2 3 3 4 32

5 4 5 5 3 3 3 2 2 4 3 4 38

5 4 5 5 4 2 4 4 0 3 0 3 34

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Total Points

3 4 5 5 3 4 5 0 5 3 3 40

55

CONCLUSIONS
From this study, it was possible to find out both theoretical and practical comparisons of the HR policies being followed in the top pharmaceutical companies in India. It also gave an insight whether whatever was being mentioned by the Company were indeed true or not. 35

It can be seen from the total points of each company from the analysis of the responses to the questionnaire, that Dr.Reddys Laboratories scored the maximum points, followed by Ranbaxy Group. Cipla scored the least. The results can be summarized as follows: H.R. policies can be ranked as Dr.Reddys Labs > Ranbaxy > GSK > Lupin Labs > Novartis > Zydus Cadila >Sun Pharma > Nicholas Piramal >Cipla. Indian pharmaceutical companies, which include subsidiaries of the MNCs, have a bit of disregard towards the development of the human resources. In India, labor is still considered as a Cost and not as an Asset. This mentality is changing due to international exposure, stiff competition and globalization. However, this study, as having the limitation of studying a very small universe, can not be extrapolated to the entire company. But the benefits are present only up to the top management level. Many people, with whom I had informal talks in companies that scored less like Sun Pharma, Zydus Cadila and Cipla, were more or less doing their jobs for the sake of doing so as to earn. They were not genuinely interested in the growth of the organization. Many of them had even confided that they were working in a particular company so that they could JUMP from there to a better job offering elsewhere. They also had confusions regarding their personnel policies, incentives etc. This clearly reflects the apathy of the HR systems of these companies. Even in companies, that scored high like Ranbaxy, people did complain of getting saturated with their daily job activities. This means that the job no longer holds any challenge for them. It has been found that in Indian organizations the HR departments do not have well differentiated structures appropriate for HRD. They have well differentiated roles in personnel but not in HRD. When it comes to HRD it seems that they structure the role in such a way that it is even mixed up with other personnel functions. As the structures are mixed and convenience based, the HRD activities also get mixed attention and convenience based. As a result, various subsystems of HRD do not get attention they deserve. As per research, even those designated as HRD managers are unable to devote full time to HRD as they are involved with other personnel functions and administrative activities. It has been reported that many organizations in India do not even have a full time dedicated HRD facilitator. Where there is one, he/she is loaded with recruitment, salary administration and such roles which are mostly conventional welfare and administration functions.

36

PART II
STUDY OF EMPLOYEE PRACTICES FOLLOWED IN PHARMACEUTICAL COMPANIES OF RUSSIA, UKRAINE & BRAZIL

37

Despite the ubiquity of HRM theories, HRM priorities and main practices carry significant local flavors. It can be said that in each nation, there is a unique and particular HRM ensemble into which that countrys political, social and economic peculiarities have been factored. The selection of these three countries Russia, Ukraine and Brazil was done so as to study the HR policies practiced by the local and the MNCs there. These three countries are predicted to have booming and growing economies. Also, since these countries are the members of the trading blocks like Brazil of MERCOSUR and Russia and Ukraine of CIS, they offer large markets covering billions of customers easily. The reason is that these trading blocks offer easy trading, economic free zones for setting up facilities, cheap manpower etc.

RUSSIA
* Introduction: The Commonwealth of Independent States (CIS)--Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan--are emerging economies struggling with the transition from the centralized economic planning of the Soviet era to the practice of free market economics. These economies have made varying levels of commitment to loosening state control and embracing the practice of free market philosophy since the collapse of the Soviet Union in 1991, and they have followed different timetables in doing so. Economic stabilization, development of market institutions such as legal infrastructures, and overcoming shortages of skilled labor are key problems shared by the CIS countries (Hoskisson, Eden, Lau & Wright, 2000). 38

Russia currently enjoys free-trade agreements with all CIS countries, and is a member of the four-state Common Economic Space (CES) agreement being forged with Ukraine, Belarus and Kazakhstan. These states, with a total population of some 217 million, are negotiating to form a single market area. Thus a company locating its manufacturing operations in Russia will enjoy a domestic market of 150 million and relatively easy access to a larger market of almost 670 million consumers. With 150 million inhabitants, an inexpensive well-educated labor supply, vast natural resources, and limited competition in many industries, Russia is attracting the attention of foreign firms. The Russian economy has been growing rapidly. In 2004, the gross domestic product (GDP) rose 7.2%. This remarkable performance has been fuelled primarily by energy exports. Russia possesses huge coal and natural gas reserves. It is also rich in non fuel minerals like iron, manganese, chromium, nickel, platinum and titanium. If Russia is able to overcome difficulties such as a weak infrastructure, higher marginal tax rates, beauracracy, etc. then Russias long term economic potential may be even higher. U.S. investment bank Goldman Sachs has identified it as one of the four biggest developing economies (together with China, India and Brazil). Figure 1: Forecasted GDP growth (%) Source: PwC Macro Consulting

9 8 7 6 5 4 3 2 1 0 China India Russia Brazil 2006 2007

PHARMACEUTICAL SECTOR IN RUSSIA

39

Russias economic strength has already boosted living standards. According to the Forbes magazine, Russia has more billionaires than any other country except the U.S. Although the living standards have improved, the health of the nation has deteriorated significantly since the breakup of the Soviet Union in 1991. Life expectancy at birth is now just 65 years. Russia ranks 11th on the WHOs list of 22 countries with a high incidence of tuberculosis, Hepatitis C, HIV/AIDS etc. The healthcare system is under huge strain. Government financing of the state run, free-for-all system has shrunk by more than a third since Soviet times. The vast majority of Russian patients have to dip into their own pockets to cover the medical costs since the government reimburses less than 30% of expenditure on pharmaceuticals. The weaknesses of the state healthcare have driven an increasing number of people into the private sector. The value of the Russian Pharmaceutical Market was estimated at nearly $6b in 2005 by Rye, Man & Gor Securities. The forecast for the year 2006 by them is $7.9bn. The Russia pharmaceuticals market has been growing steadily for the past six years. According to IMS Health, sales were touching nearly 3500 ($m) in 2004-2005. Demand is being driven by strong macroeconomic fundamentals and also by a new drug reimbursement scheme introduced in the start of 2005. Russia imported in 2004, more than 60% of all the pharmaceuticals that it used nearly two thirds from companies of Western Europe, Canada, the U.S. and Japan. Unlike China, India and Latin America, Russia does not have a history of using competing alternative therapies. The market for branded drugs is quite strong and the majority of those drugs are imported. Generics currently account for the lions share of the market. 78% of the 13,000 odd drugs that are registered in Russia are generics. During the Soviet era, Russias pharmaceutical industry was under federal control and supplied nearly 70% of the countrys needs. Today, most of the 700 odd domestic drug manufacturers focus exclusively on the manufacturing of generics. Though the market share of the Russian pharmaceutical producers is currently dwarfed by imports, the multinationals are keen to expand their Russian operations by placing orders with the local factories and creating joint ventures with local players. According to Remedium magazine of March 2002, the top ten Russian pharmaceutical distributors included: Protek Innovation Center, CIA International, Shreya Corporation, Biotek, Invacorp Pharma, Intermedpharm, Pharmacy Warehouse #1, Vector-media, Pharm Tamda 77, Rossib Pharmacia.

Table 1: The top 10 anatomical therapeutic chemicals by sales value Source: AIPM-RMBC Market Bulletin, February 2005 40

ATC GROUP

1. Anti - bacterial 2. Analgesics 3. Vitamins 4. Agents acting on the Rhenin-Anginotensin system 5. Psychoamaleptics 6. Cough & cold preparations 7. Sex hormones and modulators Of the genital system 8. Anti-inflammatory and antirheumatic Products 9. Immunomodulating agents 10. Cardiac therapy

Sales in 2003 (%) 6.4 5.7 4.9 3.9 3.6 3.4 3.2 3.0 2.9 2.5

Sales in 2004 (%) 6.9 6.5 5.2 4.0 3.7 3.5 2.9 2.7 2.5 2.6

Table 2: The top 15 Multi-national Pharmaceutical companies of 2005 in Russia by drug sales Source: DSM Group monthly retail audit, RMG Securities Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. Name of Company the Sales in $ mn 90.04 77.44 67.44 52.74 46.108 44.95 44.49 41.17

Sanofi-Aventis BerlinChemie/A.Menarini Pharmstandart Gedeon Richter Nycomed Novartis Pharma KRKA Pfizer International Inc. 41

9. 10. 11. 12. 13. 14. 15.

Servier Lek DD Solvay Pharma Hoffman-La Roche Ltd. Egis Schering AG Dr. Reddys Laboratories

39.89 37.711 29.36 28.04 27.175 27.05 26.708

Now, the question arises that why in spite of having an upbeat economy, is Russia importing drugs in larger quantities? The reasons are as follows: * Limited local production * Variable quality of domestic drug production as companies economize on raw materials * Erosion of the countrys formerly strong scientific base due to chronic underfunding (though the country retains a strong position in therapeutic areas such as immunology and virology). * Highly fragmented distribution and retailing * Though Russia possesses one of the largest rail networks in the world, the transport infrastructure is also lacking in a number of respects. * Counterfeiting is another major problem as fake drugs currently account for 12% of the pharmaceuticals market in Russia and domestic manufacturers are thought to be amongst the main culprits. In 2003, the Health Ministry suspended the licenses of 321 pharmaceutical companies for manufacturing and trading in counterfeit medicines. * Poor enforcement of intellectual property rights is another reason that why the foreign firms are hesitating to invest in Russia. Russia does not provide protection for test data for pharmaceuticals. The enforcement regime is also weak; judicial corruption is endemic and the legal system is ill-prepared to handle sophisticated patent cases. * Corruption, red tapism and political interference as well as numerous official and unofficial barriers to overseas investments. The main Russian pharmaceutical companies as per their sales in 2004 are shown below:

42

Table 3: Top-15 Russian Pharmaceutical Companies by sales, 2004, in wholesale prices Source: Pharmexpert & RMG estimates Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Company Pharmstandart* Pharm-Center** Microgen# Veropharm*** Nizhpharm**** Otechestvennie Lekarstva***** Akrikhin****** MHFP im.Semashko# Feraine## Sotex Masterlek Evalar Altaivitamini Vector Krasnogorleksredstva Location Moscow Moscow Moscow Moscow Nizhniy region Moscow Sale s $m 113. 4 64.1 55.9 50.2 Novgrod 55.8 44.8 38.3 36.6 34.8 28.7 21.4 21.0 20.4 20.0 19.3

Moscow region Moscow Moscow Moscow Moscow Altai region Altai region Novosibirsk region Moscow region

*Pharmstandart is a holding company that consolidates the assets of five Russian pharmaceutical factories; Pharmstandart-October, PharmstandartLeksredstva, Pharmstandart-Tomskkhimpharm, Pharmstandart-Ufavita and Pharmstandart-NN. **Pharm-Centre sold its main assets to the Russian drug distributor, CIA Holding in 2005. ***Veropharm is a subsidiary of the Pharmacy Chain 36.6 and this chain is believed to further reduce its stake in Veropharm. ****The German generic company Stada AG, brought 97.5% of Nizhpharm for $108m in the first half of 2005 *****Otechestvennie Lekarstva was set up in 1999 and is a holding that consolidates Shelkovo Vitamin Plant, Novosibkhimpharm and Kraspharma. ******Akrikhin is the largest stand alone pharmaceutical producer in Russia. The company has high operating efficiency. #Microgen and MHFP im.Semashko are state-owned companies. ## Feraine is a private company producing a wide range of generics. 43

Running a business enterprise in Russia offers many advantages. The country is evolving as a principal magnet for foreign investment with a burgeoning foreign business community. The country has a highly educated workforce with relatively low labor costs. There is a massive growth potential, plentiful natural resources, and a rich cultural traditionart, literature, music, ballet, history, and science. The disadvantages, however, are just as abundant. The archaic and complex bureaucracy harbors an ambivalent-to-hostile attitude to foreign companies. Then theres the tax system, corruption, the harsh climate and pollution, and a wealth gulf as wide as any developing nations with a tiny, emerging middle class. The highly educated workforce is nevertheless short on western business skills or service ethics.

