Sunday, March 14, 2010

Developing competencies during the economic downturn (Part II)

In this blog I present two examples of countries that have successfully created what the ILO describes as a “virtuous cycle”, which consists of developing competencies around an articulated business strategy to achieve high levels of productivity and high levels of employment. These countries are China and India, two very different countries in terms of their socio-political characteristics, but very similar for effectively aligning the development of competencies with broader employment strategies that allowed them to become two of the fastest growing economies of the world.

What are the main lessons learned?

The analysis of China and India provides important lessons to practitioners on how to implement competency-based programs to meet talent demands of key occupational sectors. These lessons are easily transferred to other countries and organizations interested in achieving higher levels of productivity for people, employability in the formal economy, and improved economic and social conditions for all.

Despite the precarious economic and social conditions lived by these countries, they made a series of programmatic actions that positively transformed their economies, including the following:


  1. Implemented macroeconomic reforms to attract foreign investment and increase employment levels.

  2. Aligned policies and incentives to foster employment in key occupational sectors.

  3. Implemented cost-effective learning actions to achieve radical improvements of productivity levels. These actions included reforms to their educational systems, partnerships with private sector organizations, and incentives to make training available to the poor.

  4. Built a solid infrastructure, with roads, ports, and airports to properly manage the distribution of manufactured products and services.

The series of actions implemented, demonstrate that the “secret formula” relies on alignment of key elements around a compelling business strategy, commitment of stakeholders, and continuity of actions.

The economic growth of China: programmatic change with a clear objective: improve productivity levels and employment

In 1976, when Mao-Tse Tung died, China was one of the poorest countries on earth. Deng Xioping the new leader of China initiated a new administration with radical macroeconomic reforms. At the outset, Deng Xioping focused his reforms on rural China. These reforms had an immediate impact on productivity levels, raising the annual income of Chinese peasants 15% on average (Meredith, 2007).


After the initial success, Xioping created special zones across the border where foreign companies could manufacture products to be sold in other countries. Companies benefited with low taxes and low salaries, and the strategy generated employment for millions of people. As a result, China dramatically increased exports of manufactured products. From 1996 to 2000 the Asian country grew auto parts exports from $1.3 billion to $9 billion. In 2001, China exported $20 billion in computers, cell phones, CD players, and other products. By 2004, China exported $180 billion more than any other country in the world (Meredith, 2007).

China built a modern infrastructure of roads, airports, railroads, and ports to distribute all merchandises manufactured in the country. According to Meredith (2007), the most remarkable growth in infrastructure has been in their roads and highway system:



“In 1989 China had only 168 miles of expressways; by 2004, they had built 21,500 miles. By 2010 it plans to have 40,000 miles and by 2020 nearly 55,000 miles equal to the total length of the American highway system” (p. 28).

China taught us a powerful lesson on how to make a seamless integration of unskilled people into the labor market. Peasants coming from rural China were trained to work in the special manufacturing zones. The development of a competent Chinese workforce was not easy. Rural workers and workers that came from bureaucratic government jobs required time consuming training to develop needed competencies. The training was part of the agreements negotiated by the Chinese government with foreign companies. These companies, attracted by low salaries and low taxes, trained Chinese workers in the latest manufacturing methods and technology.

The economic success of China was a combination of proper macroeconomic policies to attract foreign investment, the creation of employment in key occupational sectors, important investments in infrastructure, and the development of a competent and flexible workforce.

If China could improve their economy in such a dramatic way, other countries can initiate a virtuous cycle too. Still China has important disparities to solve; there is a big difference in salaries from people in rural areas to those working in the special manufacturing zones. The environment is another area of concern, especially in important cities that suffer from high pollution levels of the air and water. But maybe the most critical area for improvement for China is the creation a more democratic system. Today China enjoys economic freedom, but not political freedom.

Here comes a more elaborated question: how can we implement a virtuous cycle with consistent growth in the social, economic, and environmental areas?

The rise of India and its transformation to the prime global IT center

India obtained his independence from Britain in 1947. After that, India remained in self imposed economic exile for decades as a result of their social leaders’ views Gandhi and Nehru who dreamt of India as a self sufficient country. During decades India’s kept many companies state-own and protected from outside competition. The antimonopoly laws caused inefficiency and bureaucracy. In addition, the Indian government approved generous laws for employees (Meredith, 2007).

In 1991, India faced a dramatic economic and political crisis. To get out of the crisis, the International Monetary Fund (IMF) provided a $2 billion recovery loan conditioned to the implementation of a series of macroeconomic reforms. The government initiated a series of actions that included the devaluation of the Rupee by 20 percent to improve exports, the increase of interest rates to 11 percent to attract deposits, and the abolition of export subsidies.

