To improve human resource management in state owned enterprises, especially in making steel industry

CHƯƠNG TRÌNH THẠC SỸ QUẢN TRỊ MMVCFB6 PROGRAMME DE MAITRISE EN MANAGEMENT VIETNAM COMMUNAUTE FRANCAISE DE BELGIQUENGUYỄN THỊ THỦY TIÊN TO IMPROVE HUMAN RESOURCE MANAGEMENT IN STATE OWNE

CHƯƠNG TRÌNH THẠC SỸ QUẢN TRỊ (MMVCFB6) PROGRAMME DE MAITRISE EN MANAGEMENT VIETNAM COMMUNAUTE FRANCAISE DE BELGIQUE

NGUYỄN THỊ THỦY TIÊN

TO IMPROVE HUMAN RESOURCE MANAGEMENT

IN STATE OWNED ENTERPRISES, ESPECIALLY IN MAKING STEEL INDUSTRY

MASTER OF MANAGEMENT THESIS

Supervisor:

Professor VŨ VIỆT HẰNG

Ho Chi Minh City, Vietnam

(2007)

GUARANTEE:

Tôi xin cam đoan đây là công trình nghiên cứu của riêng tôi Các số liệu và các kết quả được nêu trong luận văn tốt nghiệp là hoàn toàn trung thực

Nguyễn thị Thủy Tiên

ACKNOWLEDGEMENT

The author wishes to express her sincere thanks and appreciation to Professor Vu Viet Hang for her precious guidance and suggestion during this research study being carried out

Special thanks go to Ho Chi Minh City Open University for its holding this Master course in Management

She much appreciates her professors’ and friends help during the period of data collection, especially, Mr Hung’s, Mr Long’s, Mr Son’s, Mr Dien’s, Mr Vinh and many other friends’ great help in collecting secondary data from Vietnam Steel Corporation and some other enterprises in Steel Industry

The author also would thank her family for its financial and spiritual support during her course time

1.1 Organization Theories

1.2 Defining Human Resources Management

1.3 The Evolution of Human Resources Management

1.4 Environment of Organization

1314162123CHAPTER 2: THE ENVIRONMENT OF SOES IN VIETNAM STEEL

INDUSTRY 2.1 The History of Build-up and Development of Vietnam Steel

Industry

2.1.1 The History

2.1.2 The Organization Framework

2.1.3 Basic Information of Vietnam Steel Corporation

2.2 The Environmental factors in Organizational Performance in

Vietnam Steel Industry – public sector

2.2.1 External Environmental Factors

2.2.2 Internal Environmental Factors

2.2.3 The Outcomes of the Organization

2.2.4 The Matters VSC to deal with

2.2.5 The Trends of Development of VSC and the Challenges to the

Future

27

27273031

3334404749

51CHAPTER 3: STAFFING

3.1 Literature Review

5252

3.2 Facts and Findings

3.2.1 Facts

3.2.2 Findings

3.3 Suggestions

53535560CHAPTER 4: TRAINING AND DEVELOPMENT

4.1 Literature Review

4.1.1 The Training and Development components and relationship

to organization changes

4.1.2 Factors Influencing T&D

4.1.3 The T&D Processes

4.2 Facts and Findings

4.2.1 Facts

4.2.2 Findings

4.3 Suggestions

6262

63646567676970CHAPTER 5: COMPENSATION AND REWARDS

6.1 Literature Review

6.1.1 The Nature of Safety and Health

6.1.2 Roles of Safety and Health Management

6.1.3 The Focus of Safety Programs

6.1.4 Developing Safety Programs

6.2 Facts and Findings

6.3 Suggestions

8484848688899091CONCLUSION 92REFERENCES 95

List of Tables

Table 3.1: Level of schooling of the laborers in the whole VSC 54Table 3.2: Comparing the level of schooling of the laborers, 2006 55Table 3.3: Structures of personnel for rolling workshops of public

List of Figures

Figure 1.1: Five circles model of organizational environment 15

INTRODUCTION

The tenth congress/Plenum of Vietnamese Communist Party has stated the general social-economic targets in period 2006 – 2010 are accelerating the nation’s economic growth rate to get the crucial evolution in sustained development; promoting the industrialization – modernization great undertaking and developing the knowledge economy, the foundation to make Vietnam basically become an industrial developed country by 2020 The Plenum has also pointed out their principle missions: emancipating production resources; upgrading the quality and competence of the competition of the economy; and accelerating economic growth rate Besides, it suggested turning the state economy to market-economy with socialist orientation together with performing market rules, forming synchronously all kinds of market and the institutional system; proactively integrating into the world economy; expanding foreign economic cooperation together with enhancing the independence and self-control capacity of the economy

Recently, one of the most principle missions mentioned above has been completed successfully That is, Vietnam has become official member of World Trade Organization since January 2007

However, going into the international economic environment has exposed endogenous challenging factors of the Vietnam economy One of the main challenges is the workforce, from the whole labor market to a certain sector, likely not ready for the new phase Considering Vietnam enterprises carefully, we can find evidences that prove the challenge What is resulting on low level of competitive competence, on restrained ability in resources management, on unstable quality of goods and services, and on high cost of goods sales, if it is not the workforce with its low productivity? It bears also the blame for local businesses’ losing their market share just in their own fields

Moreover, affected by many crucial forces, thing would be broken at its utmost weak point On accomplishing the most principle mission, Vietnam economy would taste some blows, so One of the blows is the unexpected difficult stage that some of public companies are now experiencing Statistics says that in the year

1995, there was 9.2% labor-force working in public sector of economy, with the contribution to the GDP was 40.2% In the year 2004, the figures were 10% and

38.4% respectedly Those numbers show that the relationship between number of workers and the contribution of those workers to GDP has a contra-variation The situation would deteriorate in firms that operating in such traditional industries as energy, coals and metallurgy with their own restricted competencies Once more, that is to say the cause is low productivity of the workforce

Therefore, to the Vietnam economy, especially to the public sector, the matter could be named the low level of productivity of the workforce

What cause the low level of productivity of the workforce? Is the human resources managed ineffectively, or even mismanaged? What are the measures to deal with the matter to accomplish the mission of the state economy successfully?