HUMAN RESOURCE MANAGEMENT IN Pharmaceutical SECTOR IN RUSSIA

*Introduction: Traditionally, Russian firms have viewed employees as a cost rather than as a resource. In addition, while Russia has had a well-developed and demanding educational system that Russians went through prior to beginning work, relatively little attention was paid to skill development once a Russian was employed in a firm. The Russian labor market has also historically been inefficient. Artificial constraints (e.g., poor labor mobility due to needing a permit to live in each town) have limited career progression and thereby decreased incentives for people to work hard. Further, salary differentials were very small in Russia during Communist times; even if you could obtain extra money, it had limited value since there were few goods available to purchase. In Russia, it was products and contacts, not money that had the greatest value. All adults were expected to have a job in Russia, and many jobs were created to ensure full employment. Since there was limited focus on the enterprise making money, less attention was given to finding ways to motivate employees to work hard 44

than is the case in the West. It is also important to note that employment security has also been a hallmark of Russian labor policy. Western experience proved long ago that effective human resource management influences the overall profitability of a company. The last couple of years have seen a rapid increase in the number of Russian companies paying serious attention to the development and implementation of HR strategies. And they are absolutely right to make this a priority, as the right people will create the right policy, according to HR directors. The role and functions of HR managers in Russia often depends on the size of the company and the scale of its business. As per the view of PwC (Pricewater Coopers) Human Resource consultant Yulia Kullanda, in bigger companies, HR directors are closer to strategic decision making as they actively engage in the development of a whole set of HR policies. In the smaller representative offices of Western companies in Russia, HR managers perform the more technical functions of adjusting existing practices and codes to the new realities. The work of the HR manager in any multinational company consists of two major tasks. One is to make all the paperwork and regulations correspond to the existing Labor Code. The other is to educate and develop employees skills and leadership potential. Thus, the first part of the HR managers duties differs from country to country. However, the second task is almost universal and is based on the companys corporate culture. But it is found that a HR managers duties in Russia can sometimes be more complicated than for their Western counter parts. It is found that administrative duties and paperwork take up almost one-third of the HR managers time, especially in Russia, where there are strict archive and paper signature regulations. In other countries, rules are more liberal, and they allow the storage of electronic copies and even electronic signatures. In general, active HR development in Russia started about three years ago. Historically HR departments in Russia were just units for administrative management of personnel. The issues of compensation and development were decided by the leadership. Favorable economic conditions acted as stimuli for HR development in Russia. Surveys have found out that it has become more difficult to retain personnel; people want to have better-paid and interesting jobs. Big energy and mining companies, major industrial players and banks take leading positions in this field. They have accumulated enough assets and consolidated their capital, now they are striving to achieve international standards in corporate governance and general management practices. Thus they have to invest in the effective management of their human capital. Russian HR managers have to build the system of personnel management from top to bottom.

45

Although Russian companies, unlike Western ones, still have to prove that they can be stable and reliable employers and the tasks facing Russian HR managers are more daunting, the position continues to arouse interest. HR managers and HR directors who had previous studied or gained experience in the West are now willing to give up their positions for a more dynamic environment in Russian outlets. The following data shows the salaries for HR personnel in multinational subsidiaries of Russia as well as the comparison of salaries of HR personnel in multinational companies and Russian companies. It can be seen that there exists quite a big difference between the salary offered in a multi-national company and a Russian company. Table 4: Salary Growth for HR positions in foreign companies per month Source: Position Ancor, June 2003 (US dollars before tax). Summer 2002 2850 1000 1150 Summer % Increase on 2003 one year 3700 1275 1425 30 28 24

HR Director HR Specialist Compensation and Privileges Specialist Training Specialist Hiring Specialist Assistant to HR Departme nt

1575 1000 540

2000 875 750

27 13 39

Table 5: Salaries comparison for HR positions among Russian and foreign companies Source: Ancor, June 2003 (US dollars before tax).

46

Market of foreign Position companies in Moscow, before tax Director HR Specialist Training Specialist Hiring Specialist Secretary/Assistant in HR Dept. 3700 1275 2000 875 750

Market of Russian % Difference in companies in salaries

Moscow, before between Russian tax and foreign companies 2643 827 1100 515 720 29 35 45 41 4

As per a research paper published by Carl F. Fey(Stockholm School of Economics in St. Petersburg), Ingmar Bjorkman(Swedish School of Economics) & INSEAD in 2000 titled as The Effect of Human Resource Management Practices on MNC Subsidiary Performance in Russia, due to Russias transformation from a communist to a capitalist society, most Russian managers have limited traditional management training and little experience in many areas of business. At the same time, Russian managers tend to be highly educated in some other area--often with a Ph.D. in science/engineering due to the Soviet Eras focus on these disciplines. In fact, Soviet society highly valued education and this tradition remains an important value for most Russian people today. Given the educational/experience gaps and interest in business education that most Russians have (Shekshnia, 1998; Fey et al., 1999), it is not surprising that Russian managers and hence their firms benefit from various training initiatives. HRM systems that successfully develop and engage employees to participate in company activities are likely to enhance the value and rareness of a companys human assets. Little systematic Russian-language research exists on HRM issues and the field is far from well developed in the Western literature investigating Russian management either. Recent studies such as Elenkov (1997, 1998), Holt et al. (1994), and Ralston et al. (1997) have shown that there are significant differences in the national cultures of Russia and the United States (and Western European countries), and it has been suggested that different HRM practices may be appropriate in Russia than in Western countries (Elenkov, 1998; Juplev et al., 1998). Compared to Western countries, relatively few employees in Russia are trained in modern market-oriented work practices (Shekshnia, 1994). Recent surveys have indicated that investments in the development of local employees are viewed by foreign executives as important sources of competitive advantage (Shekshnia, 1998; Kravchenko, 1999). Hence, these employees may become an important resource 47

which, due to the scarcity of such human assets, is even harder to duplicate in Russia than in Western countries. The following are some of the human resource management practices that are commonly followed by both local and multi-national (including the pharmaceutical companies) in Russia. *Recruiting: Recruiting is an important task for foreign firms operating in Russia. As Irina Likhova, training and recruitment manager at Uniliver, explained, "In Russia they say, 'How you work is how you will eat afterwards.' I would add a line before, 'How you recruit is how you will work afterwards!"' In general, the Russian labor market is still in a state of immaturity. Traditionally, Russia has had an excellent public education system, but times are changing. One HR manager explained that "many students don't attend most classes since most students also work. Many of the best teachers leave as they are not paid appropriately." As a result, many Russians have begun to study abroad (2,500 in the USA). Many foreign companies operating in Russia try to keep careful track of the Russians who are studying abroad as they are attractive candidates to recruit when they finish their studies. In an environment like Russia that is still developing systems for good information flow, more than 50% of firms use headhunting firms. Several companies also found ads in newspapers to be an effective means of attracting employees. While selection criteria for new employees vary somewhat by industry, generally speaking, personality and previous work experience are the two most important hiring criteria that companies need. Command of English was also important. Previous work experience at a foreign firm was especially valued by firms. . Many foreign firms in Russia have found that highly educated people are more adept at changing their mindset and working style to fit with what a Western firm expects. *Methods used in selecting new employees: Interviews were the most important mechanism used in selecting new employees. Interviews are usually conducted in several rounds. Many of the HR managers mentioned that interviews give a good perception about an individual. Transcripts and diplomas are also normally looked at but were found to be less important than the perception of whether the person is honest, ambitious, hard working, able to learn new things, or a team-player. Most Western companies also require applicants to submit a resume since they find it to be useful in obtaining a broad picture of the candidate. However, since resumes have not traditionally been used in Russia, they are often poorly done and provide varying amounts of information about the candidate. However, most firms say that references, while not required, were appreciated. Only a few firms required special testing or an oral presentation by candidates seeking a 48

job. Some managers were skeptical of what insight test results could give. Some of these managers felt that since most of these tests were developed for the West there were problems with their applicability in Russia. Most companies use a three-month probation period after someone has been hired to evaluate the new employee before entering into a long-term relationship. *Labor Code: On April 16, 2002, the Government of the Russian Federation issued Resolution No. 225 On Work Books (the Resolution). The Resolution was adopted pursuant to Article 66 of the Labor Code of the Russian Federation (the Labor Code) and approves new Rules for the Maintenance and Safe-Keeping of Work Books, the Production of Blank Work Books and the Provision of Blank Work Books to Employers (the Rules). Work books (In Russian Trudovaya Knizhka) are used in Russia for recording an individuals employment history. A work book is issued at the first employment and all records are then entered into work books by employers. The work book is handed out to an employee only upon the termination of his or her employment. The Labor Code imposes the obligation of maintaining employee work books on all employers with employees in Russia, except for physical persons acting as employers. Thus, the provisions of the Rules for the Maintenance and Safe-Keeping of Work Books, the Production of Blank Work Books, and the Provision of Blank Work Books to Employers are to be applied by all employers with employees working in Russia (e.g., representative offices of foreign firms accredited in Russia). The work book requirements equally apply with respect to both Russian and non-Russian national employees working in Russia. In order to eliminate the risks, including the financial risks, connected with the maintenance and issuance of work books to employees, it is highly advisable that foreign employers with employees working in Russia follow relevant work book requirements, as well as Russian labor law requirements in general. *Employee Development in Russia: Employee development may be of even greater importance in Russia than in Western countries (Radko and Afanasieva, 1999; May et al., 1998). Many Russians lack basic business skills due to the historical absence of capitalist-style businesses in Russia, and research on Russia management has revealed that managers viewed training as an important source of competitive advantage (Jukov and Korotov, 1998; Shekshnia, 1998). An interview based study of 18 Western firms conducted in 1997-98 also pointed to the importance of competence development in general and training in particular (Fey et al., 1999). This study also reported that the most important factor in retaining 49

managerial employees was showing them that the company was committed to Russia and there was room for them to advance in the organization (Fey et al., 1999, p. 78). Retaining valuable and scarce personnel is a challenging issue that firms in Russia must wrestle with. Thus, commitment to investments in developmentoriented HRM practices is likely to improve a firms ability to retain key human resources. This indicates that both internal promotions and career management programs should be important in the Russian context. In a study by Holt et al. (1994), Russian managers, as compared with US managers, placed a higher value on security, and Elenkov (1998) found that Russian managers scored significantly higher on measures of uncertainty avoidance than did US managers. In an economy riddled by high levels of unemployment, it is also likely that non-managerial employees place high value on job security. Traditionally, Russians are used to training in the form of formal classroom lectures. However, it may be preferable in transferring new skills to workers to use several different techniques. Self-study and coaching were found to be useful by many firms. Research has indicated that Russians enjoy receiving training. Taking part in training programs at company headquarters outside of Russia has some advantages. For example, such training normally strengthens the identification with the Western company. Visiting the parent company normally helps Russian employees to understand the foreign firm's organizational culture. Russian employees may also get to know people in similar positions around the world, thus providing good contacts for obtaining needed knowledge later on and making the Russian employees feel pride in being part of a global network.