The Indian government continued the initial reforms during the following years, allowing foreign investment in the state-own companies, eliminating antimonopoly laws for big companies, lowering income taxes, and allowing mutual funds and foreign investors to buy shares of Indian companies on the Bombay stock market.

As a result of the economic measures the economy grew fast, unemployment levels started to decrease, and inflation dropped to single digits. The debt was paid down and foreign exchange reserves built back up.

India’s rapid growth was accompanied by the development of a competent workforce in the modern services sector, including transport, communications and manufacturing. Still, the nation has a challenge to supply with qualified people the demands required to back up the country’s development plans. The Planning Commission’s strategy included specific objectives to expand and improve the quality of training to address the nation’s skills gap. These objectives focus on making education and training efforts relevant to the labor market needs and to improve the access of poor and vulnerable people to skills development opportunities (ILO, 2008).

India’s Prime Minister Manmohan Singh declared at the Indian Labor Conference the need to create an adequate infrastructure for skill training and certification.


“The challenge … is to increase the skilled workforce from 5 per cent at present to about 50 per cent. To make our working people employable, we must create adequate infrastructure for skill training and certification and for imparting training. Industrial Training Institutes must keep pace with the technological demands of modern industry and the expanding universe of technical knowledge” (April 2007, New Delhi).


Developing competencies during the economic downturn

The development of a competent workforce increases productivity levels and attracts employment. The impulse to the economy benefits the economic and social conditions of people, raising education levels and improving their future employability in the formal economy. Yash Gupta, the Dean of Johns Hopkins Carey Business School, revealed the sustained increase of college education in China and India (2009).

"As is often the case these days, we must consider the impact of China, where the number of college classroom seats rose from about 6 million in 1999 to 18 million in 2004. China has continued to add 2.5 million seats each year. During the same five-year period the number of places in Indian universities climbed from 9 to 12 million” (p. 3).

The rise of China and India has been effectively supported by the development of skills and competencies required to meet current and future needs. Those countries have properly aligned skills and competencies with macroeconomic policies and broader employment and development strategies that fostered productivity levels and increased their competitiveness in a globalized business context.

The development of competencies requires a customized approach to respond to labor markets needs

The development of competencies around an articulated business strategy requires a customized approach, targeted to the characteristics and challenges of the different labor markets. The ILO report (2008) summarizes training needs and challenges faced by countries.

  1. European countries with a strong tradition of vocational training need to restructure their training and educational systems to better respond to needs presented by the globalized business economy.

  2. Developing countries face a dichotomy. The majority of workforce are low skilled and work in the informal economy, while some people that work in key sectors, enjoy high productivity and high employment levels. These countries face a challenge to recognize skills acquired informally, and to integrate trained people in the formal economy. In addition, training programs should focus on developing entrepreneurship skills to foster the formalization of small enterprises.

  3. Least developed countries are trapped in a vicious cycle caused by inadequate education, low skills, and low productivity. Their challenge is to reform education and training systems to develop skills needed in the formal economy, and making it available to the poor. In addition, these countries need to create partnerships with private sector organizations, using apprenticeship training, and leveraging training acquired in organizations with training acquired in educational institutions.

The creation of a “virtuous cycle”

The ILO reinforced in its International Labor Conference (2008) the importance to invest in developing skills to promote and sustain economic development. Furthermore, the ILO emphasizes the responsibilities of governments and social partners to develop a “Virtuous Cycle” and defined a framework with five areas:


“(1) to boost skills development at the workplace and along value chains; (2) to help manage global drivers of change; (3) to allow early identification of current and future skills needs to feed national and sector development strategies; (4) to link education, skills development, labor market entry and lifelong learning; and (5) to promote social inclusion by extending access to education and training for those who are disadvantaged in society”. (p. vi)


Governments, institutions and individuals have an important role to play to accomplish three main objectives: matching supply to current demand for skills, effectively adapt to change, and developing skills required in the future. Furthermore, as emphasized by the ILO, employment policies should also promote respect for employee rights, safety standards, social inclusion and equality, and the development of a sustainable business environment.

References:

International Labor Conference, 2008, Report V, Skills for improved productivity, employment growth and development. International Labor Office, Geneva, ISBN 978-92-2-119489-7 ISSN 0074-6681, First edition 2008


Johns Hopkins Carey Business School (2009). ONE: One world, one future, one school

Meredith R. (2007). The elephant and the dragon: the rise of India and China and what it means for all of us, W.W. Norton and Company, NY.

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