There were many researches studying of problems related to the effectiveness of human resources management and suggesting possible solutions However, those researches are in a wide scope, so the solutions given are truly general That means, those researches have not profoundly gone into a specific case to give reasonable measures, true wanting, for a specific industry How is the relationship that mutually affect between employers, employees in managerial structure systems, law systems, and the intervention of Labor Unions? How could an SOE exploit effectively and efficiently its human resources? Which tools could be use to strengthen the available labor force? Could the workforce get higher productivity, and gain competitive advantages? The answers for these questions would be the objectives of this research study

To make the study more specific, applicable, the writer would narrow down the scope of research to SOEs in making steel industry, a heavy industry that used to be the main industry of Vietnamese economy in the period 1970s - 1980s The objects

of the study are including the former SOEs, which are on the process of capitalization recently

Method applied in the research would base on recent theories in human resources management, associate with relating Vietnamese law systems, to examine the real situations to point out the solutions To make it realistic, the research study would use the statistic data from internal the Vietnam Steel Corporation, from Vietnam Steel Institute

The content of the research, excluding the introduction, conclusion and table of referred materials, includes 6 chapters

1) Chapter 1 is to review the theories that would be used to analyze the problem 2) Chapter 2 would introduce the history of build-up and development the Vietnamese Steel Industry, and describe the environment of the organization with their trend of changing rapidly now on the viewpoint of modernist theorists Chapter 2 describes the environment of the organization with their trend of changing rapidly now on the viewpoint of modernist theorists

3) Chapter 3, 4, 5, 6 are to analyze the real human resources managerial situations

in the State Owned Sector of Vietnamese Steel Industry The analysis based on the theories of the Evolution of Personnel to Human Resources Management, with approaching method from the Law aspect, the relationship between employers and employees that intervened by Labor Unions Each chapter includes three sub-parts The first one is to review theories of Evolution of Personnel to Human Resources Management The second part is to give the facts and findings analysis of HRM in the object with its own statistic numbers The last one is to point out what the real cause that HRM is not effective, nor efficient, and then to suggest some possible solutions

4) The last chapter, the conclusion is to give the trends of development of the steel industry, suggest certain measures to improve human resources management in the state owned enterprises

Being an employee in a factory in public sector for year, having the feeling of responsibility for the development of the industry, I am to do the research seriously However, the study would have limitations

First, it is the limitation in the scope of the study The study concentrates into analyzing human resource management of the SOEs, or former SOEs, in Steel Industry only Therefore, the suggestions or solutions given are not so general to apply to all other industries

Second, it is the preciseness of the data gathered For the spirit of secret-keeping regulations is getting chronic to each public employee, who is object of the study, the data got by direct interviews would not reflex so exactly the reality Besides, for

some reasons, the statistical reported data got from Vietnam Steel Corporation or from VSI are somewhat puzzling Moreover, the survey was performed at the crucial and confusing moment, when the process of capitalization has been carrying out in many factories in the industry So, some data could be used as reference only

Third, due to the limited time, the research study would have its own limitations in applying the theories to analyzing the reality, presenting the paper…

CHAPTER 1

LITERATURE REVIEWS

“Labor is the most important activity of a human being creating both material products and social values High labor productivity, quality and efficiency are significant factors which determine the level of development of a country.”

“The Labor Code protects the right to work, benefits, and other rights of employees and, at the same time, protects the legal rights and benefits of employers, thereby creating conditions for harmonious, and stable labor relations, contributing to the development of the creativity and talents of intellectual and manual workers and of labor managers in order to achieve productivity, quality, and social advancement

in labor, production, and services, effective utilization and management of labor, and contributing to industrialization and modernization of the country, for a wealthy and strong country, and a fair and civilized society.”

(Labor Code of Socialist Republic of Vietnam, 2003)

Human resources management, a specific field of management, dealing with the organization’s governance, is not a new subject to all business and service organizations No matter how large an organization is, its fundamental activities pertaining to all employees, human resources, must be managed – and managed effectively From a positive standpoint, it is people, human resources, who create organizations and make them survive and prosper It is their efforts, talents, and skills in using other resources, such as knowledge, materials, and energy; that result

in the creation of useful products and services If they are neglected, or mismanaged, the organization is unlikely to do well and, in fact, may fail Therefore, being a member of some organization, in deed, for our survival and development, we do have to study the subject to have a better understanding of it,

to practice it more effectively That is, we must be aware of the questions involved

in human resource management such as what the real nature of human resource

management is, what matters are central to human resources management, and how

to manage the resources properly to achieve the organization’s objectives

Through the materials, we all know that human resources management is a broad concept referring to the philosophy, policies, procedures, and practices used in managing people throughout the organization Besides, the globalization trend in business in the new millennium has made the nature of human resources management, consequently the role of HR people, more and more complicating.The objective of the research study is to provide/recommend measures to exploit more effectively and efficiently human resources in public sector of Steel Industry

in Vietnam To understand how the human resources there are, the science of organization and management would provide us theoretical method of approach The science has not developed properly in Vietnam, so we should have a look on the global theories in this chapter Then, we spend a little bit attention to the history

of build-up and development of the industry, and the recent context of the organization’s environment, that would help us to address what model of the organization is, what the matters it is confronting, and how to solve the problems in

following chapters

1.1 ORGANIZATION THEORIES:

There are multiple perspectives of organization Sometimes, the word

“organization” is to describe an entity when we are describing the place where people work, a particular business enterprise or as a general term to describe undertakings Other times, it is also used to refer to a process describes how something is done… Each perspective is related to the phenomenon, which an organization theorist encounters with his perceptual equipment, and then developed

To go on with the research study, I would refer to the “Five Circles Model”, which

is introduced by Mary Jo Hatch in Organization Theory, Modern, Symbolic, and Postmodern Perspective (Oxford, 1997) The model is to conceptualize an organization as an interplay of technology, social structure, culture, and physical structure embedded in and contributing to an environment To depict these

relationships, it shows technology, social structure, and physical structure as interconnected circles (or as spheres) surrounded and penetrated by an environment that they simultaneously help to constitute

Physical structure

Technology

ORG

Five circles model

(Marie Jo Hatch, 1997)

1.2 DEFINING HUMAN RESOURCES MANAGEMENT:

“Workforce, or human resources, create organizations and make them survive and prosper It is their efforts, talents, and skills in using other resources, such as knowledge, materials, and energy; that result in the creation of useful products and services If human resources are neglected or mismanaged, the organization will not do well, certainly in the long-run.”