*Managerial Appraisals: A majority of firms in Russia use a formal appraisal system, whereas the rest use an informal system. The most common methods of appraisal used by the firms either compared the performance of the company or department against set targets or had an employee appraised by his or her superior. Studies have also shown that some multinational firms used an up-and-down evaluation system so, in addition to having the superiors evaluate the subordinates, and the reciprocal process also took place. Up-and-down appraisal systems were found to be very effective. In most firms, appraisals took place only once a year. Some firms, especially the multinational ones linked training directly to the appraisal process. Many other companies indicate that they plan to work on linking training to the appraisal process in the near future. Several firms do have a formal career planning system in the organization. *Monetary Benefits: While few local Russian companies use pay for performance for their employees (Mayet al., 1998), Fey et al. (1999) reported that approximately 80 percent of the Western firms in their study used some kind of performance-based compensation system, most typically with bonuses being linked to the performance of the firm. 50

Their experiences with bonus systems were positive, and other scholars have reached the same conclusion (Juplev et al., 1998, Puffer, 1997; Puffer and Shekshina, 1994). Puffer and Shekshina (1994) note that bonus systems are especially helpful in Russia since they help to motivate employees to work towards the companys objectives which are often quite different than objectives local employees have been exposed to previously. Furthermore, field experiment research carried out by Welsh et al. (1993) has shown a strong positive effect of group-based extrinsic rewards on the performance of groups of Russian factory workers. It has been found through surveys that most Russians don't like a bonus to be more than about 25% of their fixed salary because on average Russians have high uncertainty avoidance. As a result of Russians' love for bonuses, approximately 80 percent of the firms studied in a study by Welsh et al had some kind of bonus system. However, the size and type of bonus differed dramatically among companies and across departments with sales being the department where bonuses comprised the largest percentage of employees' salaries. In most cases bonuses ranged from 20 to 40 percent of total salary. The most common type of bonus was the payment of a thirteen month of salary if firms met certain objectives. However, several firms warned their employees that it was important that this thirteen month of salary did not become too institutionalized and to be taken for granted. Some firms also pay out 5 percent of the sales that exceed target. Many firms commented that the more those bonuses could be linked to performance, the more useful they were. An increasing number of firms in Russia are experimenting with bonuses based on individual performance assessment; while it takes some time to run such a system, such bonuses were found to be the most effective type. *Non monetary benefits: Russians have traditionally received many non-monetary benefits as part of their job. As a result, Russians seem to appreciate continuing this practice. It is often non-monetary benefits that differentiate firms. Non-monetary benefits have been found to be very helpful in retaining employees. Historically, Russians are used to being provided with good lunches by their company. Most international firms have chosen to continue this tradition or at least subsidize the lunches. More than half of the firms studied provided medical insurance for their employees, usually to all employees, and a small percentage also provided life insurance. While all Russians are entitled to national health insurance free of charge, the national health care system has long lines and many problems due to lack of funding. As a result, having private health insurance is greatly valued by employees. Other benefits that some firms offer include free vacation trips, the option to purchase certain products cheaply, and free cultural events. 51

*Work Environment: Research on Russian firms has generally found the relationships between Russian workers and managers to be strained. Russian managers tend to view workers with disdain, and May et al. (1998) report that this attitude towards lower-level employees has not changed a great deal during the 1990s. Puffer et al. (1997) found that Russian managers tend to attach low value to workers participating in decision making. Hence, the traditional image of Russian leaders as authoritarian holders of unquestioned power who exert micro-controls appears still to hold some validity (Puffer, 1994). Western-owned firms that manage to overcome this tendency towards a top-down work organization may have a valuable competitive advantage in Russia. The peerbased control that goes with a bundle of HRM practices centered on performancebased compensation tied to group/company performance, appraisals, team work, decentralization and horizontal communication may also fit well with Russias collective orientation (Bollinger, 1994; Elenkov, 1997; 1998), and can thus partially replace an extensive management control structure. Teamwork has also been suggested (but not empirically tested) to be a high performance HRM practice in Russia (Magura, 1998). The hierarchical nature of the Russian society may also discourage individual responsibility taking and initiatives on the part of middle managers (Elenkov, 1998), something that Western expatriates have viewed as a common problem in Russia (May, et al., 1998). It could be that while a focus on collective responsibility and group-based bonuses works well for non-managerial employees, firms need to focus more on individual responsibility taking and rewards based on individual performance for managers. It is found that implementing HRM practices which facilitate Russian managers providing feedback to top management and obtaining more information about what is going on in the firm was highly significantly related to firm performance, having such HRM practices for non-managerial employees had little effect on firm performance. One possible explanation is related to the high power distance found among Russians (Elenkov, 1997). Many Russian top managers share little information with their colleagues (May et al., 1998), and middle and junior managers may not have the information they need to do their jobs efficiently. Conversely, the opinions of lower-level managers may not be encouraged and known by Russian top managers. Firms with extensive flows of information between top management and managerial employees may thus have a competitive advantage in Russia. In contrast, non-managerial employees may neither expect an extensive information flow between them and the leadership of the firm, nor may top-down information be as important for their jobs as for the middle and junior managers. * Feedback Systems:

52

Previous research has shown that employees are more motivated when they know what is going on in the firm. Russian managers have been found to be reluctant to share information, and May et al. (1998, p. 455) report that they have observed a virtual obsession among some Russian managers to manipulate and control employees. Conversely, Russian employees appear to mistrust their superiors deeply (May et al., 1998; Puffer and McCarthy, 1995). This distrust, however, does not necessarily mean that superior feedback and communication are without importance in Russia. In their research on Russian factory workers, Welsh et al. (1993) found that feedback by superiors on employee functional behaviors and personal praise had positive effects on productivity. Research by Shekshnia (1998) also suggested that there was a positive correlation between the level of employee understanding of organizational strategy and acceptance of organizational culture on the one hand and business results on the other. By sharing information with the employees, top management may help alleviate the feeling of mistrust and suspicion between employees and top managers that has characterized Russian organizations (May et al., 1998). Jukova and Korotov (1998) also suggest (but do not empirically test) that facilitating information sharing inside firms is important in Russia. Together, these studies indicate that bundles of HRM practices that facilitate employee feedback and company information sharing may help foreign-owned firms obtain competitive advantages in Russia. Such practices are likely to be important for middle and junior managers as well as for other employees. *Employee Retention: Firms in Russia are very concerned about retaining employees since it takes significant time and money to develop an effective employee and there is a limited pool of suitable employees. People in different positions are retained by different factors. It is important to separate managers, sales employees, and accounting personnel from the remainder of the firm, for these three groups of employees are in very high demand. In cities like Moscow and St. Petersburg it is common to see that an "attractive" person for one of these positions may have worked for three different firms in the last two years. This provides evidence that while retaining average employees is not a problem, retaining strategically valuable and scarce personnel is a challenging issue that firms in Russia must wrestle with. Sales personnel with experience at a Western firm have a high percentage of turnovers. Good sales people with work experience are highly valued in the market; they are searched for and offered enormous remuneration as compared to production managers or technical engineers. The lack of certain strategically important personnel has resulted in escalating salaries for the purpose of employee retention. In the beginning of the late 1980s there were only a few dozen foreign firms present in Russia. Now there are six to seven thousand foreign firms, which results in significant competition for qualified employees. In addition, private Russian firms are increasingly becoming able to make competitive employment offers to foreign firms and thus join the competition for skilled employees. 53

Some firms offer higher salaries to try to attract these sought-after managers, but while a good salary is important, a study found that other characteristics such as the atmosphere in the company, the presence of friends in the company, free meals, social activities, and the promise of a stable future with a firm that expects high growth in Russia were often the deciding factors in retaining an employee. These factors helped to create an environment that was enjoyable to work in. Many firms commented that the most important factor in retaining managerial employees was showing them that the company was committed to Russia and that there was room for them to advance in the organization, an interesting discovery that is related to the previous point is that Russian employees (especially managers) appear very interested in capability development. Thus, it appears that having the chance to take part in training programs is an effective way of retaining employees. It was also interesting to note that on average managers in one study indicated that they expected that managers in their firms' would be willing to forgo a onetime bonus of $2000 in order to receive one week of training abroad. This is interesting since this is one to two months of salary for most of these managers. In addition, since it may be difficult for many of the employees to borrow money from the bank, some companies allow key managers to borrow money from the company. There is normally a rule that the entire loan must be repaid if the employee leaves the company, which has the added benefit of helping retain employees. While salary is certainly important in retaining employees, it appears that the future that employees perceive for the company in Russia and the atmosphere that exists at the company are equally important in retaining employees *Expatriate Employment Environment: Visually, Russia presents the newcomer with a composite of the extravagant glories of imperial Russia and the drab legacies of the Soviet era. The primary administrative issues facing expatriate staff or their employers include visas, company work permits, individual work permits, secondee (contractor) work permits, changes in documentation requirements, and local authorities variable interpretation of regulations. The expatriate headcount in Russia likely rose by 23 percent in 2005. This increased demand for suitable transferees has pushed up compensation and benefits demands while the national inflation rate has been running a steady 11-12 percent per annum. Given this competitive context and country-specific special needs, the menu of standard employee benefits resembles a mixture of military-style measures and senior executive-class perquisites. Hardship allowances, depending on location, can add 10 to 25 percent to basic compensation. Tax consultancy is typically provided, especially for expatriates. Employers typically pay all or part of housing costs. Short-term, serviced 54

