CWS 3.0: December 19, 2012

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New Cold War Could Freeze Out Staffing Firms in Russia

Global contingent procurement managers with operations in Russia will be watching political developments in the country very closely as a proposed ban on foreign recruitment agencies proceeds to a second reading in the Duma. With a ban potentially affecting many of the largest international staffing firms, existing Russian supply chains may have to be reconsidered. However, the gravity of a ban is being downplayed somewhat by the Russian Ministry of Labor.

The proposed ban has come about as part of an escalating trade dispute between the U.S. and Russia. On Dec. 6, the U.S. Senate passed the the Sergei Magnitsky Rule of Law Accountability Act. The main intention of the new law is to punish Russian officials who were thought to be responsible for the death of Sergei Magnitsky by prohibiting their entrance to the United States and freezing any of their assets under the control of the U.S. banking system. Magnitsky was a Russian anti-corruption attorney whose arrest and death in police custody in 2009 generated international media attention and launched an investigation into allegations of abuse.

Russian President Vladimir Putin has criticized the Magnitsky Law calling it a ”purely political, unfriendly act” and suggested that Russia’s response would be “adequate, but not extreme.” Since then, diplomatic tensions between Moscow and Washington have become strained and Russian legislators have responded by passing the Dima Yakovlev Law named in honor of Dima Yakovlev, an 18-month-old Russian boy who died after his adoptive American father left him locked inside a vehicle for an extended period of time on a hot summer day. Under that legislation, Russia would compile a list of Americans who have violated the rights of Russian children adopted into U.S. families

But some politicians in Russia want to go further and, because of some unfortunate timing, the staffing industry has been caught in the crossfire. With a draft law on agency labor currently before the Duma, chairman of the state Duma committee on labor and social policy, Andrei Isayev an arch-supporter of President Putin, took the opportunity to insert an amendment banning all “non-state employment agencies.” “The Russian state and the Russian parliament are fully determined to adopt retaliatory measures,” said Isayev. As well as being a prominent politician, Isayev is also co-owner of the Baltic Bank.

While this is a U.S.-Russian trade dispute, the proposed ban would affect all foreign staffing companies operating in the country, not just those from the U.S. Large staffing providers that could be affected include Adecco, Antal, Brunel, Gi Group, Grafton, Hays, Hudson, Kelly Services, ManpowerGroup, PageGroup, and SThree, all of which have operations in the country.

Such a move will have a large impact on companies looking to use contingent labor in Russia. Yelena Gerasimova, director general of the Russian Center for Social and Labor Rights says, “If the foreign agencies are removed there will be much less agency labor in Russia, since they are the main suppliers of the idea and techniques.”

While such a ban on foreign competitors would be perceived as good news for the market leader in Russia, Ancor Group, even they will be disturbed by other aspects of the new agency law currently being discussed which imposes a number of excessive restrictions on the use of agency labor such as limiting temporary contracts to no longer than six months and only allowing temporary workers to be hired to replace absent employees (whose jobs must be retained).

In Russia, at present less than 0.1 percent of the economically active population are temporary agency workers (between 70,000-140,000 people), however, if foreign staffing companies are forced to close down, many of these people will be forced to look for work elsewhere.

The reaction of the Ministry of Labor suggests that Andrey Isayev’s controversial move was not coordinated with the executive and is an independent action on the part of the United Russian majority party. The ministry has refused to discuss the ”political question” of a ban on the operation of foreign agencies in the Russian Federation and stated that ”if an organization is operating in compliance with legislation, it is of no significance whether it is foreign or not.”

At this stage, there is still uncertainty whether the ban will go ahead but the threat will be enough to deter many staffing firms from venturing into the Russian market any time soon despite the fact that the country has a number of compelling growth factors that should see the staffing market achieve above average growth rates over the next few years.

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