The Dutch multinational Philips made a deal with the Zambian government a few years ago to provide medical equipment and technical expertise to improve Zambia’s hospitals. But as the project went forward, it became clear that there were not enough local radiologists, nurses, or other health care personnel with the skills to operate the new equipment.
Philips eventually provided the needed training, according to a report from the World Economic Forum Council on Emerging Multinationals. But the firm’s experience reflects a lesson that continues to be repeated for established firms moving into developing markets. The French firm Renault, which in 2012 opened North Africa’s biggest automobile plant in Melloussa, Morocco, “still has some unfilled positions because of their issues in the local labor market identifying the right talent,” according to Branka Minic of Future Work, a Miami-based consulting firm. Minic adds that Renault has very high standards for safety and productivity, so the local labor force “has to quickly rise to that occasion.”
“And it’s not just about managerial and high-level college graduates. It’s also about technician and operator level [jobs],” she says.
While companies in the developed world continue to wrestle with hiring issues, emerging multinationals now find themselves shoulder-to-shoulder with them in the “talent war,” both inside and outside their own borders. A recent McKinsey report noted that in 2006, the top 10 “ideal employers” in China included only two local companies — China Mobile and Bank of China. The rest were well-established multinationals. By 2010, seven of the top 10 were Chinese firms. The report noted, “Fast-moving, ambitious local companies are competing more strongly [for talent].”
The phenomenon of emerging multinationals expanding into other emerging markets, as well as wealthier markets, is likely to continue and accelerate, predicts Ann Harrison, a Wharton management professor. She notes that the trend is reflected in today’s foreign investment patterns. “What you saw in the past was 80% of foreign firms were rich, and they were going to other rich countries. Now you’re seeing a lot more investment moving to poorer countries, from the rich countries as well as from emerging multinationals. So it’s a really different composition of foreign flows.”
“[Emerging multinationals may] suddenly hit the wall because they cannot [develop] talent with the right skills and the right attitudes…. This was not at the top of their priority list as they were growing their business.” –Branka Minic
“Fast-moving, ambitious companies” may be competing more strongly as the McKinsey report said, but even as they reap the benefits of doing business on a global scale, they are feeling some of the same pain when trying to hire. For example, growth in the mining industries in Brazil and Mongolia has led to shortages of engineers, technicians, drivers and laborers, according to a recent article in Innovations authored by several members of World Economic Forum councils. The paper also noted that the outsourcing boom in India has slowed in recent years, partly because of concerns about the quality of graduates from India’s educational system.
Subramanian Rangan, a professor of strategy and management at INSEAD and chair of the World Economic Forum’s Global Agenda Council on Emerging Multinationals, says that although emerging market economies may be growing at between 3% and 7% a year, contrasted with developed country economies, which are growing at around 1% to 2%, the bottleneck for those emerging economies is that “they are usually going to be constrained by talent.” Minic adds that for some emerging multinationals, this may be a rude awakening. Focused on business challenges such as productivity, efficiency and profitability, they may “suddenly hit the wall because they cannot [develop] talent with the right skills and the right attitudes.… This was not at the top of their priority list as they were growing their business.”
Winning the Talent War
According to Rangan, emerging multinationals have a couple of possible routes when seeking to hire talent. They can keep slugging it out for the top quartile of the most talented people already in the market, or they can support education and training programs to increase knowledge and skills for populations in the developing world. By doing the latter, they will be helping to improve their own countries’ economies over the long term. But Rangan emphasizes that there are no fast or easy solutions. “Capitalism — which is what [emerging multinationals] are going to be part of — is an idea that works on markets, but we know that many markets don’t work. The market that works worst is the labor market … with humongous and sometimes permanent human consequences.”
Harrison and Minic note that while there is a worldwide race toward talent and skill, educational institutions are not keeping pace. “I don’t think anybody has figured out, really, how to synchronize how we implement education and training versus how quickly the labor market changes,” says Minic. Even the “most sophisticated countries are challenged by this.”
“It’s a problem all over the world,” agrees Harrison.
Shantanu Prakash, founder of the private Indian education company Educomp, notes that one of the defining characteristics of a 21st-century corporation is that “the shelf life of skills is very short.” He gives the example of today’s perceived shortage of coders in computer programming. There are, in fact, plenty of coders; the scarcity is actually of individuals who know certain new applications. “Education has been working at one generation behind the needs of industry,” he says. “There has to be some way or some model in which you eventually disrupt this dysfunctional system.”