accommodations are offered, usually up to 45 days, along with household goods (HHG) moving and customs clearance under Temporary Import laws. Expatriates normally have access to western medical centers and evacuation insurance. Employers often cover international school fees and the very critical spousal support. They have ruble bank accounts set up for them, car and driver or taxi allowance, and club memberships and memberships in networking groups. Additionally they may have housekeeping/cleaning services, cross-cultural and language training, family meals allowance, and even home delivery of bottled water. Labor mobility continues to be restricted by an under-developed housing and mortgage market, housing shortages in many cities, and the continued existence of residency permits and registration. The availability of subsidized housing and cultural ties often makes workers reluctant to move. Also, many workers are effectively tied to enterprises that can give them credits at the company cafeteria and grocery and the hope of future salary payments. This lack of labor mobility across regions significantly affects wage rates and employment. Nonetheless, mobility across professions and within regions is improving, as workers attempt to adapt to the needs of a market economy. Safety and security are the foremost concerns as street crime like mugging, pickpocketing, turkey-drop etc. are quite a common scene and the Russians are known not to help. *Organizational Culture: Foreign firms have shown increased interest in Russia, but they often encounter cultural problems after they enter that market (Cattaneo, 1992; Fey, 1997). The clearest differences between the Russian and US contexts that emerge from the quantitative study are the importance of flexibility traits in Russia. Adaptability proves to be the most important dimension of organizational culture with respect to overall firm performance and profitability. This result is quite believable given Russias turbulent and unpredictable environment. The other flexibility trait, involvement, also appears to be highly important to organizational effectiveness in Russia. Under communism, competition between groups was encouraged, but competition between individuals was discouraged. The result of this tradition is that Russians tend to like working in groups and are good at doing it (Vlachoutsicos, 2000). Russians also place a high value on education and investment in human capability (Holt, Ralston, Terpstra, 1994; Puffer, 1992). As per a research paper published by Carl F. Fey(Stockholm School of Economics) & Daniel R. Denison(University of Michigan Business School) in April 2000 titled as Organizational Culture and Effectiveness: The Case of Foreign Firms in Russia, organizations that encourage these traits appear to be more effective. Bollinger (1994), Naumov (1996), and Elenkov(1998) have all used Hofstedes (1980) dimensions of national culture in Russia. Theirresults for Russia are compared in the table below to Hofstedes (1980) results for the USA since much management theory has been developed in the USA and because this study will present and 55

compare data collected in Russia and the USA on the relationship between organizational culture and effectiveness. Naumo v Russia 41 68 45 40 Bolling er Russia 26 92 28 76 Elenko v Russia 45 80 ---88 Hofsted e USA 91 46 62 40

Individualism Uncertainty Avoidance Masculinity Power Distance

Further understanding of Russian national character is offered by the well-known 19th century Russian historian Kliuchevskii (1990). He describes a set of stereotypical Russian behaviors including resourcefulness, patience in the face of adversity and deprivation, and spurts of energy, combined with a tendency to dissemble and an inconsistency in seeing things through. He also describes Russians as circumspect, cautious, and ambiguous and having a tendency to look back instead of forward. Finally, he describes Russians as having a tendency to work in groups, and to monitor results rather than set goals. Research shows that different culture traits do indeed predict different criteria of effectiveness, but it is a different pattern than that observed in the USA data. In the Russian context, involvement and adaptability are the strongest predictors of overall performance and as well as profitability and product development. Involvement and Mission are the strongest predictors of market share, sales growth, employee satisfaction, and quality. This is in contrast to the results from the USA which showed that criteria such as employee satisfaction, quality, and overall performance are best predicted by involvement and consistency and criteria such as market share, sales growth, and profitability are best predicted by mission and consistency. Product development is best predicted by adaptability and mission. One of the most striking differences in firms operating in the Russian context was their concept of time as a resource. In many Western firms, competitive strategies based on time as a resource are well established (Stalk, 1988). It is not unusual, for example, for a busy Russian executive to take one hour off to go and purchase an item at a store or mail a letter at the post office rather than having an assistant do that task. The long tradition of responding only to central authority means that many organizations, on the surface, still react in ways that appear to place little value on responsiveness, the pursuit of the goals of the firm, shared responsibility of employees, or the mechanisms by which unresolved problems are surfaced for managers to address. 56

An important challenge faced by firms in the Russian context. Many firms, in effect, have two workforces. The first group consists of older workers who have a traditional Russian mindset and are resistant to change. Such workers are primarily found in production and engineering where there is no substitute for the experience they have accumulated from years of work. The second group of employees is typically younger and consists of aggressive New Russians who are generally eager to adapt. The New Russians are driven by career ambitions and often have some training in business, English, or a few years experience working for a foreign firm in sales or marketing. It also appears to be a common pattern to have younger workers placed in charge of older workers at a very early point in their careers. Consistency and coordination, empowerment, and the presence of a firm-level mission are all influenced by the lack of integration among functional sub-cultures. *Exit: An employer can let an employee go for a variety of reasons - from company downsizing and regular nonperformance by the employee to perform his or her duties as set forth in the labor contract, to theft of property or working under the influence of alcohol or drugs, and in most cases, they can dot it without much notice. But if a company is downsizing or "illiquidating," Russian labor law requires a company to give two months written notice before an employee can be terminated. Conclusions: Many foreign firms are finding that one of the key challenges that must be overcome in order to be successful in Russia is discovering what human resource management practices are effective in the Russian context Studies have found that while a strong positive relationship was found between both management development and employee development, and firm performance, a decentralized and team based organization with corresponding pay systems was positively related with firm performance only for non-managerial employees; the opposite was found for the relationship between feedback and firm performance. It is well-known that firms tend to use different HRM practices for these two groups of employees, yet surprisingly most previous studies on HRM-firm performance have asked questions about HRM practices for the firm as a whole or only focused on one particular employee group. Hence the firms should focus on different bundles of HRM practices for managerial and non-managerial employees. A focus on employee development, including employment security, is likely to be reciprocated by employees in terms of high levels of organizational commitment. Investments in employee training may also be important for Western firms striving to achieve a competitive advantage through high-quality products and services, features that were not paid much attention to during the earlier planned economy. Including bonuses and non-monetary benefits in an employee's compensation package is equally important and probably more cost-effective than just raising the 57

salary level. It should also be noted that private medical insurance was a benefit greatly valued by employees given the poor state of the public Russian health care system. This study also highlights that while a competitive salary is important in retaining employees, probably the most important factor in retaining key personnel is having them believe that the company is committed to Russia and that there is room for them to move up in the organization. Though the traditional mindset of the older generation is difficult to change, it can be said that the younger generation are ready for major changes in their professional attitudes. This can be said due to opening up of the economy to the western countries. Teamwork, high emphasis on technical education and adaptability are the positive traits in the Russians. These can be well tapped by using suitable HR policies after a through study of the Russian work culture.

UKRAINE
* Introduction: Ukraine is the second largest country in Europe and the 22nd largest in the world. Occupying 603,700 square kilometers, it stretches 893 kilometers from east to west and 1,316 kilometers from north to south. Ukraine is situated in Eastern Europe and is bordered by Russia, Belarus, Poland, Romania, Slovakia, Hungary, Moldova and the Black Sea. 58

The Commonwealth of Independent States (CIS)--Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan--are emerging economies struggling with the transition from the centralized economic planning of the Soviet era to the practice of free market economics. These economies have made varying levels of commitment to loosening state control and embracing the practice of free market philosophy since the collapse of the Soviet Union in 1991, and they have followed different timetables in doing so. Economic stabilization, development of market institutions such as legal infrastructures, and overcoming shortages of skilled labor are key problems shared by the CIS countries (Hoskisson, Eden, Lau & Wright, 2000). Ukraine achieved her independence in 1991 with the dissolution of the USSR. *Economic Condition: After Russia, the Ukrainian republic was far and away the most important economic component of the former Soviet Union, producing about four times the output of the next-ranking republic. Its fertile black soil generated more than one-fourth of Soviet agricultural output, and its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics. Likewise, its diversified heavy industry supplied the unique equipment (for example, large diameter pipes) and raw materials to industrial and mining sites (vertical drilling apparatus) in other regions of the former USSR. Ukraine depends on imports of energy, especially natural gas, to meet some 85% of its annual energy requirements. Ukrainian government officials eliminated most tax and customs privileges in a March 2005 budget law, bringing more economic activity out of Ukraine's large shadow economy, but more improvements are needed, including fighting corruption, developing capital markets, and improving the legislative framework for businesses. Reforms in the more politically sensitive areas of structural reform and land privatization are still lagging. At the same time, Ukraine currently enjoys free-trade agreements with all CIS countries, and is a member of the four-state Common Economic Space (CES) agreement being forged with Russia, Belarus and Kazakhstan. These states, with a total population of some 217 million, are negotiating to form a single market area. Thus a company locating its manufacturing operations in Ukraine will enjoy a domestic market of 48 million and relatively easy access to a larger market of almost 670 million consumers. Ukraine demonstrated outstanding macroeconomic performance against a backdrop of financial stability. In 2003, Ukraines economy expanded by 9.3%, following 4.8% growth in 2002 and 9.1% the year before. As in the previous years, strong GDP growth was supported by a 16% increase in industrial production Foreign investment activity has been increasing in recent years, with cumulative FDI since independence reaching USD 6.7 billion (USD 140 per capita). Political stability and strong economic performance along with the improving investment climate 59

contribute to strong FDI growth.

Pharmaceutical Sector in Ukraine

The Ukrainian pharmaceutical market shows stable growth for the past four years. In 2004, the total Ukrainian pharmaceutical market reached USD 1 billion 63 million. This is a 22 percent growth over 2003 volume. This growth is due to increases of both imports and local pharmaceutical production. The current economic situation in the country supports the continued growth of the pharmaceutical market. Ups and downs of the market are caused by seasonal and population income factors. The domestic and foreign market segments are becoming more balanced. Imported pharmaceuticals, 62 percent of the total market in 2004, still dominate the market. The leading pharmaceutical exporter to Ukraine is Germany (19.7 percent of all imported pharmaceuticals). India holds second place (14.7 percent share of imports), and France is in third place with a 9.5 percent share. The U.S. share of imports in 2004 was 3 percent. Most of the multinational pharmaceutical manufacturers are present in the Ukrainian market either with representative offices or through local distributors. Table 1: Ukrainian Pharmaceutical Market Size Data (in USD millions) Source: The Ministry of Health of Ukraine, 2005 Total Market Size Total Local Production Total Exports Total Imports Imports from the U.S. 2002 682 320 40 402 14 2003 871 390 50 531 23.5 2004 1063 465 61 659 31.9

60

Table 2: Distributors and Drug Stores in Ukraine Source: Ukrainian Pharmaceutical Business Report, 2005 Annual Populatio Intake Country n, per millions Capita, USD USA Germany France Italy Spain Great Britain Russia Ukraine 263 82 59 58 40 59 145 52 605 260 299 212 210 211 28 18 Total Consume Distribut Drugr Market, ors stores USD 159,4 21,3 17,7 12,3 8,4 12,5 4 0,9 42 18 6 193 112 20 4000 3000 52,000 21,500 22,600 16,000 18,900 12,550 19,200 9,500 Populatio n per DrugStore 5100 3800 2600 3600 2100 4700 7600 5500

Companies from Eastern Europe are active in the market and command a degree of loyalty from both patient and doctor populations, who are familiar with their products as a result of a long-term presence in the market which dates back to the Soviet era. Most of the multinational pharmaceutical manufacturers are present in the Ukrainian market either with representative offices or through local distributors.