“HRM mark 1”, a generic term On the other hand, the term is equally widely used

to denote a particular approach to the management of people, namely “HRM mark 2”, a distinctive one, which is clearly distinct from “personnel management” Used

in this way, it suggests such a distinctive philosophy towards carrying out oriented organizational activities that is held to serve the modern organization more effectively than “traditional” personnel management” We would go further to these two meanings of human resource management

people-1.2.1 HRM mark 1: The generic term

The first meaning of HRM is the systematic planning and management of a network

of fundamental organizational processes affecting and involving all organization members: human resources planning, job and work design, job analysis, staffing, training and development, performance appraisal and review, compensation and reward, employee protection and representation, and organization improvement

We can group those processes into five functional areas that are associated with effective HRM: staffing, human resource development, compensation and benefits, safety and health, and employee and labor relations Those functions aim at key objectives: staffing, performing, change-management, and administration, which form the foundation of all HRM activities Identifying the key objectives that HR department seeks to achieve on behalf of organization, either singly or with the help

of other departments, is the best way to explain the role played by HR functions

Staffing objectives:

Human resource managers are first concerned with ensuring, as far as is possible, that the organization is appropriately staffed and is thus able to draw on the human resources it needs This involves designing organization structures, identifying under what type of contract different groups of employees (or subcontractors) will work, before recruiting, selecting and developing the people required to fill the roles: the right people, with the right skills to provide their services when such services are needed There is a need to compete effectively in the employment market by recruiting and retaining the best, affordable workforce that is available This involves developing employment packages that are sufficiently attractive to maintain the required employee skills levels and, where necessary, disposing of those judged no longer to have a role to play in the organization

Performing objectives:

Once the required workforce is in place, human resource managers seek to ensure that individuals are as well motivated and committed as possible so as to maximize their performance targets In many organizations, particularly where trade unions play a significant role, human resource managers negotiate improved performance with the workforce The achievement of performance objectives also requires HR specialists to assist in disciplining employees effectively and equitably, where individual conduct and/or performance standards are unsatisfactory Welfare functions can also assist in achieving and maintaining high performance standards

by providing constructive assistance to people whose performance has fallen short

of their potential because of illness or difficult personal circumstances Last but not least, there is the range of employee involvement initiatives which are sponsored by

human resource functions as a means of raising levels of commitment and engaging employees in the development of new ideas

Change-management objectives:

A third set of core objectives in nearly every organization relates to the role played

by the human resource function in the effective management of change For a good proportion of organizations, change no longer comes along in readily defined episodes precipitated by some external factor Instead, it is endemic and well nigh continuous, generated by a continual need to innovate as much as from definable environmental pressures Change comes from different forms Sometimes it is merely structural, requiring reorganization of activities or the introduction of new people into particular roles At other times, cultural change is sought; a more general objective being the need to alter attitudes, philosophies or long-present organizational norms in any of these scenarios the HR function can play a central role Key activities include the recruitment and/or development of people with the necessary leadership skills to drive the change process, the employment of change agents to encourage acceptance of change and the construction of reward systems which underpin the change process Timely and effective employee involvement is

crucial here too because “people support what they help to create”

Administration objectives

The fourth type of objectives is less directly related to achieving competitive advantage, but is no less necessary in the contemporary business environment It is essentially administrative in nature and is focused on underpinning the achievement

of the other forms of objectives In part, it is simply carried out in order to facilitate

an organization’s smooth running Hence, there is a need to maintain accurate and comprehensive data on individual employees, a record of their achievement in terms of performance, their attendance and training records, their terms and conditions of employment and their personal details However, there is also a legal aspect to much more administrative activity, meaning that it is done because the business is required by law to comply Of particular significance is the requirement that payment is administered professionally and lawfully, with itemized monthly pay statements being provided for all employees There is also the need to make arrangements for the deduction of taxation and national insurance, for the payment

of pension fund contributions and to be on top of the complexities associated with Statutory Sick Pay and Statutory Maternity Pay Additional legal requirements relate to the monitoring of health and safety systems and the issuing of contracts to new employees Accurate record keeping is central to ensuring compliance with a variety of new legal obligations such as the National Minimum Wage and the Working Time Regulations

We would return to those later, when we go deeply to the researched case

1.2.2 HRM mark 2: a distinctive approach to the management of people

The second meaning commonly accorded to the term “human resource management”, denotes a particular way of carrying out the range of activities discussed above Under this definition, a “human resource management approach”

is something qualitatively different from a “personnel management approach”

A particular theme in their work is the contention that personnel management is essentially workforce centered, while HRM is resource centered (see figure 1.2) That means, personnel specialists direct their efforts mainly at the organization’s employees; finding and training them, arranging for them to be paid, explaining management’s expectations, justifying management’s actions, satisfying employees’ work-related needs, dealing with their problems and seeking to modify management action that could produce an unwelcome employee response The people who work in the organization are the starting point, and they are a resource that is relatively inflexible in comparison with other resources, like cash and materials

