By: Fabrizio Opertti, Chief of the Trade and Investment Unit of the Integration and Trade Sector of the IDB
Pablo M. Garcia, IDB Regional Trade Hub Lead Economist
One of the key effects of global services is the creation of a “world wide web” of jobs, from general tasks involving Business Process Outsourcing (BPO) activities such as those in call and contact centers to extremely specialized tasks involving Knowledge Process Outsourcing (KPO) activities such as legal services or research and development in the medical and pharmaceutical industries. This means that human capital lies at the core of the industry and that foreign direct investment in this sector is much of a global quest for the availability of human talent. Countries that are successful players in the global services game are those that can adequately face both the challenge and the opportunity: the challenge of adopting policies and measures favoring the generation of versatile, demand-driven and ready-to-hire expertise and the opportunity of maximizing the transfer of knowledge to the recipient societies in terms of business, management, technical and technological expertise emanating from high quality global services delivery.
Job creation led by global services can be especially beneficial for the youth, which tend to suffer disproportionately from unemployment, especially in developing countries. This can range from a first time employment opportunity at a call center to a middle of academic career job in finance or accounting. A key differentiator for those young professionals or “to be” professionals is the ability speak and write in a foreign language, especially English which is the most demanded language in global services exports. However, countries that can also offer a multi-language value proposition can also be extremely attractive for those companies supplying multiple countries from a specific location. An additional and many times overlooked and underestimated advantage in global services jobs is the ability to carry out remote work from any location. Mothers can program software from their homes, students can design videogames from their colleges’ business centers, market research can be delivered from rural locations.
Because human capital is at the core of this business, and scale and employability of the labor pool is fast becoming the definitive aspect of competitive advantage for many emerging service locations, the employability and the quality of skill sets of a location are the very reasons why large multinational corporations service providers decide to establish themselves offshore.
Continuous transformation by service provider locations, including their human resource component, is imperative to meet global market trends and demands. This implied requirement is becoming another avenue to reach higher levels of human development and it is among the top priorities of global firms that seek for locations from where to provide their services. However, as the industry is relatively new to developing countries, dynamics are so fluctuating and speed is such a crucial factor that there is still a deficit of employable human resources within the services outsourcing offshoring industry. For instance, a recent study called “The Networking Skills Gap in Latin America” by Cisco revealed that the region will have an ICT skill gap of 35% by 2015, a rate that has been increasing since their last study carried out in 2011.
In spite of the fact that the region has increased access to education substantially, according to a Demand for Skills Survey driven by the IDB in 2010 in Argentina, Brazil and Chile, there are two trends that directly affect the employability of the youth and clearly show the mismatch between the skills taught by the education system and the ones required by the labor market (Bassi, Mariana et. al., 2012): first, highly demanded skills have changed (essentially due to technological advances), employers have raised the requirements to be hired, and enterprises place more importance on socioemotional skills than on knowledge skills or specific skills to the sector; second, those changes in the demand side have not been accompanied by changes in the supply side (the skills provided by formal education institutions), and the results of the survey indicate that only 12% of the surveyed firms reported that they had no problem finding employees with the skills they required. In fact, the supply and demand-mismatch is costly for both employers and employees, as employers have to invest greater returns in recruitment and training processes, and employees share the training costs receiving lower salaries because of their insufficient skills (Bassi, Mariana et. al., 2012). Enhanced employability of the labor pool translates to increased national productivity and social welfare, as economic development is fostered by higher employment rates, better trained human capital and the delivery of higher value added services, which in fact provide the highest returns.
“Finishing Schools” as an Alternative Approach
Countries that want to develop and increase their market share in the global outsourcing market must be cognizant of the necessity of counting with a scalable and employable labor pool able to deliver the outsourced tasks. Therefore, there must be a Human Resource Capacity Development strategy and the “Finishing School” framework could be an ideal short and mid-term alternative.
By definition, Finishing Schools are non-formal educational institutions designed for short term training programs and implemented by institutional partnerships among the academe, public and private sectors, whose main objective is to train a particular labor pool segment in developing countries according to specialized industries in order to improve their employability. They were first implemented in India, where since the 90’s its outsourcing offshoring industry started to experience a steep annual growth and development yet not accompanied by a similar increase in its labor pool. Consequently, the public sector, private sector and academe designed specific training programs to reduce the skills’ gap of its present and future engineers between what was actually taught by academia and the capabilities and skills demanded by the private sector.
The Finishing Schools can potentially reduce the gap between the supply of fresh graduates’ skills and labor market demands, benefiting both sides of the chain, complementing formal education with a more demand-driven methodology, and increasing the country´s economic development and productivity by training people to be employable enough in the global services sector. The concept of “finishing” implies a necessary previous step that involves formal education. Because it is naturally difficult to keep up with the dynamic and ever changing market forces that drive global services, Finishing Schools are designed to be a more flexible complementary tool that can tackle those dynamic forces and train employees according to the latest industry requirements. Their focus is on fundamental skills, technical skills, communication skills and interpersonal skills (IT Pathshala, 2012). These last two categories refer to what is known as Soft Skills, consisting of personal and social abilities that determine the professional, organizational and social performance of the employee at the workplace. Studies conducted in the United States, Latin America and India have shown the great importance of these skills and the similar mismatch to core and technical skills as the traditional education system has not been able to supply those needs.