61

Chart

1:

Pharmaceutical

Ukraine

Business

Source: Ukrainian Pharmaceutical Business Report, 2005 Table 3: Number of Pharmaceutical companies in Ukraine Source: Ukrainian Pharmaceutical Business Report, 2005 Number of Pharmaceutical Companies 226 296 317 300 437 537 597 698 731 750 775

Fiscal Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Generics continue to dominate the market. Prices for newer multinational drugs are retained at regional or global levels to prevent parallel imports, but some companies 62

operate more flexible pricing policies for older products in an effort to hold market share. The drug distribution system in Ukraine consists of state-owned and private wholesale companies. Private wholesalers dominate the market (80 percent of the total). The sector is still overcrowded with over 2 000 licensed pharmaceutical wholesale dealers and fewer than 50 wholesalers offering national coverage and selling direct imports. The state-owned wholesale companies provide medicinal products to state-owned pharmacies and hospitals. The private companies work with both state-owned and private pharmacies and hospitals. Approximately 79% of total pharmaceutical sales are through pharmacies and 21% are through hospitals. 400 Ukrainian companies imported pharmaceuticals in 2002. However, 100 companies conducted 90 percent of total imports (in value). Private distributors dominate the market. The association of state-owned distributors "Liky Ukrainy" (Medicines of Ukraine) has the exclusive right to purchase and trade in controlled substances (such as narcotics, phychotropics, anesthetics, adrenaline, plasma substituting solutions, and substances for cytostatics.) The largest distributors are: Optima-Pharm, Alba Ukraine, BaDM, VVS-Ltd, Medpharcom, Falbi, Farmaco, MedoptABC, Elegant-Pharm and Gledpharm. The local pharmaceutical industry is increasing production and exports (mostly to Russia and CIS countries). There are 58 major pharmaceutical manufacturers in Ukraine, most of them privatized. Domestic manufacturers operate in the lowest price segment of the market, supplying predominantly generic drugs, branded generics and vitamins. The largest local producers are: Darnytsia, Kyivmedpreparat, Pharmak, Borshchahivsky Chemical and Pharmaceutical Plant (Kiev), Stryrol (Donetsk), Zdorovia (Kharkiv), Halychpharm (Lviv), and Biostimulator (Odessa).

In late 2000, the Ukrainian government extended its deadline from 2002 to 2007 for pharmaceutical producers to become good manufacturing practice (GMP) compliant. This affects only manufacturing sites located in Ukraine. In the longer term, some multinationals may look closely at potential acquisitions or joint ventures in Ukraine. Access to the local manufacturing capacity would offer significant advantages in the current regulatory climate, and it will become clear within the next several years which domestic producers are likely to succeed in efforts to reach international GMP standards. Licensing agreements are likely to be the best vehicles for investing in Ukraines pharmaceutical sector. The development of local labeling and packaging capabilities for generic drugs that can be quickly registered and produced faster than those under patent is most promising. Investments are sought to continue the construction of new manufacturing plants. Ukraine possesses a developed scientific culture, a skilled labor force and an established distribution system for medical products. A large potential domestic market for modern drugs and regional export markets (Moldova, Belarus, Eastern Europe and Russia) are major factors to be considered by US companies considering investments in Ukraines pharmaceutical industry. 63

According to official statistics, in 2004 personal income in Ukraine increased 22.5 %. This growth is expected to continue in 2005 and should result in increased pharmaceutical sales. The implementation of direct government price controls on the pharmaceutical industry is unlikely, but prices will remain low in a market that is dominated by generic products. Retail price ceilings will be maintained, however, and monitoring of retail mark-ups may be stepped-up by regional health authorities. The major end users of pharmaceuticals are public sector hospitals and Ukrainian patients, who usually pay for services and drugs themselves. These high out of pocket expenses by Ukrainian patients have three consequences: 1. Pharmaceutical consumption is far below the real medical need and demand. 2. Most patients are obliged to decide what they can afford to pay for prescription drugs. 3. Patients themselves often are required to supply their medicines for treatment at hospitals. 4. The price of drugs is a sensitive and major political issue in Ukraine

HUMAN RESOURCE MANAGEMENT IN UKRAINE

* History of HRM in Ukraine: Since the break-up of the USSR, post-Soviet economies have a decline in output, rising unemployment and a growth in 2002). With the collapse of central planning, enterprises appropriate human resource management (HRM) practices falling real incomes. been characterized by poverty (World Bank, have had to develop in an environment of

The Soviet system was based on a view of the enterprise not as the physical form of capital to which the minimum necessary number of workers are attached for as long as they can be profitably employed, but a view of the enterprise as a labor collective (Schwartz, 2002, p.3). This led to a very different form of labor relations than that which is present in market-based economies and the specific features of labor processes during the communist era have been documented extensively elsewhere (Arnot, 1988; Filtzer, 1994). During the Soviet era returns to labor could be divided into three main components: a) Basic wages subject to wage leveling. Under the Soviet constitution all citizens were guaranteed employment and this was a central pillar of ideological arguments that 'actually existing socialism' was superior to capitalism. Wage levels were determined by the state. There were different scales for different sectors so that in high-priority branches, like heavy industry and mining, rates for similar jobs were higher than in low-priority sectors, such as services. 64

As premia payments were linked to fulfilling targets laid down in an enterprise's plan, which was formed through a bureaucratic dialogue between state planning agencies, ministries and enterprises, it was rational for both the enterprise directorate and workers to negotiate as favorable (i.e. low) targets as possible. To negotiate low targets there was thus an incentive to conceal the real capacity of a plant and hoard excess labor to make it easier to meet the enterprise's plan. It was also rational in most cases for workers to only just fulfill the plan rather than exceeding targets dramatically as in the latter case it was more likely for future targets to be up rated (the ratchet principle). Fulfilling the plan may therefore have been a better indication of the ability of a directorate's ability in negotiating the bureaucratic process of plan compilation rather than their ability to manage and stimulate production (Arnot, 1988). Given the incentive to hoard labor, labor shortages abounded so that the number of employees called for in enterprise plans consistently exceeded the actual number of workers (Arnot, 1988). During the Soviet era, wages were also subject to leveling (a reduction in the differentials between skilled and unskilled workers). This meant that returns from higher education were typically low and the gap in payments to 'good' and 'bad' workers was insufficient (Bunich, 1980). In this situation, managers would often attempt to retain 'good workers' by selective access to non-monetary benefits such as scarce housing and the health care and recreational facilities controlled by the enterprise. With very few formal incentives and disciplinary powers, as Morrison and Schwartz (2002), managers had to make use of their ability to selectively allocate these social and welfare benefits to motivate and discipline the workforce. * Present Scenario: The present scenario in Ukraine is similar to that in Russia. Since Ukraine has opened up for foreign investments and since many multinational companies including some of the Giants of the pharmaceutical sector of the world have opened up their subsidiaries there, the employee practices are undergoing a change. But still, since the social culture has not yet been changed drastically, the employees still prefer jobs that give them a high sense of job security. Not much has been known about the current labour practices in Ukraine as little research has been conducted and is available on the Internet as well as on paper. The following are some of the practices followed in Ukriane as obtained from several research papers available.

*The Labor Code Conditions of employment in Ukraine are governed by the Labor Code. The main requirements under Ukraines employment legislation are as follows: 65

Ukrainian labor legislation requires employers to follow statutory requirements as to the working time, overtime and time-off from work. In Ukraine, working time is limited to 40 hours a week. An employer may introduce a six-day working week, in which case the working day may not exceed seven hours. Shorter working time is ensured for some categories of employees; The amount of monthly wage shall meet the minimum threshold established by the legislation in force (as of 1 January 2005 it is UAH 262). Wages and all other payments due to employees shall be in UAH only; Employees may at any time terminate the employment relationship. The notice period is at least two weeks. In contrast, employers may terminate the employment relationship only in cases that are expressly envisaged by the Ukrainian Labor Code and provided that all applicable formalities are met. The statutory termination notice is two months. Employee's minimum annual holiday entitlement is 24 calendar days. However, it may be longer depending on the number of years worked, working conditions and the employee's position; Normal retirement age is 55 years for women and 60 years for men.

All enterprises must ensure employment of handicapped persons according to quotas specified in the law. The quota for enterprise employing more than 25 individuals equals to 4% of the total number of employees but no less than 1 working place and 0.5 workplace where the enterprise employs from 8 to 15 individuals. Failure to employ handicapped workers within the quota can attract a fine amounting to the enterprises annual average salary per each working place for handicapped not occupied by a handicapped person. *Expatriate Personnel (A)Work permits

Ukrainian employers must obtain work permits for foreign nationals, who are either directly employed or seconded to work in Ukraine by foreign companies. The personnel of representative offices of foreign companies in Ukraine who are employed abroad as well as foreign nationals registered as private entrepreneurs under Ukrainian legislation are not required to obtain work permits for their work in Ukraine. A work permit may be issued for up to one year with subsequent renewal. The overall time of employment in Ukraine is not limited. The labor authorities must consider an application for a work permit within 30 days after its registration. The foreigner is not allowed start working in Ukraine until the work permit is issued. Non-compliance with the work permit requirements is subject to penalties, as well as potential summary deportation of the foreign national from Ukraine at the cost of the employer. Additionally, labor authorities require a company to prove that a foreign employee is needed to carry out business activities of the entity because there are no Ukrainian nationals who can perform similar duties. The authorities also take into consideration the number of Ukrainians employed by the company applying for an employment permit. However, currently there are no statutory 66

established ratios between foreign and local employees of Ukrainian companies. Thus, the labor authorities have significant leeway in determining what an appropriate ratio is. (B)Visas and registration requirements

Entry of foreign nationals to Ukraine requires a visa (except citizens of most of the CIS countries and some Eastern European countries). Any foreign national coming to Ukraine on a business trip must obtain a business visa from a Ukraines Embassy or Consulate abroad based on an official letter of invitation from the inviting company. The duration of a business visa cannot exceed one year. Citizens of EU countries, Swiss Confederation, Turkey, Canada, USA and Japan may Apply for business visa without an invitation letter. No personal attendance at an Embassy is required for obtaining a Ukrainian visa. A foreign nationals visa (multi-entry or single entry) must be registered with the state authorities at the time of crossing the state border of Ukraine.

