Asia is Changing Fast: Time to Revitalise Human Capital Practices
There is no debate as to whether Asia should play a greater role in the world economy: Asia obviously should.
Home to 60% of the world’s population, blessed with abundant natural resources, and having a huge and growing middle class as well as a young population overall, Asia has everything in its favour to play a more significant role not only in the world economy but also in global business leadership. If historical data is any guide, China and India were the world’s two largest economies up until 1820 . Indications are that they are primed to take a new, leading role.
However, the industrial world of the 21st century differs vastly from the pre-industrial era. Now, it is no longer about competing based on cheaper labour or the availability of natural resources. Of course, such considerations continue to be important for labour- or resource- intensive businesses - but the advancement of technology is disrupting even these businesses, including ones at the higher end of the supply chain.
Just take the example of the oil industry. Shale production - which at one time was not feasible from either a technological or economic standpoint - has now become an alternative way of production that competes equally with traditional methods of oil production. And that’s before we factor in solar energy and electric cars, which may end up disrupting the entire oil industry, including shale. So, given the global ripple effects of energy source disruption, the days are gone where the combination of cheap labour and natural resources alone could provide a competitive edge for Asia.
If cheap labour or natural resources are not going to contribute to Asia’s competitive advantage, then what will? The answer lies in the infinite potential of humans, with human capital. So, rather than seeing cheap labour as a source of competitive advantage, businesses need to view people themselves as an inherent competitive advantage. This requires a paradigm shift.
Of course, Asia is unique in terms of the human capital landscape compared to the rest of the world, and it should not come as a surprise that there is no ready template for Asia to follow.
Just consider these four facts and implications for human capital.
Asia has consistently been the largest recipient of global foreign direct investment (FDI). In 2017, it garnered 33% of the world’s total FDI. Through sharing and learning, multinationals have a vital role to play in shaping human capital practices in Asia .
85% of Asian businesses are family-owned. Family businesses, especially conglomerates, have an excellent opportunity to redefine and enhance their human capital practices .
90% of businesses in Asia are small- and medium-sized enterprises (SMEs). SMEs have a great opportunity to innovate when it comes to introducing new human capital practices .
88% of new entrants to the global 1 billion-strong middle class in the next five years - will be in Asia. They will be both employees and consumers for business, and hence they have the opportunity to reshape both business and human capital practices .
Because of these unique business realities, what works in the West will not necessarily work in Asia and may even limit the potential represented by human capital. It is not that what works in Asia necessarily represents great practice. Some human capital practices employed by world-class organisations in Asia, such as the emphasis on presenteeism are highly regressive. That said, they need to be viewed against the backdrop of societal culture and require specific cultural solutions.
The overarching point is that human capital practices in Asia have not caught up with business realities: what worked before doesn’t work today, let alone working in the future. Human capital is a competitive advantage for any business. Never has it been more so for businesses in Asia.
Welcome to the Prelude of Human Capital Prisms -- a series of articles that seek to explore the capabilities (rather than simply skills per se) that leaders will need to possess in order to navigate the future of work, the workplace and the workforce. Though targeted at human capital practitioners, insights provided by this new research are relevant to whoever is responsible for managing people.
^ Maddison, A. (2003). The World Economy: Historial Statistics, OECD Development Centre. Retrieved from https://www.oecd-ilibrary.org
^ World Investment Report (2018). Retrieved from https://unctad.org/en/Pages/Home.aspx
^ Koh, A. (2018, May). The changing face of family business. Asian Management Insights. 5, (1), 16-22. Retrieved from https://ink.library.smu.edu.sg/ami/79/
^ SMEs in Asia and the Pacific. Retrieved from https://www.unescap.org/
^ Kharas, Homi (2017). The unprecedented expansion of the global middle class-An update. Global Economy & Development Working paper. 100. Brookings.