HRM, by contrast, is directed mainly at management needs for human resources (not necessarily employees) to be provided and deployed Demand rather than supply is the focus of the activity There is greater emphasis on planning, monitoring and control, rather than mediation Problem solving is undertaken with other members of management on human resource issues rather than directly with employees or their representatives It is totally identified with management interests, being a general management activity, and is relatively distant from the workforce as a whole

We note that while recognizing the differences, an alternative point of view downplays the significance of a break between personnel and human resources management First, human resource management concentrates more on what is done to managers rather than on what is done by managers to other employees Second, there is a more proactive role for line managers Third, there is a top management responsibility for managing culture

Figure 1.2 Personnel versus HRM

Time and planning

Control systems External controls Self – control

Employee relations

perspective

Pluralist, collective, low trust Unitarist, individual, high

trust Preferred

structures/systems

Bureaucratic/mechanistic, centralized, formal defined roles

Organic, devolved, flexible roles

Roles Specialist/professional Largely integrated into line

management Evaluation criteria Cost minimization Maximum utilization (human

asset accounting)

From this perspective, human resource management can simply be seen as the most recent mutation in a long line of developments that have characterized personnel management practice as it evolved during the last century HRM is therefore the latest new dimension to be added to a role, which has developed in different directions at different stages in its history There are six distinct stages in the historical development of the personnel management function, that make-up the evolution of personnel or human resource management

1.3 THE EVOLUTION OF HUMAN RESOURCE MANAGEMENT

Along with the history and development of organization theories in the world, human resource management has its own evolution The evolution of HRM field, as introduced in Human Resource Management (Derek Torrington, Laura Hall & Stephen Taylor, Prentice Hall, 2002) can be divided into 6 main stages, as followed

Stage 1: the social reformer

The origins of personnel management was deriving from the work of social reformers Their criticisms of the free enterprise system and the hardship created by the exploitation of workers by factory owners enabled the first personnel managers

to be appointed and provided the first frame of reference in which they worked Such concerns are not obsolete There are still regular reports of employees being exploited by employers flouting the law, and the problem of organizational distance between decision makers and those putting decisions into practice remains a source

of alienation from work

Stage 2: the acolyte of benevolence

In the late nineteenth and early twentieth centuries, some of larger employers with a paternalistic outlook began to appoint welfare officers to manage a series of new initiatives designed to make life less harsh for their employees There were the progressive schemes of unemployment benefit, sick pay and subsidized housing provided by firms While the motives were ostensibly charitable, there was and remains a business as well as an ethical case for paying serious attention to the welfare of employees This is based on the contention that it improves commitment

on the part of staff and leads potential employees to compare the organization favorably vis-à-vis competitors The result is higher productivity, a longer-serving workforce and a bigger pool of applicants for each job It has also been argued that

a commitment to welfare reduces the scope for the development of adversarial industrial relations The more conspicuous welfare initiatives promoted by employers today include pension schemes, childcare facilities and health-screening programs

Stage 3: the humane bureaucrat

This is the phase marked by the starting of a move away from a sole focus on welfare issues towards the meeting of various other organizational objectives In the phase, personnel managers began to gain responsibilities in the areas of staffing, training and organization design They performed management and administration processes more analytically, worked out organizational structures to deployed labor with efforts to maximize efficiency That the stage was also influenced by the Human Relations School in seeking to ameliorate the potential for industrial conflict and dehumanization present is to rigid an application of the scientific management approaches Then, the fostering of social relationships in the workplace and employee morale thus became equally important objectives for personnel professionals seeking to raise productivity levels

Stage 4: the consensus negotiator

The stage of consensus negotiator is the stage personnel managers needed the skills

of bargaining This was the period of full employment followed the Second World War, and of growing forming union membership Personnel specialists had to manage the new collective institutions such as joint consultation committees, joint production committees and suggestion schemes set up in order accommodate the new realities, and employers were placed under a statutory duty to negotiate with unions representing employees, while government encouraged the appointment of personnel officers

Stage 5: organization man

The late 1960s saw a switch in focus among personnel specialists, away from dealing principally with the rank-and-file employee on behalf of management, towards dealing with management itself and the integration of managerial activity This phase was characterized by the development of career paths and of opportunities within organizations for personal growth This too remains a concern

of personnel specialists today, with a significant portion of time and resources in many organizations being devoted to the recruitment, development and retention of

an elite core of people with specialist expertise on whom the business depends for its future

Stage 6: the manpower analyst

The final stage prior to the advent of human resource management in the 1980s involves personnel specialists developing the capacity to undertake the techniques

of manpower or workforce planning This is, basically, a quantitative activity, boosted by the advent of information technology, which involves forecasting the likely need for employees with different skills in the future According to Message (1974) it comprises three main processes:

1 Assessing what manpower of what different grades, categories and skills will be needed in the short and long term (i.e manpower demand),

2 Deciding what manpower an organization is likely to have in the future, based on current trends and anticipated external circumstances (i.e manpower supply),

3 Taking action to ensure that supply meets demand

Manpower planning (now commonly referred to as human resource planning) remains a task undertaken by some HR specialists Increasingly however, the unpredictability of some business environments has made accurate forecasting difficult, leading to its abandonment as a formal management activity in a number

of organizations

1.4 ENVIRONMENT OF ORGANIZATIONS

In modernist organization theories, the organizational environment is conceptualized as an entity that lies outside the boundaries of the organization It influences organizational outcomes by imposing constraints and demanding adaptation as the price of survival The organization, for its part, faces uncertainty about what the environment demands while it experiences dependence on the multiple and various elements that comprise its environment It is just the dependence and uncertainty explain organizational structures and action in the environment conceived by modernist organization theorists

In modernist perspectives, organizational environments are typically defined by their elements, which are sorted out by three most common ways into the inter-

organizational network, the general environment, and the international environment