There can be serious repercussions for a company that employs a foreigner without an employment permit. In addition to a small fine of UAH 850, a foreigner can be deported from Ukraine at his or her employers cost. In case of the foreign nationals uninterrupted stay in Ukraine for more than 6 months (3 months if no visa is required), the individuals visa (passport) must be registered with the local agency for internal affairs (police/OVIR). (C)Foreign personnel of representative offices Despite a legal framework dictating otherwise, labor authorities currently do not accept applications for employment permits from representative offices and foreign nationals that are owners of companies in Ukraine. According to unofficial information, this is temporary and labor authorities will start accepting applications once the new regulations on granting employment permits are established. *Social security: Ukrainian employers are liable to pay mandatory contributions to Ukrainian social security and pension funds in respect of their foreign (as well as Ukrainian) national employees at the total rate of 37%-50.6% based on gross remuneration, as well as withhold employees contributions to the Pension and Social Security Funds totaling 3% and remit to the appropriate authorities. Current legislation does not establish obligation for foreign nationals temporary employed in Ukraine to make contributions to the Unemployment Insurance Fund. The tax base subject to the social contributions (both employers and employees) is currently capped at UAH 2,660 (approximately US $500) per employee per month.

67

Based on the existing legislation and the current practice, no obligation to pay Ukrainian mandatory social contributions arise in respect of salary paid to individuals, including foreign nationals, through a foreign payroll. *Taxation of foreign nationals incomes in Ukraine :Taxation of individuals in Ukraine has been significantly revised as of 1 January 2004, when the new Law of Ukraine On Personal Income Tax No. 889 of 22 May 2003 (the Act) became effective. Taxation of an individuals income depends on the individuals tax residency status in Ukraine:

Tax residents are subject to Ukrainian taxation on their worldwide income; Non-residents are subject to Ukrainian tax in respect of their Ukrainian source income, unless a relevant double tax treaty provides otherwise.

Ukrainian source income is defined as any income received from any activity performed in the territory of Ukraine, including income received by the individual from his/her employer, either resident or non-resident, in relation to employment exercised in Ukraine. Thus, the Act attempts to tax any income received by nonresidents working in Ukraine, even if employed by foreign companies, including nonresidents rendering professional services in Ukraine and non-resident CEOs of Ukrainian companies. Income earned by non-residents from sources in Ukraine in the form of interest, dividends and royalty is taxed at the same rate as for residents. Any other income earned by non-residents from sources in Ukraine is taxed at the double standard rate (i.e. 26% / 30%). The Act is unclear whether a standard or a double rate should apply to salary income earned by non-residents in respect of work in Ukraine. In accordance with the Tax Clarification of 29 January 2004, income paid to nonresident individuals by a Ukrainian employer shall be taxed at the standard rate (i.e. 13% / 15%). However, it remains unclear which rate (i.e. 13% / 15% or 26% /30%) shall be applied to salary income paid to non-residents through a foreign payroll. Both tax resident and non-resident individuals are obliged to file an annual personal income tax return with the local tax authorities, if during a reporting year such individuals received any income that was not subject to final taxation at source (e.g., income received abroad). The tax return must be filed before 1 April of the year following the reporting one and the tax due must be paid by 10 April. In the event of departure from Ukraine to a place of permanent abode abroad, a tax resident individual is required to file his/her departure tax return not later than 60 days prior to his/her departure and settle the tax due based on the assessment issued by the tax authorities. Non-compliance with the above requirements may attract severe fines and interest, plus potential criminal responsibility. Thus, the tax compliance issues warrant proper attention.

68

*Organizational Culture present: Since, Ukraine was a part of the USSR; even after independence the firms remained state-owned. So, the employee policies followed were similar to those followed in Russia. The employees were considered to be a cost and not resource. Foreign firms have shown increased interest in Ukraine, but they often encounter cultural problems after they enter that market. Under communism, competition between groups was encouraged, but competition between individuals was discouraged. The result of this tradition is that Ukrainians tend to like working in groups and are good at doing it In the Ukrainian context, involvement and adaptability are the strongest predictors of overall performance and as well as profitability and product development. Research has found out that involvement and mission are the strongest predictors of market share, sales growth, employee satisfaction, and quality. *Employee Ownership: As per a study conducted by T. Buck (Graduate School of Business, De Montfort University, Leicester, U.K.), I. Filatotchev (2Bradford University School of Management, Bradford, U.K.), N. Demina and M. Wright (Center for Research in Enterprise in Emerging Markets, Nottingham University Business School,Nottingham, U.K.), Insider ownership, human resource strategies and performance in a transition economy, the degree of insider ownership is positively and significantly associated with Human Resource Investment (HRI) strategies, and is negatively associated with cost cutting strategies and downsizing. Although completely understandable in the light of conventional Western theories of employee ownership, the possibility arises of the gradual emergence in the foreign subsidiaries of transitional economies that are characterized by a special kind of capitalism (Stark, 2001), arguably suited to local contingencies. In particular, national cultures of high uncertainty avoidance (Elenkov, 1998) may favor highcommitment HRM, without damage to firm performance. The study for Ukraine and Fey and Bjorkmans (2001) results for Russia suggest consistently improved performance to be associated with the HRI strategy in the FSU. In terms of business practice, foreign investors contemplating entry into markets in transitional economies should not be swayed by local enterprise incumbents insisting on a continuation of Soviet-style Traditional Social Welfare (TSW) policies. Evidence has been presented that high levels of employee ownership are consistent with successful HRI strategies as well as with less successful traditional paternalism, and with blocking relatively unsuccessful retrenchment strategies.The onerous task remains for potential investors, however, to identify those firms where HRM investment may prove successful. Given the findings of research directed at employee ownership in the West (e.g. Blasi and Kruse, 1992), it may be expected that the degree of insider ownership of the firm may influence the choice of HRM strategy. Employees understandably are likely to favor strategies that promote their immediate welfare as employees (e.g. generous social provisions by the firm) rather than their long run welfare as 69

shareholders (Buck et al., 1999). Certainly, they may be expected to resist the downsizing associated with the cost minimization. It has been found that however, firm performance may influence the willingness of insiders to admit outside investors, and for outside investors to obtain shares in the firm. In turn, inside ownership may directly influence firm performance; for example, by insiders exploiting contacts with State officials to raise subsidies, and performance may influence the choice of strategy. Taking account of such interdependence, the employee shareholders to some extent will be prepared to sacrifice profits (and thus their own dividends and capital gains) in the long term for immediate, job related utility as employees. *Conclusions: The study shows that Ukraine, in many ways, is like Russia. Job security is one of the most important criteria. People definitely value if the company would give them extra non-monetary benefits like helping with the legal formalitites, etc. But at the same time, employees would also rather favor strategies that promote their immediate welfare as employees (e.g. generous social provisions by the firm) rather than their long run welfare as shareholders.

BRAZIL
Introduction: In its latest economic forecast, the International Monetary Fund estimated that Latin America enjoyed real GDP growth of 4.6% in 2004, largely as a result of soaring commodity prices. Mexico and Venezuela, the regions two biggest oil exporters, grew by about 4% and 12.1% respectively. Chile and Peru benefited from higher metals prices, while Argentina, Brazil and Ecuador reaped trade gains from sales of agricultural products. However, Latin America is still struggling to overcome the legacy of the debts it incurred in the 1980s and 1990s. Most of the 17 countries in the region have introduced economic reforms and successfully reduced inflation over the past decade. Government spending has also become much more prudent. The average GDP per capita has raised accordingly up from $2,349 in 1980 to$3,449 in 2003 but it is still less than a tenth of the level in the US. Moreover, the region is still marked by profound national and social inequities. Its total GDP stood at $1.74 trillion in 2003, but eight countries Mexico, Brazil, Argentina, Venezuela, Colombia, Chile, Puerto Rico and Peru jointly accounted for nearly 93% of that wealth. 70

Why select Latin America as a market? Any company that wants to be global will ultimately need to have a presence in Latin America and it has much to offer those that tread cautiously. The market may never be as large as those of China or India, but there is substantial room for growth in some nations. Recently announced plans for a new free-trade zone modeled on the EU could also boost the regions overall performance. Moreover, most of the countries in the area now have democratic governments and are politically and culturally closer to the world in which big pharmaceutical companies are most used to working than are many other emerging economies. If they can improve their track record in enforcing the international rules governing patent protection (and some are certainly trying), they can look forward to a future more promising than the past has proved. Table 1: The economies of Latin America Sources: IMF World Economic Outlook, CIA World Fact book Country Economy ($ billions) 626.1 497.9 129.7 84.9 77.8 72.1 65.2 60.6 27.1 19.5 17.6 71 Population (millions) 104.9 182.0 38.7 24.7 41.7 15.7 3.9 28.4 13.7 13.9 3.9 GDP per capita ($) 5,969 2,736 3,351 3,537 1,866 4,592 16,718 2,134 1,978 1,403 4,513

Mexico Brazil Argentina Venezuela Colombia Chile Puerto Rico Peru Ecuador Guatemala Costa Rica

Dominican Rep. El Salvador Panama Uruguay Honduras Nicaragua Total

16.0 13.1 12.9 11.2 6.9 2.6 1,741.2

8.7 6.5 3.0 3.4 6.6 5.1 504.8

1,839 2,015 4,300 3,294 1,045 510 Av. 3,449

Pharmaceutical Sector in Brazil

From being the 6th largest market in the world to facing a decline in its value for 4 consecutive years resulting in its ouster from the top ten world markets, Brazil had recorded an increase in sales of 7.0 per cent in 2003. After liberalizing the price of medicines in 1994, the Brazilian Government re-imposed a strict policy of price controls for prescription drugs in 2001. Additional indicators on the government's plan to keep prices down were provided through the creation of a new regulatory body, CMED, in October 2003, to regulate prices and establish regulatory guidelines for the pharmaceutical sector and continue the price freezing policy for prescription drugs. Since the first bioequivalent generics were approved in February 2000, the number of marketing authorizations has risen exponentially as ANVISA (Agencia Nacional de Vigilancia Sanitaria) has given high priority to processing generic applications and conform to the pro-generic government policy. The monthly rate of approval has steadily increased over the last two years, reaching 32 new generic registrations in the recent times as compared with 21 in 2001. Antibiotics, antihypertensives and anti-ulcerants are the most commonly registered generics. Some of the molecules have as many as 50 registered competing formulations. Whether the market can support so many versions of the same ingredient remains to be seen, particularly when price competition in over-crowded product areas will render sales unprofitable. The largest market next to Mexico in the Latin American region brings together more than 300 companies, including subsidiaries of most major multinational pharmaceutical laboratories and a fairly large local industry. Much has been said about a thriving domestic industry that is fiercely competing with the global majors, and making inroads through drug copies to impact the stronghold of multinational companies. 72