“The market that works worst is the labor market … with humongous and sometimes permanent human consequences.” –Subramanian Rangan
The Role of Private Companies
Private enterprise may offer one route to “disrupting a dysfunctional system.” Prakash founded the emerging multinational company Educomp in India in 1994, and now serves as its chairman and managing director.Educomp bills itself as “the only company spread across the entire education ecosystem, from schools to skills.”
He said Educomp offers a career-based curriculum, preparing students for future jobs. A key component is the use of multimedia-rich digital content; in fact, Educomp holds that it is the leading company worldwide in the area of digital content for education. The firm has offices across India, as well as in Singapore, South Asia, and the Middle East and Africa, plus a presence in the U.S. through its affiliate, Learning.com. According to the company, more than 30 million students and teachers in 65,000 schools have used Educomp’s programs. Lately, says Prakash, the company has been working in the cloud space and with various educational applications for Android and iOS devices.
Public-private partnerships are also a focus. Educomp works with India’s state and central government agencies to set up IT labs in schools, provide skill development programs for businesses, and other activities. “A lot of our stuff is really at the bottom of the pyramid,” says Prakash, meaning it targets some of India’s most disadvantaged citizens.
“In many parts of the emerging world, access to education is challenged,” notes Prakash. And even in regions where there is access to education, “you have the problem of many educated people who have a degree, but they’re unemployable.” He adds that the quality of teaching is extremely important. “Teachers are often underpaid, unrewarded, and the best human capital does not go into teaching jobs.… So we have done a lot of work in the area of leveraging the technology and digital content to help teachers become more productive.” Especially because “the future generation of citizens that we are going to create depends on what kind of teachers we have in the classroom.”
An Apprenticeship Solution
Another initiative that tries to align industry and education has been mounted by the World Economic Forum’s Council on Emerging Multinationals in conjunction with its Council on Youth Employment. The work-in-progress, called TEN Youth (“Talent Enterprises Need: Youth”) simultaneously tackles emerging multinationals’ human resource challenges and the global problem of youth unemployment. (Rangan notes that while the jobless rate runs high in many nations, youth unemployment — meaning individuals in the age range of 15-24 — typically runs about twice the average.)
In crafting the initiative, Rangan says, the Council first considered the so-called Germanic model. Countries including Germany, Switzerland, Austria and some Northern European countries like Denmark are known for having low youth unemployment. Their secret: a well-established apprenticeship system. But the Germanic model costs “tens if not hundreds of thousands of euros a person,” which makes it cost prohibitive for many developing economies.
“Education has been working at one generation behind the needs of industry…. There has to be some way or some model in which you eventually disrupt this dysfunctional system.” –Shantanu Prakash
However, inspired by the apprenticeship idea, the team decided to create a “lean” version. (“We said, we don’t need a Swiss watch…. Let’s go for a Swatch,” says Rangan.) The TEN Youth model focuses on building specific skills rather than broad-based training, and outlines apprenticeships that last weeks or months rather than years. The goal is to have trainees start being contributors to the business within the first year. Plus, the model can be tailored to a company’s own growth priorities, such as profitability, innovation or productivity.
In addition to apprenticeships, the TEN Youth model focuses on mentoring, which Rangan says is essential for nurturing key attributes such as reliability, problem solving and the capacity to work independently. Minic, who is a consultant on the TEN Youth initiative, outlines an all-too-common scenario: “A person might have the right technical skills in the workplace, but [maybe] they don’t know how to get along with others, or they’re not there every day. Or they become angry and break something.”
To date, the TEN Youth model has been experimented with by Prakash’s company Educomp; another Indian company, Infosys; Jordanian firm Aramex, and Serbia-based IT firm ComTrade. A number of other firms have expressed interest, including companies from Egypt, the UAE, South Africa, Turkey, Germany, Switzerland, the Philippines and the U.S. But Rangan says that although the project was well received, it has turned out not to be scalable. So for the past year, the TEN Youth team has been converting its model into a self-help app — what he calls “mentoring and apprenticeship in a box.” He anticipates the mentoring module will be ready for launch by January 2016.
The apprenticeship idea is also being applied by other organizations to assist both industry and populations in the developing world. For example, Education for Employment operates in several countries across the Middle East and North Africa, collaborating with local enterprises to create recruitment and training programs. NetHope partners with Microsoft to create internships for unemployed youth in Africa, Latin America, and Haiti.
“Employers are realizing the risks of having this vast cohort of young people who are not engaged in employment, not engaged in schools … and basically creating problems for everybody,” said Minic. In her view, there needs to be “a more concerted effort” by emerging multinationals to upgrade their talent strategy. “The problem will not be solved by just hiring and firing people when they don’t work out.”