Evaluate Workforces in Emerging Economies

Think strategically about where to locate international facilities by comparing quality of workforces.

The term “emerging economies” first appeared some 25 years ago as a means of distinguishing third-world countries that exhibit economic potential. While that remains a useful distinction for investors, HR professionals need to hire, train and retain workers with more than just potential. They need workers who can get jobs done.

What countries among emerging economies fill the bill in a hypercompetitive global market? The obvious answers may not be the best ones, for in a rush to tap human resources of rapidly growing “BRIC” countries—Brazil, Russia, India and China—business leaders may be shortsighted. Long-range planning requires a bifocal view on human capital. While the talent, opportunities and challenges of BRIC countries may be in the foreground today, talent pools of other countries are rapidly gaining relevance.

Other countries—Malaysia, Mexico, the Philippines, Poland and Slovakia, for instance—already meet many business goals and are attracting corporations seeking less competitive environments than the BRIC countries provide.

But before committing to development of a facility in an emerging economy, HR professionals should make sure they work with the right standards and measures to match workforce strengths with their organizations’ needs. This requires evaluating workforce quality with readily available international standards as well as the qualitative yardsticks applied to domestic workers.

“The emerging economies can be an important solution for companies, depending on their industry sector,” says John R. Wilson, president of national immigration law firm GoffWilson, based in Nashua, N.H. For high-tech manufacturing, for example, he recommends Vietnam, Thailand and Poland because of their well-educated workers.

What’s ‘Emerging’?
From an HR perspective, emerging economies feature growing numbers of workers who demonstrate an ability to function effectively in business—specifically, your business—and a recent increase in the pool of college graduates. But these two indices provide too narrow a perspective.

A more useful, HR-centric definition of emergence may be applied to countries that demonstrate sustained growth in the knowledge, skills and abilities of their people. Emerging countries typically progress through three stages of development as workers, on average, achieve academically and spend more time in the workforce:

Stage 1 countries feature predominately young, trainable workers and low labor costs.
As countries and industries grow into these stages over time, they present opportunities to different companies. First-stage countries such as India and Vietnam have had a recent influx of young people, particularly college graduates, in the workforce. Other countries—such as Poland and Slovakia—entered that stage years ago, and they have kept up the pace of academic and work-experience growth. Other countries have built solid workforces and now see increasing numbers of workers with specialty skills and refined industrial experience in their workforces—examples include Singapore and South Korea.

Stage 2 countries supplement the Stage 1 workforce with workers who leverage prior experience toward value-added applications, such as troubleshooting or oversight, records processing, design of software solutions, or supervision of others.

Stage 3 countries have also developed a sizable contingent of workers with world-class specialty knowledge in a variety of industries, such as biotechnology and hedge funds.

While all three stages exist in every country and some industries develop faster than others, the third stage takes years to develop on a large scale. For example, India, with pockets of specialized workers in computer technology, health care and other categories, and with continually growing pools of new talent, has yet to develop a large contingent with specialized skills or the long-term industry experience that many businesses require.

Different stages of emergence are, logically, suited to different businesses. Call centers or other functions where workers require little experience—and can be trained in a few weeks or months—are best-suited for a first-stage country, as are compartmentalized groups that rely less on constant communication with other parts of their organizations. Many back-office financial or digital-processing operations take advantage of current wage differentials by moving into countries entering the second stage of development, such as Mexico or the Philippines.

For organizations that require a well-stocked talent pipeline with years of industry experience or highly specialized skills, HR professionals should investigate third-stage countries such as South Korea or Singapore.

Labor Quality
Educational attainment and foreign direct investment serve as readily available measures to gauge, compare and contrast countries’ stages of emergence. These blunt and relatively easy-to-find measures distinguish countries with labor quality compatible with your needs. Specifically:

Educational attainment measures people age 25 and older with a post-secondary education. As this segment of the population grows and gets work experience, there are more people with a base level of knowledge to support the knowledge economy.

Foreign direct investment creates a starting point for gauging the volume of other organizations that have already entered the marketplace, as larger investment suggests that the workforce has more opportunities to gain expertise.

In addition to the education of entry-level workers, look at the attainment of experienced workers. For emerging economies such as Poland, even experienced workers age 35 and older generally have a post-secondary education attainment rate of higher than 20 percent, indicating established knowledge and skills compared with other emerging economies. On the other hand, more-developed countries such as Singapore and South Korea for the most part have witnessed steady growth of educational attainment over time, resulting in a large proportion of the workforce, spanning many age groups, with post-secondary education. This could be a path emerging economies take to reach the third stage of development.

Next Steps
Understanding a country’s developmental stage provides an idea of the quality of the labor pool. The next step in a location decision requires assessing quality measures inherent in your present workforce. Investigate graduation rates of workers in the disciplines your organization recruits and employs.Then, keep an eye on where suppliers and customers move to. If they are present in a country, you should be there. Ask business partners who have operations abroad how new plants or offices compare with their other operations.