Domestic players continue to dominate the Brazilian generic market, with EMS and Medley together accounting for more than half of the generic sales in Brazil. Although the local industry boasts over 150 players in the business of pharmaceutical production and marketing, nearly 80 per cent of sales are achieved by just five leading companies. Brazilian generics are normally known as `similars' or copies and have been the mainstay of the Brazilian manufacturers and their production capabilities. While competencies in formulation development and manufacture are fairly established, the reliance on imported material - bulk actives and materials is still very heavy putting Brazil on the top of the import-export imbalance charts. An international comparison shows Brazil's urgent need to balance its international trade and integrate itself into the global market in order to achieve 'normalcy'. Added to this reliance on the import of raw materials for formulation production, similars, which have been subject to lenient regulatory regime, are now coming under increasing scrutiny and the National Agency for Health Supervision of Brazil, ANVISA. The regulatory authority is expected to introduce obligatory bio- equivalence tests, pharmaceutical equivalence, certificate of origin for the ingredients and GMP certification for such products which demand a more conscious look at capabilities and investments in the said areas by the local industry participants. Management of Brazils public healthcare system the Sistema nico de Sade(SUS), which provides free universal coverage is likewise largely decentralised; over 90% of the Brazilian municipalities partially manage their own networks, and 10% have complete autonomy. Three-quarters of the population rely exclusively on the SUS; the remainder use the private supplemental medical care system. The Brazilian government forecasts that in as little as 2-3 years, generic drugs will represent approximately 40 per cent sales in this sector. Current growth rates of 45 per cent for the generics sector second this estimation which makes the Brazilian generic market one of the most attractive destinations for companies seeking an increased international presence in addition to providing a springboard for accessing other countries of the region. The growth rates and increasing government preference for generics also justifies the increased investment in the sector to a certain extent. Furthermore, sales of generic drugs should also be further boosted by the fact that: - Nearly 75 medicine patents on best selling drugs expected to expire by 2004. - The public health care systems in most Brazilian states are expected to purchase almost the entire production of generics drugs as part of the government's programme to distribute medicines to the poorest. However, various factors within the healthcare system of the country are likely to limit the growth of the Brazilian pharmaceutical market at the exponential rates being estimated and therefore put a huge question to this strategic movement towards a market that is seemingly under immense pressure of an ill-equipped 73

healthcare system incapable of supporting the drive to generate a strong generics market: * Limited access of healthcare services, distribution and communication of medicines amongst the 176million Brazilians * Extremely concentrated market - contrary to the government objectives, generics do not reach the masses * Predominant uninformed self-medication * Purchases through medical prescriptions account for not even half the market * Frequent substitution of high pressed formulations with cheaper versions * Absence of a uniform healthcare distribution policy for increasing access of drugs to the low-income population * Absence of a well-defined reimbursement plan * Aggravation of idle capacity due to slow volume growth, new entrants and investments in production capacities * Slow recovery of the economy * Margin reducing factors in the industry * Weak currency * High interest rates * Price control mechanisms An exponential growth in the generics sector on one hand and limitations with regards to margins, market penetration, reimbursement policies, and a limited consumer access to pharmaceuticals on the other definitely make successful market entry in this country a challenge. The critical success factor for a market participant would therefore be the selection of a viable business model that can not only overcome these challenges, but more importantly look beyond Brazil as a singular destination and anticipate the geographical advantage Brazil offers in the Latin American region. As per a study conducted by the World Bank in 2000 by Jillian Clare Cohen, there are five main weaknesses in the pharmaceutical sector which are relevant for the Banks broader health sector work: (1) The insufficient implementation and enforcement of drug regulations which can assure that quality standards are in place (such as Good Manufacturing Practices (GMP)); (2) Insufficient and sometimes inappropriate supplies of publicly funded basic medicines; (3) Weak human and institutional capacity for drug procurement at the federal, state and local levels; (4) self-medication which can lead to drug resistant viruses if only a partial course of treatment is consumed; and, (5) An absence of bioequivalence and bioavailability testing for generic drugs.

Indian Pharmaceutical Companies in Brazil

According to magazine Pharmabiz, about 20-21 companies from India are having 74

operations in Brazil. Ranbaxy, Torrent, Strides Acrolab, Dr Reddy's, Wockhardt, Unichem, Aurobindo, Glenmark etc have own subsidiaries in Brazil. Besides having their product portfolio registered there, many of these firms are also exporting APIs to this market. Ranbaxy, which ranks amongst the top 5 generic companies in Brazil, has achieved US $ 37 million sales in 2004. It launched a total of ten generic molecules and three branded products including Contiflo (Tamusulosin) and Cutison (Mometasone) in the year. Also, the company is in the process of setting up a manufacturing plant in Sao Gonzalo to meet the growing demand in the Latin region. Similarly, Torrent Pharma also got several products in the cardio and neuropsychiatry segments registered in Brazil. This Ahmedabad-based company has reportedly clocked sales of around $ 18 million in the2004-2005. Mr. H. Balakrishna of Torrent Pharma had said that the companys experience with Brazilian pharma market has been quite good for the last three years. The company is planning more products introductions in the near future. Torrent is the only company from India operating through prescription drugs route in Brazil. Though buoyant enough to plays a leading role as manufacturing hub for the entire South American continent, Brazil still banks largely on imports. It imports nearly US$2.5 billion pharmaceutical products per year to satisfy domestic demands, as the local production meets the needs of only 25-30% of its population, at present. Despite these potential opportunities in the generic space, some of the Indian players think the pharma market in Brazil is really tough and too complicated. Brazil insists on bio-equivalence studies done from ANVISA certified centers for generic product registration. Getting an ANVISA certification itself is a cumbersome process. It may take many months, even years, for the ANVISA staff to come and conduct an inspection in India. ``When ANVISA conducts inspection they go by each and every production line. And each of this certification process costs 15 to 16 thousand US dollars. Product registration too is time consuming. ANVISA explains that it does not have adequate staff to carry out the mounting registration related procedures,'' laments an official with Nicholas Piramal India Ltd (NPIL), Mumbai. NPIL exports APIs of ibuprofen, fluconazol etc to Brazil. Volatility of the market and high competition among the players on the pricing front is another issue exporters are faced with. Unlike the US market, which insists on DMF filing as standard procedure, Brazil does not have any specific norm for API approvals. Drug makers source cheaper raw materials and the Chinese companies are there to offer them at a rate which is anytime low, exporters complain.

Top Manufacturers of the Brazilian Pharmaceutical Sector

The SINDUSFARMA - Union of the Pharmaceutical Industry of the State of So Paulo was established to direct the development and improvement of the professionals of the Pharmaceutical Industry in Brazil. It is a pioneering initiative in the development and continued education of the professionals of the pharmaceutical industrial 75

segment elaborated by the proper Pharmaceutical Industry of Brazil. The DecSindusFarma has as goal to firm itself as center of excellence, reference, and recognized quality in the formation and improvement of the marketing professionals, administration, human resources and areas techniques of the pharmaceutical industry. According to SindusFarma, the top pharmaceutical companies in Brazil in2006 are as follows: 1. Ache Laboratorios Farmaceuticos S.A.. 2. Alcon Laboratorios De O Brasil Ltda 3. Allergan Produtos Farmaceuticos Ltda 4. AstraZeneca De O Brasil Ltda 5. Bayer S/A 6. Biolab Sanus Farmaceutica Ltda 7. Biosintetica Farmaceutica Ltda 8. Boehringer Ingelheim of Brazil Quimica and Farmaceutica Ltda 9. EuroFarma Laboratorios Ltda 10. Farmalab Industria Quimica E Farmaceutica Ltda 11. Glenmark Farmaceutica Ltda 12. American Laboratory of Farmacoterapia S/A Farmasa 13. Laboratorios Pfizer Ltda 14. Laboratorios Wyeth Whitehall Ltda 15. Libbs Farmaceutuca Ltda 16. Novartis Biociencias SA 17. Novo Nordisk Farmaceutica De O Brasil Ltda 18. Organon De o Brasil Industria E Comerico Ltda 19. Schering De o Brasil Quimica E Farmaceutica Ltda 20. Serono Produtos Farmaceuticos Ltda 21. Uniao Quimica Farmaceutica Nacional SA 22. Zambon Laboratorios Farmaceuticos Ltda

76

Table 2: The ten fastest growing therapy Classes in 2003 Source: IMS Health Class Angioten-II antagonists, comb Anti-Alzheimer prod inhibitors 2003 sales ($ millions) 111 37

B2-stim+cortic inhalants Antileukemia, anti-asthma Erectile dysfunction products Atypical anti-psychotics ADP receptor antagonist platelet inhibitors Thyroid preparations Hormone insulin intermed act Ophthalmic infectives steroid + + ang anti-

65 52 192 94 81 64 49 74

Human Resource Management in Pharmaceutical Sector of Brazil

*Introduction: Though Brazil is considered as one of the largest markets in Latin America and the World, unemployment is rampant. One of the reasons could be the level of education prevalent here. There is a lack of qualified professionals and technicians 77

here. The social culture affects the work culture and as a result one gets a job not on the basis of ones education but on the basis of contacts. An untitled paper from www.sase.org says that in Brazil, people get their work done through contacts and here power distance is found rampant. As a result, there is distrust between the management and the work force of many companies. Also, bureaucracy hampers many a growth plan as there is rampant red-tapism and corruption. The government is taking steps to tackle these social evils and attract more of foreign investment. Following are some of the HR policies followed by pharmaceutical companies in Brazil: *Organizational Culture: This is a society where the bonds among people are very strong and the shape the structure of relations in different social groups. Social cohesion is manifested by loyalty by which the group members value the needs of the group leader. One of the investigations carried out, based on the well known study by Hofstede, indicated the following: 1. High on collectivism 2. Large power distance 3. Strong uncertainty avoidance 4. Masculine This means that there is emphasis on centralization and vertical hierarchy. Hence in Brazil, due to power distance, a more autocratic approach is used in managing the people. And though power concentration is not seen, it remains in the hands of the boss. The spectator stance is the other side of power concentration coin. Brazilians work as guided by external authority. The transfer of responsibility for decision making is a phenomenon that is seen at all the levels. Conflict is not coped directly in order to avoid jeopardizing the relationships, to avoid embarrassment and to prevent the upsetting of group harmony. Emotional confrontations are avoided with those who yield more power. This shows that the organizational culture in Brazil is based on power distance, team/group formations and involving personal relations. *Job Evaluation: The job evaluation system used by these companies is the market pricing concept, which uses market data obtained by salary surveys as a reference to rank jobs. Companies with average or low performance levels tend to use traditional models, based on factor comparison and points. * Remuneration and Retention: 78

