In the last five decades, Asia, home to more than half of the worldâs population, has become an increasingly attractive market. The potential of a vast market fuelled by consumption growth has caused the seismic shift of global economic power towards the developing economies of Asia, away from some of the advanced economies of the West. A series of successful economic growth stories chalked by places such as India, Peopleâs Republic of China, South Korea, Singapore, Hong Kong, and of course the forerunner of modern Asian industrial economy, Japan, has resulted in Asiaâs unprecedented transformation and propelled it to its prominence in the global economy. Most of the major economies in the region emerged relatively unscathed from the 2008 Global Financial Crisis, and continued to maintain economic momentum, with many enjoying the demographic dividend of a youthful population. While the COVID-19 pandemic has created a challenge across the region in some sectors, the outlook for the future remains positive. With Asia presently accounting for one-third of the global gross domestic product (GDP) in terms of purchasing power parity (PPP) and three-seventh of the global growth (ADB, 2020), it is not surprising that many believe that the sleeping giant has begun to stir, and will soon leap forward and lead the world to what has been labelled as the Asian century.
While human capital development is considered a key driver of economic growth, development, and competitiveness of a country, it is the stage of economic growth of the country that largely determines the quality of human capital by means of investments in education, skill development as well as health and nutrition; thus, it is a virtuous cycle. Efforts to show the linkage between human capital and economic progress in Asia have been clearly documented (Ayub et al., 2017). Therefore, understanding the extent and pace of structural transformation of the Asian economies and its impact on the availability and employability of the human capital is critical for businesses that would like to engineer strategies that capitalise on emerging opportunities in the region. While national policies of education and development have been shown to be linked to progress, there are many factors that must be considered (Siddiqui & Rehman, 2017). The Asian economic transformation has wide-ranging implications on the regionâs human capital and throws challenges that are as diverse as the direction and pace of the economic transformation happening in these economies.
For business leaders, the opening and growth of the Asian economies has provided a platform for expansion to new markets as well as new locations for operations. Low-cost manufacturing and services created a rush of investment from firms in the West, yet the hidden costs and rising wages often prove to be a challenge in sustaining new operating locations and partnerships. Understanding the human capital development is critical, yet often overlooked in business strategy execution. Too often, business leaders are concerned with infrastructure, regulatory factors, financial models, and supply chain issues. While these areas are important considerations, the area of human capital is often overlooked in strategy execution.
Economic Growth and Implications for Human Capital
India and China are the fastest growing major economies in the world and their economic boom in the last two decades has been remarkable. China, the worldâs second largest economy on nominal basis and the largest on PPP basis (IMF, 2021), has been the single largest driver of the global economy since the 2008 crisis. The countryâs growth rate has averaged around 9.5% in the last two decades. It is the worldâs largest manufacturer and exporter, and in active pursuit of industrialisation through its state-owned enterprises during its early years of reformation, which resulted in the manufacturing sector contributing over 60% of the countryâs economy in the 1990s. However, since 2011, Chinaâs focus shifted to developing its service sector, and this has resulted in a surge in the service sectorâs contribution that stands at around 52% as of 2017, while agriculture and manufacturing account for 8% and 40%, respectively (China Statistics Press, 2020). It was able to make this shift by leveraging its position as a leading trade partner and an important source of foreign investment to many of the regional economies. China has asserted its role as an economic powerhouse of the region. Its proposed Belt and Road Initiative, an inter-continental cooperation platform with a focus on economic and cultural cooperation, is perceived as a new opportunity and engine of growth in the context of US-led protectionist policy by the advanced economies of the West. However, its unabated economic growth is now being intercepted by demographic challenges in the form of an ageing population, declining birth rate, and internal labour migration issues.