The Inter-organizational Network consists of suppliers, customers, competitors,

unions, regulatory agencies, and special interests A network analysis presents the inter-organizational network as a complex web of relationships in which a group of organizations is embedded The network shows the relative positions of all considered organizations, with the links representing channels through which resources, information, opportunities, and influence flow The network perspective promotes sensitivity to the variety and complexity of interactions that sustain organized activity within the environment

The main challenge in performing a network analysis is determining a reasonable boundary The solution to defining network could alter the concept of the network, unbalance the analysis, and the result is that information appears outside the periphery of the construction of the network would be disregarded, or under evaluated

The General Environment is to analyze the more general forces at work in an

environment of organization These forces will have an effect throughout the network, so it is useful to appreciate fully the links between organization and its environment General environment includes different sectors: social, cultural, legal, political, economic, technological, and physical (figure 2.1)

• Social sector of the environment is associated with class structure, demographics, mobility patterns, life styles, and traditional social institutions including educational system, religious practices, trades, and professions

• Cultural sector revolves around issues such as history, traditions, expectations for behavior, and the values of the society or the societies in which the organization operates

• Legal sector is defined by the constitutions and laws of the nations in which the organization conducts its business, as well as legal practices in each of these domains

• Political sector is usually described in terms of the distribution and concentration of power and the nature of political system in those areas of the

world in which the organization operates This sector has close ties with the legal sector and both are influenced by trends in other sectors

• Economic sector is comprised of labor markets, financial markets, and markets for goods and services The extent to which private versus public ownership is typical, whether centralized economic planning is attempted, fiscal policies, consumption patterns, patterns of capital investment, and the banking system all contribute to an analysis of an organization’s economic sector

Figure 1.3 Sectors of the general environment (Mary Jo Hatch, 1977)

Technology

Legal Culture

Political

Social

• Technological sector provides knowledge and information in the form of scientific developments that the organization can acquire and use to produce output Organization receive knowledge from the environment in such forms as pre-trained and culturally socialized employees, purchases of equipment and software, and the services of consultants and other professionals

• Physical sector includes nature and natural resources Changes in the physical sector are extremely difficult to predict

Those sectors are not really separate as was listed above The illustration is artificially made by theorists to address the complexity of the environment of the organization

International Environment includes aspects of the environment that cross national

boundaries or that are organized on a global scale Elements of the international environment include institutions such as the United Nations, the International Monetary Fund, World Trade Organization, and international consulting firms Concerns for conditions and trends in the international environment will likewise

be part of a total environmental picture Trends in the international environment suggest that markets are moving toward a global integrated future

From these perspectives, the environment of the organization is seen as one of many interrelated environments That is, there is bigger environment that covers general environments of many organizations, in which, the crosscutting influences

of the different sectors of the general environment The international environments make an important point about theoretical models In fact, the organization itself cannot really be separated from its environment because it makes up the environment, the big picture, along with other organizations with which it is involved The complexity of this environment suggests that if we are to learn the organizational environment, we need realize the value of the international

perspective, as popular slogan has evoked: “Think global, act local”

Comprehending theories of organization and HRM, now we go on looking at the public sector in Vietnamese Steel Industry and the real context of its HRM

CHAPTER 2 THE ENVIRONMENT OF SOES

IN VIETNAM STEEL INDUSTRY

This chapter is to have a look on environment, the real context of public sector in Vietnam Steel Industry The first part of the chapter includes the brief history of build-up and development of Vietnam Steel Corporation Then, we would pay some attention to its environment What elements are composing the environment of the organization, how the environmental factors influence on the organization generally and on the human resource management specially, and how we could do to cope with the situation are the main points of the chapter Most of organization theorizing about environments up to now has been conducted in a modernist way,

so we would choose standing on view of modernist organization theorists to analyze the environment of our organizations

2.1 THE HISTORY OF BUILD-UP AND DEVELOPMENT OF THE STEEL INDUSTRY OF VIETNAM

2.1.1 The history

Vietnam making steel industry has experienced many waves up and down since its birth in 1950s Marked by the erection of the Thai Nguyen Steel Industrial Zone dated June 04, 1959, and the first heat of pig-iron was successfully made at November 29, 1963, however, the over-40-year-old industry started its true history

of build-up, and development from 1976, with some milestones that could be said as:

(1) In North Vietnam, the Thainguyen Steel Complex Zone (the Thainguyen Steel Corporation now) is the first undertaking of the Vietnam Steel industry

It is a completed zone for making steel with chains of processes including exploiting iron-mine, making pig iron, steel, and rolling-steel Since the first heat of pig iron produced, the operation of the undertaking has been disrupted some times as the States directly attacked to the zone (1965-1968 and 1972-1973) December 20, 1974, this undertaking started to recover the Martin

furnace system, till Dec 15, 1976, the first heat of carbon steel was made, i.e ten years of delay

(2) In the South Vietnam, after the event of April 30, 1975, Government granted Department of Machinery and Metallurgy to build-up organization to keep operating of all of the making steel workshops in Saigon City To control the steel production uniformly, Government enacted the agreement numbered 236/CP, dated Dec 31, 1976, founding the Metallurgy Company belonging directed to Department of Machinery and Metallurgy Four years later, Dec

16, 1980, Metallurgy Company became an Integrated Works in Making and Rolling Steel with a “new” organizational model pursuant the 342/CL-TCQL (3) In the period from 1976 to 1989, Vietnam Steel Industry was in a difficult stage, for the recession of the economy Its total output was only 40.000MT/year (1976), and reached 85.000MT/year (1990)

Vietnam Steel Corporation was formed pursuant to 128/CNNg-TC dated May

30, 1990, based on available enterprises operating on exploiting iron ore, making steel, and servicing of researching, training in making steel industry, which were administered by the Department of Heavy Industries

November 18, 1992, the Integrated Works in Making and Rolling Steel became Southern Steel Corporation, under the administration of Vietnam Steel Corporation according to 766/QÑ/CNNg-TC