For example:
Do they offer additional training for new hires?
Do they hire five people with the expectation that only one will still be employed in a year?
How long did it take to get operations running compared with their other locations?
Ultimately, each manager’s definition of quality will be different. For some, cutting-edge computer skills benchmark quality. For others, a command of English with a Midwestern accent will be required. Still others demand adherence to the supervisor’s point of view. Generally, labor quality speaks to how efficiently individuals can perform the jobs.Often, analysts must get creative in assessing labor quality. If your business requires workers with prior experience, investigate what jobs are being filled or check out government statistics on occupations.

If only a handful of workers qualify for the jobs you need to fill, look elsewhere or brace your organization for a substantial investment in training. Many organizations undertake novel data collection by conducting market research—not for customers but for workers—or infer labor-market patterns where data do not exist.Organizations that already have footprints in emerging markets and now face decisions on where to expand actively mine data collected through recruiting and HR systems to gauge the quality of workers from local universities. By further linking such data to how those hires perform in their first few years, managers can compare those workers’ performance to that of employees in other locations.

Consider:
How many applications pass an initial screening?
What percentage of offers are accepted?
What percentage of hires stay with the organization for more than six months?
What percentage of hires receive a promotion or higher ratings in the first few years?
As an alternative, ask your finance department to review what, if any, companies would be viable acquisitions. Even if you do not bid on the companies, you will uncover organizations that perform similar work in the area and gain an overview of competitors for talent. Perhaps you may even find places to recruit.

“You have to fight for managerial talent in finance, purchasing or IT in some of these countries,”

“As Poland joined the European community, for example, there was a lot of mobility among its skilled workers, with about 2 million of them going to Great Britain, Ireland and Spain for work. And so the people with the right education in emerging economies are often looking for status, company cars, better health plans, guarantees of promotion written into their contracts—and yet hiring them is still less expensive, overall, than the typical expatriate scenario where you are importing people into these countries.”

Set Realistic Quality Bars
In addition to being informed about the types of workers in different countries, be realistic about the training your organization will provide new hires. Be careful of imposing artificial barriers on the types of employees who could work for your organization. While call center representatives may need functional English, do they need college degrees? Do clerks need polished client skills if they never interact with customers?

If your organization invests in training, your tolerance for lower-quality workers could serve you well. In many cases, being first to move into a country offers cost advantages that do not disappear with training expenses. For some managers with the luxury of slower startup times, the savings overshadow the option of tapping an experienced and expensive workforce. For other leaders, the extra costs and hassle of filtering through candidates, coping with turnover and facing potential customer losses persuade them to seek experienced workers.

Similarly, not every branch has to work seamlessly with other branches. Consider how operations coordinate with existing ones.

Ask:
Will this location substantially feed our executive pipeline in five years?
How soon will this workforce realistically be integrated with existing operations?
Do all hires need to directly communicate and interact with colleagues and customers around the world?

Identify Cultural Differences
Culture covers aspects ranging from hiring and firing regulations to how individuals accomplish their jobs. There’s no good or bad, just different approaches—such as a workplace culture that requires more direction from managers, or one where workers talk through the issues.

Overall, Latin America has some of the most rigid employment regulations, followed by Eastern Europe. In contrast, Asia has more-flexible labor-market legislation, with the exception of Indonesia.

Once you select a site, opening an office abroad requires an understanding of how business gets accomplished there and how that differs from your style. Sometimes, it is better to keep functions separate rather than make everyone work together. Many successful offshore operations compartmentalize and allow the existing culture to dominate.

Two dimensions of management differences across countries highlight the point. Workers in Latin America, Eastern Europe and Southern Asia tend to be more team-oriented, according to research in “In the Eye of the Beholder: Cross Cultural Lessons in Leadership from the Project GLOBE,” published in the February 2006 issue of the Academy of Management Perspectives. Managers in those regions emphasize effective team building, defining common purposes, and goals among team members more than in Anglo areas such as Australia, Canada, England, Ireland, New Zealand, South Africa and the United States, and in Confucian Asian areas such as China, Hong Kong, Japan, Singapore, South Korea and Taiwan. Workers in Latin American, Southern Asian and Anglo countries are also value-based.

Leaders in these areas like to inspire and motivate, and they expect high-performance outcomes from others based on firmly held core beliefs, more so than Eastern European or Confucian Asian leaders.

Consideration of the methods used to accomplish work may alleviate the need to either adjust organizations’ current work arrangements or limit the “qualified” pool of workers in emerging countries.Ultimately, a careful assessment of the different stages of emergence—and how well they align with your business needs—will focus efforts on countries with the right mixture of quality and cost advantage. --