After India renounced its socialistic stand and embraced economic liberalisation in 1991, the inflow of foreign investments, technology transfer, and adoption of best practices has contributed to its improved industrial and economic competitiveness. The worldâs fifth largest economy, on nominal GDP basis, has grown at an average pace of 7% in the last two decades (IMF, 2021). Its dominance in the service sector has been a key factor in its growth story. Unlike its northern counterpart China, which leads by the performance of its dynamic manufacturing sector, Indiaâs boom is underpinned by the growth of its service sector, namely the Information Technology (IT) and Business Process Outsourcing (BPO), which was enabled through human capital. Though agriculture continues to employ a majority of its workforce, the service sector accounts for a significant share of the countryâs GDP, nearly 54%, and it is also the fastest growing in the world, thanks to its sizeable English-speaking and IT skilled workforce (Kalita & Sharma, 2017). By 2030, India, labelled as the âbright spotâ in the global economic landscape by the International Monetary Fund, is expected to surpass the USA as the second largest economy (after China) in the world (Singh, 2019). To sustain its growth and achieve its predicted potential, the country has to combat poor labour force participation, skill shortage, and talent gap among its young and growing workforce.
Japan, the land of the rising sun, and the worldâs third largest economy, does not bear any semblance to the economic miracle that it once was in prior decades (IMF, 2021). The âthree arrowsâ of the economic plan (massive fiscal stimulus, more aggressive monetary easing, and structural reforms) that were aimed to make Japan more competitive failed to hit the target. Its brands, such as Sony, Toyota, and Suzuki, which were once unrivalled and reigned globally, are now fighting a fierce turf war with their South Korean competitors. The debt-ridden country is unable to boost household consumption and enterprise investments and is reeling under a never-ending deflationary trend. While the government is still nursing the wounds of its economy after its catastrophic fall in 1991 and the subsequent downward tumble in the âlost decadeâ, its demographic woes are further exacerbating them. The country needs to tackle the challenges posed by the falling birth rate, ageing workforce, rising dependency ratio, and declining savings and investments.
Amidst these developments in the major Asian economies, the Four Asian Tigers have taken a big leap to gain a strong foothold in the regional economic landscape. While all four focused on industrialisation and export-led growth, they have also individually leveraged the strength of their internal human capital to develop niche competitive edge in critical sectors. Singapore and Hong Kong have become leading financial centres; South Korea (Korea) and Taiwan have fortified their expertise in manufacturing high-tech electronics and components.
Some decades back, Taiwan and Korea worked to shift their focus from agriculture and channelled their workforce into high-skilled manufacturing and service sectors. Globalisation and technology proliferation further accelerated the booming economic engines in these economies. South Korea has developed a reputation as one of the most tech-savvy countries in the world and has strategically moved away from low-margin manufacturing to focus on high-tech designing and manufacturing. It has also fostered a conducive start-up ecosystem to capitalise on innovation and technology materialisation. Taiwan is a critical partner in the value chain of global electronics majors and accounts for over 90% of all motherboards and notebook computers used globally. Though it has its own computer brands, Asus and Acer, customised contract manufacturing and original design manufacturing remain its speciality and it is shifting gears towards high-value innovation and design and manufacturing. It has relied on the cheap labour of mainland China for several years; however, it is now facing challenges on account of an ageing population and increased competition from neighbouring economies. While Korea and Taiwan are scrambling to foster and retain the high-skilled human capital to support their progress towards an innovation-based economy, Singapore and Hong Kong, both service-based economies, are also facing human capital challenges in the form of an ageing population, immigrant workforce, and the need to encourage continued skill development among its workforce.
The emerging economies of Asia, namely, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam, have fairly successfully industrialised, and the service sector is the largest contributor to the GDP. The countries have deepened their capabilities in manufacturing and their exports have become diversified. However, their challenge is to prepare their workforce for high-tech manufacturing and high-value services.
As for the frontier and developing Asian economies, including Pakistan, Bangladesh, Cambodia, Lao PDR, Mongolia, Myanmar, Nepal, and Sri Lanka, while the contribution of non-farm sectors has increased in recent years, a majority of the labour force remains employed in the agriculture sector. Besides, while the share of the manufacturing sectorâs contribution to GDP has increased, the sector remains mostly skewed towards low-tech industries with a narrow mix of exports (for example, Pakistan and Bangladesh primarily export garments). The countries need to skill their workforce to be able to capitalise on the shift of labour-intensive industries from the neighbouring economies that are losing their cost advantage.