That those foundations were carried out simultaneously with the State Door and DoiMoi policies led to the initial growth of the Steel Industry The output was over 100,000 MT/year (1990), and 380,000MT/year of 1994 (4) March 17, 1994, a decree of experimental forming Groups of companies/enterprises in some Departments, governing Technical - Economic industries, numbered 91/TTg was enforced This is to promote the process of capital concentration, improve the competitive abilities and the effectiveness

Open-of the economy It is also to strengthen the managerial role Open-of the state towards enterprises from all sectors of the economy, for this is the time enterprises from many other industries, such as Building, Machinery, and the Ministry of National Defense also, participated in the industry, sharing out the small benefit from making steel

(5) Then, April 29, 1995, Vietnam Steel Corporation was re-organized, pursuant to the decree 225/TTg, to meet the requirement of decree 91/TTg

According to the Decree numbered 255/TTg signed by Prime Minister, the foundation of Vietnam Steel Corporation is to combine producing-trading, namely making profit, and researching-training activities The Decree clarified undertaking’s mission as: “Organizing, administrating the technological researching-applying activities, training employees’ activities

to support corporation’s making profit activities”, that is briefly, research and development The Decree also states that Vietnam Steel Corporation is a public-sectored Corporation making profit

January 25, 1996, Decree 03/CP was enacted, approving organizational and operational regulations of Vietnam Steel Corporation

The period 1996-2000 is a prosperous stage of steel industry The total output of rolled steel was 1.57millions MT/year at the year 2000 However, this is the period marking the stiffer competition in steel industry Enterprises doing business in the industry are from various sectors, with various technological equipment and various output capacities, with the same main target is seeking for profit, solely

(6) September 10, 2001, the Master Plan of Steel Industry until 2010 was signed The target of the plan is to develop the Steel Industry to one of the most important industries of the economy This is to meet the higher and higher domestic demand, aim at exporting, promote production, create more jobs, to contribute to the industrializing-modernizing great undertaking of the state, and raise the competitive abilities to enter to the local and global economy (7) Accomplishing Decrees numbered 48/1998/NÑ-CP, 64/2002/NÑ-CP and 187/2004/NÑ-CP of transferring public enterprises into joint-stock enterprises, VSC completed capitalizing two members in the year 2004 It has been supplying concrete guidance to the implementation capitalizing its other units

Together with implementing the main duties of production, commerce, and

development, it is now actively getting ready for the growth in future

2.1.2 The organization framework:

Today, operating in the model of mother – daughters enterprises according to the decree 266/2006/QÑ-TTg, Vietnam Steel Corporation is including:

(1) The mother company is an SOE, with its own legal personality, organizational and operational regulations It is formed based on reorganizing 2 units of administration – the head offices of former VSC, and SSC – together with 2 units of production, units operating with dependent budget, and units of commerce locating over the country, to make profit (2) The children companies include two main groups One is group of joint-stocks companies, former SOEs, that holding company is VSC - their mother company Other group is joint-stocks companies that VSC holds less than 50% authorized issue The latter includes two subgroups, one is group

of local joint stocks companies, and the other is joint ventures between VSC and foreign companies We set the joint ventures with foreign involved out

of the set of objects researched

Figure 2.1 shows the organizational framework of VSC

Figure 2.1 VSC organizational framework

Vietnam Steel Corporation

2.1.3 Basic information of the Vietnam Steel Corporation:

Following data are gained from yearly statistical reports of Vietnam Steel Corporation

2.1.3.1 Type of enterprise: public sector

Industry: making steel used in construction industry

2.1.3.2 Products and services: the output capacity is too low

Hot rolled steel with capacity/output 1,300,000MT/year

Main products are hot rolled steel generally used in construction industry, including reformed bars, wire rods, angle and channel steels Crude steels

in grade Gr40, Gr50, Gr60 ASTM – low alloy carbon steels and HSLA steels – are used as raw material for hot rolled steel

Table 2.1 Share of Steel Suppliers in the World (Mil MT, %)

• For rolling steel: excluding PMSP, there are 10 lines of hot rolling machines

to produce reformed bar, wire-rod, angle bar, etc used in construction industry

2.1.3.4 Means of technology: almost technologies that applied in Vietnam Steel

Corporation’s firms are of 1960s Rolling mills and arc-furnaces are mostly from Taiwan or China, casting machines from India The levels of

automation are quite low, manual or semi-automation Level of raw

materials, energies, and oil and gas consumption are quite high

* Amount of top managers

2.1.3.6 Financial context:

Vietnam Steel Corporation is independent budget with total amount of equity (state owned) is US$104millions From the year 2001 to 2006, lacking the requisite capital, the corporation is in debt continuously, totaled

in 2006 is US$188.5millions, annual interest payable is US$22.50 millions Turnover in the year 2006 is US$728 millions, and the loss is US$4.30 millions Imported goods reach US$ 258.50 millions Payment for labors in the year 2006 is US$ 24.87 millions

2.1.3.7 Productivity: (according to reports in the year 2006)

(# average monthly income per head US$ 184.84/ month/h)

Ü Average output capacity per head:

Average wage per ton in 2006 is US$ 19.12/T

Table 2.2 COP of World Steel Producing Countries

Source: SEAISI 2006 report

Table 2.2 shows costs of products (US$/T) and wage per ton (US$) of some Steel Producing Countries Making a comparison there, we could see that the wage per ton of steel (in average) of Vietnam is nearly the same of Taiwan, higher than of other countries, specially ten times higher than of China, while the cost of living in Vietnam is considered the lowest of those

2.2 THE ENVIRONMENTAL FACTORS IN ORGANIZATIONAL PERFORMANCE IN VIETNAM STEEL INDUSTRY (SOES)

Through the complexity of the organizational environment mentioned in chapter 1,

we can find there are major social, political, cultural, legal, physical, economic, and technological forces affecting the organizations today Other major influences include changes in management theory and changing assumptions about people in organizations All are contributing to the growing importance of understanding how

to manage human resources effectively and to the growing importance of the human resources function in organizations Moreover, they all are changing, rapidly That is, too many variables must be considered in human resources management The situation is such circumstance of Vietnam Steel Industrial SOEs