Objectives of the Finishing Schools Programs:
Source: IDB, 2011.
In order to develop finishing schools’ programs and achieve the objectives mentioned above, it has to be considered that they are a country-specific strategy that depends on the country’s labor pool situation, stakeholders and business segment specialization. Likewise, public and private partnerships (PPP) and a coordinated communication among their actors are basic tools to attain such objectives as they are the stakeholders in charge of designing, monitoring and implementing the country’s most suitable program. Regulations and standardization are core roles of the public sector. The goal is that trainees are formed in the most required general skills useful to work in many companies through the finishing schools, so they will be able to have more opportunities of being employable for many firms, taking advantage of the fact that they can increase the firm’s productivity by accurately performing the necessary tasks without in-house training. The private sector fulfills a central role in providing inputs for the curriculum design. Generally speaking, the firms can actively participate by taking part in the programs and content design, establishing the selection criteria of the trainees, providing most of the trainers in charge of teaching the required contents and skills, contributing with an internship system for trained students, and also offering their physical infrastructure for practical training.
The InterAmerican Development Bank (IDB) is supporting demand-driven training programs in the global services sector such as Finishing Schools as an effective tool to support the Latin American and Caribbean region become a more attractive location for foreign investors in order to compete against the most traditional locations. As a Bank committed towards the socio-economic development of the region, it is actively involved in a number of on-going projects, pilot programs and future initiatives in order to foster the creation of Finishing Schools according to each country characteristics and market demand, through public-private co-financing initiatives and technical assistance. It has already supported the creation of Finishing Schools in Uruguay and Colombia, it has recently approved a project in Trinidad and Tobago, and it is currently implementing a pilot program in Argentina.
Summarizing, finishing schools are a relatively new demand-driven human resource development tool that is being increasingly implemented throughout many countries which aim at developing their services outsourcing offshoring industries. The main objective of the establishment of these institutions is to improve the scope and employability of the talent pool to develop the local productivity of the services outsourcing offshoring industry and improve the rate of foreign investment in that field, as this business training approach allows the labor pool to better adapt to industry trends and market predictions. Predictions suggest that technology will move forward at a faster speed than in previous years, human capital will continue to be a great source of value, and outsourcing will increase, thus countries must be aware of those trends and develop their workforce to take advantage of that.
Bassi, Mariana, Busso, Matías, Urzúa, Sergio & Vargas, Jaime. 2012. “Disconnected. Skills, Education, and Employment in Latin America.” Inter-American Development Bank.
Blom Andreas and Saeki, Hiroshi. 2011. “Employability and Skill Set of Newly Graduated Engineers in India.” Policy Research Working Paper 5640. The World Bank.
Garcia, Pablo M. and Bafundo, Fiorella (2014). “Best practices of finishing schools and outsourcing strategies”. IADB Policy Notes Series (forthcoming)
IT Pathshala. 2012. “Employability Gap in Indian IT Industry.” IT Pathshala Research Article Series.
O’Neil, H. F., Allred, K. G., & Baker, E. L. (1997). Review of Theoretical Frameworks for
Workforce Competencies. In H. F. O’Neil (Ed.), Workforce Competencies and Assessment. Mahwah, NJ: Lawrence Erlbaum Associates.
About the Authors:
Fabrizio Opertti is Chief of the Trade and Investment Unit of the Integration and Trade Sector of the IDB, where he supervises an operational team in charge of international trade and foreign direct investment promotion projects in Latin America and the Caribbean (LAC).
He also directs the IDB’s initiatives in the services globalization sector, having led the preparation of offshoring services promotion strategies in Argentina, Uruguay, Brazil, Chile, Paraguay, Peru, Colombia, and Trinidad and Tobago.
Fabrizio also leads the organization of the IDB’s pan-regional trade events, including the Asia-LAC series, the 2012 CEO Summit of the Americas, and the 2009 and 2011 International Business Meetings in Haiti, in collaboration with the Clinton Global Initiative.
Pablo M. Garcia is the Lead Economist in charge of the IDB regional hub for trade and investment activities in Argentina, Brazil, Chile, Paraguay and Uruguay. He is also the Export and Investment Promotion Cluster Coordinator for the Trade and Investment Unit.
He has worked previously as a Chief Economist for the Argentine Ministry of Economy, and consulted in the private sector to several national and international organizations (IDB, World Bank, USAID). He has authored studies and books on international economy, trade in services, and intra-industry trade and has also taught at Georgetown University and the University of Buenos Aires.
[This article originally appeared in The Source in January 2014.]