While exploring the economic context of the individual countries that are growing in strength in the region, the rising stature of the regional collectives, particularly, the Association of South East Asian Nations (ASEAN), warrants attention. Starting as a five-member association in 1967, ASEAN doubled its membership to ten countries by 1999. Since then, it had quadrupled its GDP to US$2.55 trillion by 2017, when it celebrated its 50th anniversary (ASEAN, 2017). A key achievement of the Association, besides enhancing trade and economic relationship among its member countries, is its ability to drive economic prosperity and lift people out of poverty. It has reportedly reduced the population living below the poverty line even among the developing member states Cambodia, Lao, Myanmar, and Vietnam to 18% as at 2015, and contributed to improved living standards in terms of better access to healthcare, education, and reduced infant mortality rates (ASEAN, 2017). The collective is forecast to become a US$4 trillion economy in 2022, the fifth largest in the world (Wijeratne, 2018). The ASEAN Economic Community (AEC) is working on building an integrated, cohesive, and inclusive economy that is resilient to economic volatilities and supports high economic growth while narrowing the development gap between member nations. The combined ASEAN market with 639 million people accounts for the third largest market after China and India, and this has resulted in the collective becoming the fourth most popular FDI destination globally and the second largest in Asia (Narine, 2008).
The developments within ASEAN translate to new growth opportunities across sectors for the member countries and turn the lights on human capital dimensions that need attention to capitalise on these opportunities. The International Labour Organization (ILO) has forecasted that ASEAN will continue to have the third largest pool of labour and account for 10% of the global labour force by 2030. However, the skills and capabilities of the labour force to adapt to high-value adding jobs resulting from the structural transformation need scrutiny. Also, weak labour productivity is a critical concern; while developed economies within ASEAN face productivity issues due to ageing and shrinking workforce, the emerging economies are facing the risk of losing their low-cost advantage due to rising wages and are under pressure to increase productivity to counter the rising labour costs.
Against the backdrop of the structural economic transformation in the region and economic integration, businesses must also be mindful of the impact and opportunities created by digital transformation. The advanced and major economies of Asia have transitioned from being the worldâs factories manufacturing low-value products to become manufacturers of high-tech products and developers of next-generation technologies; and from here, they are rapidly progressing to become active users of such next-generation technologies.
The adoption and exploitation of technologies such as cloud computing, the Internet of Things (IoT), Artificial Intelligence (AI), big data, robotics, Virtual Reality (VR), and Augmented Reality(AR) will lead to both challenges and opportunities in human capital management. Disruptive innovations and business models would radically alter the employment landscape in terms of job creation, job displacement, and widening skill gap. While there would be an acute shortage of workforce with the desired core skills in the near term, the countries that are undergoing the Fourth Industrial Revolution would very likely tap into these exact technologies to solve issues related to ageing, productivity, and mobility. Businesses must hence rethink and transform their human capital strategies to remain competitive in the changing business landscape.
Diversity of the Region
While the Asian economic transformation has been dramatic, it remains largely uneven, both across and within countries of the region. For example, among the Four Asian Tigers, Taiwanâs GDP per capita of US$24,292 fades in comparison to Singaporeâs US$57,713 (IMF, 2021); and in South Korea, which reportedly has the lowest regional economic disparities among the OECD economies, Chungcheong province had 30% higher GDP per capita than Jeju (OECD, 2020). Thus, there exists a development disparity among the advanced economies of the region, not to mention the perceptible imbalance among the regionâs developing countries.
Though the variation in economic development is attributable to the different levels at which they started off, the countriesâ inherent diversity in terms of social, cultural, and religious beliefs and practices, race, language, political and regulatory regime, and their approach to developing physical, human, and technology capital is also a key driver of disparity. As a result of such diversity, the quality and availability of human capital across Asian countries varies widely. Companies operating in this region have a significantly heterogeneous experience in finding and managing talent across and within countries. It thus becomes an imperative for them to exercise cultural empathy and implement human resource management practices and various management strategies that acknowledge and engage the diverse workforce as a community by fostering a common connection and affiliation.
This diversity in the region and the need to foster inclusiveness call for leaders who have a deeper understanding of the dimensions that cause the differences, and for this reason, several international and regional companies with regional operations hire local talent to lead their companies. Not surprisingly, global majors such as Microsoft, PepsiCo, Deutsche Bank, Google, MasterCard, Nokia, GE, and eBay that are keen on growing their Asian market share have Asians, particularly, Indians and Chinese, in leadership roles. However, finding adept local leadership talent to play regional or global roles is a key challenge.