To simplify the problem, following the modernist perspectives of organization environment, we group these influences into three categories: (1) the external environment factors, (2) the internal environment factors, and (3) the outcomes of the organization, these are illustrated in the model in figure 2.2 These categories of influences tend to be interrelated, however, in some real cases are conflicting and paradoxical Management must pay attention to these factors if the organization is

to survive and prosper over the long term We would refer some influences as following

2.2.1 External environment factors

External sectors such as the human and cultural factors, the technology, the natural resources, the economic factors, the regulatory measures, and markets with the globalize competition, influence activities within the organization

2.2.1.1 Among human and cultural factors that affect organization performance are

technical and managerial skills and abilities; values people hold about the treatment of others and about the products of the organization, attitudes about work and leisure, about collective action, about participation in decision-making and problem solving

In aspects of human and culture, external environmental factors seem have quite good influence on SOE organizations For SOEs in steel industry, their technical and managerial skills and abilities have been acknowledged

Techno

&Physical Resources

Financial Resources

Org Culture &

Climate Team&Inter

Behavior&

Performance

Individual Motivation&

Performance

Leadership Style

Management Philosophy

Structure

Human Resource Manageme

Participant Satisfaction

fairly good stock, standardized, cultured for years People are used to appreciate that their treatment of others is quite equal, fair, with high democratic spirit, and that their products are tightly quality controlled, with higher quality, compared to other sectors’ Social appraisal of SOE workers’ balance between work and leisure is positive, though their jobs, making steel, are considered as slave labors Those factors have created a good reputation for SOEs

However, there are human and cultural aspects in terms of lifestyles, background, and worker expectations about life circumstances, changing gradually over the years That leads to the changing workforce and changing expectations First, where people are willing to live and work is becoming a serious issue for a significant number of workers While making steel firms have to move to a particular industry zone for the environmental problems to the public, the number of workers refusing to work at the new location gets bigger and bigger This is the cases of Nhabe Steel Works and Tanthuan Steel Works at the end of year 2006 Instead of waiting for the new plants erected to work, nearly 70 percent of the workers would choose to entire or stop working Another example is the case of PhuMy Steel Plant With advantages in conditions of work place, equipment and technology, accommodation, payment… the new and most modern plant for making steel in Vietnam now would also find it difficult

to maintain their workforces because of its location in Baria province, 70 kilometer far from Hochiminh city

Second, the worker background is now improved more and more Figure 2.1 shows that in the year 1985, there was only 3.21 percent of employees had graduated from universities and colleges In the year 2006, the scale is 14.39 percent Another factor is the rate of trained workers to total employees: 63.3 percent in 1985 and 71.35 percent in 2006; in which trained workers at over 6th grade is 5.81 percent in 1985 and 20.02 percent

in 2006 One implication of this trend is that organization needs to look continuously to see whether talents are being used, whether jobs are sufficiently challenging, and whether there are avenues for advancement

Additionally, the higher a person’s education, the higher his expectations about challenging and interesting work The survey result also shows that employees with bachelors and over, rank “challenging and interesting work” first in a group of ten factors Those with associate degrees rank this item third, and employees who had not completed high school rank it tenth However, in such industry as making steel, especially in public sector, works could be considered no “challenging and interesting” at all The expectation of workers is something unbearable

Another concern is the quality of work life, the concept that encompasses the entire range of organizational life One has provided eight criteria for analyzing the quality of work life in an organization (see box 2.1)

In brief, in human and cultural aspect, there are both positive and negative external environmental impacts on organization in general, and on the morale of workers as well

2.2.1.2 The factor technology includes not only equipment, but also techniques for

using the equipment and the theoretical and applied knowledge behind it Modern designed equipment requires the operators a higher standard of knowledge and comprehension An operator has to know how to readjust the setup, both in mechanics and in electrics systems He also comprehends wider range of theories to serve the job properly Those things could not find twenty years ago, when equipment was adjust manually, and the technology was trials and errors The factor has triggered the needs of reeducating, retraining and upgrading knowledge and skills in employee community Besides, technological innovations create rapid changes in the nature of work and the way work is organized Number of workers working

in a shift should be decreasing, while each worker has some more duties in lines That gives way for the trend of downsize performing in industry, and puts multi direction pressure on workers Further, there has been widespread sharing of technology among enterprises in industry The sharing helps improving output capacities, decreasing cost of production, yet it leads to copycats phenomenon That industrial espionage, an illegal

form of technology sharing, has also appeared makes the markets much stiffer, and even worse

technology-Box 2.1

Eight criteria for analyzing quality of work life

1 Adequate and fair compensation: one criterion is the extent to which “the

income from full-time work meets socially determined standards of sufficiency” and the extent to which compensation is perceived as fair by the employee

2 Safe and healthy working conditions: this criterion includes the extent to which

working conditions minimize health and injury risks

3 Opportunity to use and develop human capacities: this criterion is the extent to

which the job involves a whole task rather than fragments of tasks In addition, it includes the extent to which the job involves planning activities as well as implementation activities, allows “substantial autonomy and self control”, and

provides opportunity to use a wide range of skills

4 Opportunity for continued growth and security: this includes the extent to which

employees are encouraged to develop their capabilities rather than allow them to become obsolete, the extent to which there are opportunities for advancement, and the extent to which there is reasonable job security

5 Social integration in the work organization: this includes the extent to which

there is freedom from prejudice and the opportunity for upward mobility in the organization It also includes the extent to which organization members experience group support and a “sense of community” that extends beyond the immediate work group

6 Constitutionalism: this includes the extent to which the organization adheres to

the concept of due process mentioned earlier and honors people’s rights to privacy

7 Balance role of work: this refers to the extent to which the organization avoids

interfering in an appropriate balance between work and other spheres of employees’ lives