Organizations in Brazil still remain cautious about making any radical changes in their remuneration management policies. Competency-based models of base salary management (e.g., merit, promotions) did not become as prevalent as expected, nor did adoption of the broadband concept for designing salary structures. The high demand for qualified talent, which has been significantly above what the market has to offer, has apparently, as per a study conducted by Towers Perrin in 2000, entitled Strategic Rewards as a Tool for Results Generation and Value Creation, discouraged companies from taking risks by making major changes that could affect their retention levels. On the other hand, it has been observed that there is a significant increase in the use of variable pay programs. Not only has the number of companies adopting this practice increased, but eligibility has been extended to levels that traditionally were not contemplated, such as professionals, administrative staff, technicians and nonexempt employees. We believe this growth in the use of variable pay programs stems from companies increased interest in creating a feeling of ownership and commitment among their employees by sharing part of their success with their employees. To retain the best talent, companies have been adopting new paradigms for compensation management. Increasingly, companies identify their most exceptionally talented employees and reward them for their performance, even at the risk of affecting internal equity. Recognition takes the form of higher salary increases, accelerated promotions, larger portions of variable pay and special stock options grants, as well as subsidizing MBA programs and international transfers. The concept of total remuneration is gradually moving toward the concept of total rewards. In addition to the traditional elements of direct compensation (i.e., base salary, benefits, variable pay and long-term incentives), companies have increasingly invested in non measurable reward elements, such as training and development (e.g., career, challenges, autonomy, training) and work environment (e.g., company image, relationship with supervisors, more flexible labor relations). Top-performing companies strategically position their total compensation (base salary plus variable pay) above the market average, rather than use the average as reference. As a result, their remuneration policies have a stronger correlation with their performance. The bonus programs used by high-performance companies are now starting to use economic value-creation indicators such as EVA, while other programs are still based on accounting measures, such as revenues or profit. The salary increases granted by companies with higher performance levels are not necessarily higher than those granted in other companies, but line managers tend to exercise a stronger influence on the decision-making process.

Chart 1: How do companies design their bonus plans 79

Source: PwC Consulting Group

Base salary still appears as the most or second most important factor in attracting and retaining employees, as well as a reason for employee resignation. Variable pay is the second most important retention factor among high-performance companies, The image of the company is the most important attraction factor. The possibility of future career development and promotion is an important retention factor.

*Salary Increases: Basically, adjustments to base salaries are still made according to a combination of three factors: collective agreement, market values and merit policies. In the future, competencies will represent one more criterion for salary increases. In fact, the number of companies using formal merit policies has remained steady. In the vast majority of companies, salary increases are the responsibility of line managers, particularly among high-performance companies. This confirms the trend of decentralization in salary management, which was traditionally concentrated in the 80

human resources area. However, few companies offer their line managers formal compensation management training programs. Typically line managers receive informal support from the human resources area. The tools normally available to help decision-making are salary structures and/or market surveys. The payout levels provided by short-term variable pay policies (bonuses and profit-sharing) vary in proportion to hierarchical level and also to the size of the company. *Long-Term Incentives: The concept typically adopted a majority of Brazilian Companies is stock options. Companies use these to reinforce the alignment between the interests of their employees and those of their shareholders. There was also a tendency to make nonexecutive levels eligible for these programs. Other concepts are also used, including as restricted stocks (donation of shares with restrictions on the sale), phantom stocks (payment equivalent to the appreciation on stock price), performance units (creation of value units linked to the companys economic performance), but these are not used as frequently as stock options. In most cases, the design of stock options programs follows a standard model, perhaps due to the influence of multinational companies subsidiaries. These programs usually have the following characteristics: 1. Annual grants 2. Vesting period between 3 and 4 years 3. Option term of 10 years 4. Exercise price based on the market price of the stock at grant* *Grant levels defined according to job levels. *Performance Appraisal: The vast majority of companies surveyed by TowersPerrin in 2005 reported having formal performance appraisal systems. Eligibility normally includes management level and above, but nearly half of the companies evaluate performance at all levels. It was found that formal performance appraisal systems are more frequent in high performance companies. High-performance companies also conducted performance appraisals with all employees more frequently. As in traditional systems, the individual appraisal is still a responsibility of the immediate supervisor. Nearly half of the programs request a self-evaluation from the employee. The multiple evaluation systems (more widely known as 360 or full circle feedback) were used by few of the companies that have a formal system especially the multinational ones. *Efficiency of Training Programs:

81

Most companies surveyed by Towers Perrin in 2005 had reported their satisfaction with the results achieved by their training and development programs. However, there are still some challenges to be overcome before these programs are made even more efficient: 1. Lack of time on the management level 2. Lack of clarity in defining targets 3. Lack of commitment on the part of the evaluator 4. Paternalism in the evaluation process. *Internal Communication: It was found that communication about reward strategies was still below the level of efficiency most companies would like to attain. There is communication about policies and procedures, but very little is done about the value of remuneration and reward packages or about the investments made by companies. Among the tools used for communication, e-mail and corporate intranets are gaining ground previously occupied by traditional forms such as internal publications and meetings. * Benefits Offered: A benefit survey conducted by Towers Perrin HR services in 2004 which involved 234 companies- both local and multinational companies found the following: The health benefit remains the most widely offered benefit. The average value of a meal coupon is R$11.23. The average per capita cost of the prescription drug benefit has increased 26% compared to 2003. Seventy-five percent of the companies finance the entire cost of the short-term disability benefit. Among companies that reported an increase in health benefit costs, the average increase was 12.78%. The prevalence of the dental benefit has been growing yearly: 67% in 2002; 75% in 2003; 76% in 2004. The growing percentage of companies offering a private pension fund to their employees has reached 75%. The number of companies using an open entity as a financial vehicle for their pension funds has also shown an increase, reaching 30% in 2004. Ninety-seven percent of the companies offering group life insurance establish the coverage value as a multiple of the employees monthly salary. INTRODUCTION

Chart 2: Prevalence of Benefits 82

Source: Benefits Survey, 2004, Towers Perrin HR Services

120% 100% 80% 60% 40% 20% 0% Prescription Drug Benefits Short Term Disability Employee Loans Life Insurance Medical Checkups Health Brenefits Private Pension Funds Dental Benefits Meal Allowance Flexible benefits

*Conclusions: The study here suggests, that like Russians, Brazilians also high a high uncertainty avoidance, power distance and collectivism attitude towards their work. This signifies that they desire work security. Job security at the cost of lower benefits is also accepted. The firms have to realize that in order to retain talented employees (that are difficult to find), they would have to offer a total reward package which consists of both monetary and non monetary benefits to the employees. This package has to be strategically placed than the one offered at the market average. The employees would prefer more of the non-monetary benefits and long term incentives like ESOPs that make them feel that they are a part of the company.

BIBLOGRAPHY
1. www.google.com 2. www.dogpile.com 3. www.pharmexcil.com 4. www.sase.org 5. www.ranbaxy.com 6. www.drreddys.com 7. www.cipla.com 8. www.sunpharma.com 9. www.npil.com 10. www.lupinworld.com 11. www.zyduscadila.com 83

12. www.gsk-india.com 13. www.in.pharma.novartis.com 14. www.pwc.com 15. www.rmg.com 16. http://knowledge.wharton.upenn.edu 17. www.ip-watch.org 18. www.myiris.com 19. www.pharmbiz.com 20 Maksimova, Ludmila, Commercial Specialist. Drug & Pharamceuticals in Russia. U.S. Commercial Service - Embassy Moscow 21.www.kraspharma.ru 22. Elenkov, Detelin S. 1998. Can American management concepts work in Russia: A cross cultural comparative study. California Management Review, 40(4): 133-156. 23.Elenkov, Detelin S. 1997. Differences and similarities in managerial values between US and Russian managers. International Studies of Management and Organization, 28(1): 85-106. 24. Fey, Carl F., Pontus Engstrm, & Ingmar Bjrkman. 1999. Effective human resource management practices for foreign firms in Russia. Organizational Dynamics, Autumn: 69-80. 25. Hofstede, Geert. 1980. Cultures consequences: International differences in work-related values. Newbury park, CA: Sage. 26. Fey, Carl F., Ingmar Bjorkman and INSEAD. April 2000. The Effect of Human Resource Management Practices on MNC Subsidiary Performance in Russia. SSE/EFI Working Paper Series in Business Administration No. 2000:6 April 2000. 27. Department of Economic and Social Affairs, United Nations. 2005. Unlocking the Human Potential for Public Sector Performance World Public Sector Report 2005. ST/ESA/PAD/SER.E/63. 28. Minbaeva Dana , Pedersen Torben, Ingmar Bjrkman , INSEAD , Fey, Carl F. & Park, H.J.2001. MNC Knowledge Transfer, Subsidiary Absorptive Capacity and HRM. 29. Fey, Carl F. & Denison, Daniel R. April 2000. ORGANIZATIONAL CULTURE AND EFFECTIVENESS: THE CASE OF FOREIGN FIRMS IN RUSSIA. SSE/EFI Working Paper Series in Business Administration No. 2000:4 30. www.moz.gov.ua 31. www.pharma-center.kiev.ua 32. Buck, T., Filatotchev, I., Wright, M. and Zhukov, V. (1999) Corporate governance and employee ownership in an economic crisis: enterprise strategies in the former Soviet Union, Journal of Comparative Economics 27(3): 459474. 33. J. David Brown, John S. Earle, and lmos Telegdy. February 2006. Does Privatization Hurt Workers? Lessons from Comprehensive Manufacturing Firm Panel Data in Hungary, Romania, Russia, and Ukraine.Upjohn Institute Staff Working Paper 05125 34. www.towersperrin.com 35. Poole, Michael. 2002.Human Resource Management, Critical Perspectives on Business & Management, pg 460.

84

36. Martha, M. and Davilla, Anabella. Betania, Laura. HRM in Brazil. Managing Human Resources in Latin America: An Agenda for International Leaders, pg 111, Chapter 6. 37. Matthew Gorton, Galina Ignats and John White. Case Study of the Evolution of Post-Soviet Labour Processes and the Hollowing Out of Paternalism. Working Paper No.6 February 2003. INTAS Research Project on Agri-food Industry Restructuring in Ukraine and Moldova (AFIRUM).

GLOSSARY
ANDA: Abbreviated New Drug Application ANVISA: Agencia Nacional de Vigilancia Sanitaria, Brazil API: Active Pharmaceutical Ingredients ATC: Anatomical Therapeutic Chemicals COS: Certificate of Suitability DMF: Drug Master File EDMF: European Drug Master File FDA: Food & Drugs Administration, USA GMP: Good Manufacturing Practices HRD: Human Resource Development HRM: Human Resource Management IPRs: Intellectual Property Rights MCC: Medicine Control Council, South Africa MHRA: Medicines & Healthcare products Regulatory Agency, UK MNC: Multi National Company NCE: New Chemical Entities OTC: Over The Counter Regulated market: Pharmaceutical markets characterized by a high level of adherence to IPRs and patent recognition especially USA, Europe and Japan WHO: World Health Organization, UN

85

ANNEXURE

86