A version of this article was originally published by Knowledge at Wharton
Faced with an aging work force and a growing demand for skilled workers in emerging markets like China and India, companies in the West are grappling with a talent crunch of unprecedented scope. Firms are increasingly questioning their work force requirements and quality, training and development, and wage levels. Responses include over-hiring to meet future needs, upgrading training in concert with universities and in-house corporate schools, and extracting greater productivity through innovation.
Jim Hemerling, senior partner and managing director at BCG in San Francisco, says two factors are combining to exacerbate the so-called "war" for talent: the "significant aging of the work force in North America, Europe, and Japan (which is) shrinking the supply of experienced people in developed markets," and the rise of "rapidly developing economies, or RDEs, driving up demand."
Western companies are trying to retain people with 20 or 30 years of experience and who are heading into retirement age, even though they are expensive and have limited growth prospects, Hemerling says. At the same time, they want to hire people by the "tens of thousands" in the RDEs to both exploit the market opportunities and to leverage lower-cost talent by shifting some of their work force requirements to those countries, he adds.
Foreign employers trying to access RDE work forces also face stiff competition from fast-growing local companies -- "the new global challengers," Hemerling says. "Many of these companies (from RDEs) are becoming major competitors and in some cases have become very attractive employers. People want to work for the local champions and the new global challengers developing in these economies." As a result, he says, everybody is competing for the same talent pools.
Peter Cappelli, a Wharton management professor, says he is skeptical about characterizing the emerging scenario as a talent shortage. At present, he sees no shortage of talent. "From an economist's point of view, a shortage means that you can't buy what you need or want at market prices. That's not true in these countries," he says. As for rising wages, Cappelli argues that is exactly what employees want, and so do others who are concerned about living standards. "If wages don't go up, standards of living stagnate."
But talent shortages are real for employers looking to hire people with the "right education" and "10 to 20 years of management experience," Hemerling says. The shortages run across functions including product sourcing, marketing and even managing factories.
The talent shortages can be moving targets for employers as they tend to "shift very rapidly" across work profiles, regions and time of year, Hemerling says. "For instance, up until a couple of years ago, there was almost an infinite supply of basic, unskilled labor in China." Now, migrant workers are in short supply in China's southern region of the Pearl River Delta, having switched loyalties to higher-paying high-tech industries that have moved in.
Talent has become a strategic issue, as companies increasingly make decisions based on the availability of labor and skills -- and face the challenges of finding and keeping good people. Four best practices are emerging, Hemerling says. They include 1) recruiting for rapid growth; 2) developing deep skills and commitment in their people; 3) training and deploying new hires quickly for early results; and 4) allowing leaders to seize and build on opportunities.
According to Hemerling, companies address talent retention by building strong "umbrella brands" that put common faces to multiple brands across group companies. They combine that effort with career opportunities across these companies -- both locally and globally -- to make themselves more attractive to existing and potential employees. As part of the effort to build bench strengths, many firms operating in China and India are also over-hiring, which helps in offsetting attrition and planning for growth.
To dispel fears of a glass ceiling, these companies are also elevating local employees to senior-level jobs, "sending a very powerful message that all the jobs are available to local people." Furthermore, they institutionalize the empowerment of local operations by moving away from the old hub-and-spoke organizational model to a "multi-centered" structure.
Training and development of these universities' graduates is a big challenge, Cappelli says. He emphasizes the need for companies to partner with universities to build talent appropriate to their needs.
In the present environment, one feature that companies in rapidly developing economies like India have working in their favor is a predisposition toward innovation when resources are lacking.
Arindam Bhattacharya, BCG partner and head of its industrial goods practice in India, sees changes in the ways corporate strategists respond to India's numerous infrastructure constraints. "The sheer logistical and other challenges lead to business innovation," Bhattacharya says. "Indian companies have learned to design their plants at a much lower capital cost than their counterparts in the developed world. Indians have an innovation culture. There is an inherent DNA to innovate."
Cappelli's advice to all corporations grappling with talent challenges is to borrow the supply-chain model from manufacturing. "The big problem companies face is uncertainty -- not knowing what the demand will be and what kind of talent you will need and how many people you will need in different jobs. This is a problem supply chain management has wrestled with for a while. The idea is to figure out how to get the desired level of talent without taking huge risks in terms of costs of recruiting, talent development, having excess employees and not having enough employees, and how to minimize those costs."
According to Hemerling, increasing the level of automation in work processes and producing higher-value goods and services are among the ways companies are extracting enhanced productivity from their employees in China and India.
Although companies such as IBM, Cisco and Citigroup have bulked up their Indian operations with large-scale hiring programs, Jim Andrew, senior vice president at BCG and leader of its global innovation practice, feels many Western companies are barely scratching the surface of the opportunity to access talent in India and China.
"Hiring 10 or 20 or even 50 people in India is not fully leveraging the talent in those countries," Andrew says. "Hiring 500 or 5,000 people begins to tap into that talent."
Many companies don't understand the magnitude of that opportunity, says Andrew, "or what it takes to be an employer of choice for the highest-performing talent in those countries."