8 Socially beneficial and responsible work: this reflects the extent to which the

employee sees the organization as being socially responsible in its products, its disposal of wastes, its employment practices, its dealing with other countries…

We would see there factors influencing the environment of organization 2.2.1.3 The nature and natural resources are other important external factors,

affecting what the organization does and how well it performs There are concerns in using natural resources, in preserving the natural environment The exploitation of nature to serve the business now put enterprises in front

of the public with the higher awareness of preserving the nature

2.2.1.4 Regulatory measures – laws, court decisions, and administrative regulations

– also influence how organizations function and have particularly strong implications for human resources management Labor Code, Business Law, Labor Union Code, with their provisions are amended gradually and systematically to make the business environment more open and explicit, but let organizational management more lawful

2.2.1.5 Economic factors include markets – the number of people wanting a certain

product, the purchasing power that people have, the level of employment and unemployment, and the competition that exists for markets and resources Since DoiMoi policy was enacted, every market has been developed, and the demand for goods has been increasing This brings opportunities for enterprises to growth, but the challenges of competition higher and higher, for new enterprises with healthy budget mushrooming over the country This is the recent real context of Vietnam Steel Corporation Enterprises from various sectors and various original professions, with various technological equipment and various output capacities, equipped with various ranges of capital are now rushing the steel market, making the context much more confusing, stiffening

Among the factors mentioned above, we need to consider the markets’ globalization – competition, the most encumbering aspect of external environment,

is more and more intense, likely to impact on all other factors

First, there are impacts on cost and availability of natural resources That is for the scarcities of raw materials and energy, when the production is scaled up to meet the heavier and heavier demand That China, the country with the biggest steel output capacity in the world, is the most iron-ore, coal, and oil consuming one, makes the

supply resources frequently in shortage, the most frequent difficulty to Vietnam Steel Industry

Figure 2.3 Markets with globalization-competition,

the most encumbering aspect of external environment

External

Environment Internal Environment of the Organization

Organizational Outcomes

Second, there are impacts on cost and availability of technology used in the society The rapid technological innovations and the widespread sharing of technology –techniques for using the equipment and the theoretical and applied knowledge behind it – contribute to the price war in steel industry, really An example of widespread sharing of technology that tension on competition in pricing is the production of low-cost Asian, especially Chinese, copycats Through the build-up and development history of VSC, we can find out that its firms mostly use equipment that applied obsolescent technologies, while some private enterprises in the same industry can invest in equipment with the Chinese copycats mentioned above: relative low quality, but low cost and modern technology

Techno

&Physical Resources

Financial Resources

Org Culture &

Climate Team&Inter

Behavior&

Performance

Individual Motivation&

Performance

Leadership Style

Management Philosophy

Structure

Human Resource Manageme

Participant Satisfaction

Moreover, the globalize competition has also brought heavy economic pressure resulting on the requirement of restructuring, i.e downsizing and outsourcing, and the prevalent changing social contract, i.e the implicit understanding, between employers and employees In SOEs of Vietnam Steel Industry, there have been waves of downsizing since 1985, down the organizational dimension from 22,568

in 1985, to 11,213 in 2006 Other trend is the outsourcing in term of labors with fixed term contracts, with the number of contracts of such kind is zero in 1985 to 2,044 in 2005, and to 1,113 in 2006 Whether the outsourcing and downsizing of the organization effectiveness is the matter that would be discussed in the next chapter, Staffing

Transportation, distribution and communications are of important factors that Vietnam Steel industry has to deal with in globalize competition Advertising is still unusual, and the distributing network is developing in local only

The globalize competition has made influences on national law and regulation system, too

We can find that the external environment factors have very strong impacts on organizational life and on human resources policies and procedures, yet management may have only limited control over these factors Understanding and coping with the external environment is an important part of any effort to improve organizational performance, and human resources managers must constantly adapt their activities to these factors

2.2.2 The internal environment factors

The internal factors are aspects over which management and employees together have a great deal of control In particular, management has extensive control over the organization’s human resource policies and practices; the financial, technological and physical resources it uses; and its structure, management philosophy, leadership style Factors that are managed less directly include organizational culture and climate, and motivated behavior and teamwork

2.2.2.1 Human resources management – policies and practices – is of primary

importance to the organization’s survival and long-term success The knowledge, skills, and values of managers and of all members of an

organization – and the extent to which these are used – will have a major influence on the organization’s effectives The way in which these dimensions of knowledge, skills, and values are melded into high motivation and teamwork in the pursuit of organizational goals is particularly important

In fact, how well these human resources are managed is probably the most critical factor in an organization’s overall performance

Thus, human resources management involves not only individual performance but also the performance of people in twos, such as the interaction of a supervisor and a subordinate or an employee and a customer;

in groups, such as work groups, task forces and project teams; and between groups or units, such as the interaction between manufacturing and marketing personnel Further, it is necessary to think not only about the quality of those relationships but also about how they are influenced by human resources management

This will be analyzed more carefully in following chapters

The financial resources, technological and physical resources, and structure are factors that are not directly “people” dimensions However, it is obvious that their

effective management is crucial to organizational success Further, they are intertwined with the people aspects of organization life in myriad ways

2.2.2.2 Financial resources obviously are important to organizational success If the

owner or managers of a company cannot raise the money they need to buy necessary equipment and supplies or to employ skilled workers, the organization will be ineffective and may not survive If cash flow is insufficient to make payments on debt or to meet payrolls or is insufficient to conduct an effective marketing effort, an organization can quickly find itself

in dire circumstances Conversely, a strong, ongoing cash position can provide an organization with many opportunities, including a stable salary and benefit structure that permits recruitment of people with important skills necessary for long-term growth and profitability Noticing that Vietnam Steel Corporation has been in financial difficulties, continuously in debt, we can imagine how troublesome is the problem to the managers in operating the organization The typical example is the case of PhuMy Steel Plants