One size does not fit all: people risk in Asia Pacific
The developed economies in Asia Pacific are low risk due to strong government support and transparency. The high income levels have allowed cities in the region to invest in education infrastructure and talent development facilities.
According to the 2013 Aon People Risk Index, the Asia Pacific region has the widest variance in risk related to recruitment, employment and redeployment of any region worldwide.
Tabitha Lim is a research consultant of Talents & Rewards Analytics at Aon Hewitt.
The developed economies of the Pacific such as Australia and New Zealand, and the four Asian tigers — Hong Kong, Singapore, South Korea and Taiwan — all scored relatively low in risk while many cities in the fast developing economies in South and Central Asia were assessed as having among the highest risk in the world. The wide variance means that companies must carefully assess the risks they face in individual locations and identify the specific steps they need to take to address those risks in each location.
10 lowest risk cities in Asia Pacific
Two cities in Asia Pacific, Singapore and Hong Kong, again made it into the 10 lowest risk cities globally. Risks in Singapore due to government policies and talent development were the lowest registered by any city worldwide. Hong Kong was viewed as having only slightly higher risk in both areas. Singapore matched or beat the lowest risk city, New York, in all areas except Demographics and Education System.
The remaining slots in the list of the 10 lowest risk cities in Asia Pacific were taken by cities in Northeast Asia and the Pacific — Melbourne, Perth, Sydney, Tokyo, Osaka, Seoul, Auckland and Taipei.
The developed economies in Asia Pacific are low risk due to strong government support and transparency.
The high income levels have allowed these cities to invest in education infrastructure and talent development facilities. This in turn has increased the availability of qualified talent. For instance, the system of technical and further education (TAFE) in Australia has developed its training such that it is universally recognized as a leader in technical education by allowing the certifications to be "stackable", which allows students to receive a certificate for every module they complete.
A new city to the Index, Perth has grown from a sleepy town to a key city in Australia’s development within the past decade because the mining boom has fuelled economic growth and investment inflow.
Perth ranks among the 10 lowest risk cities in Asia Pacific as a result of an increase in the size of the workforce resulting from an inflow of skilled labor into the mining industry. The lower risk in Perth is also due to its strong educational and talent development infrastructure in addition to a strong, transparent government.
10 highest risk cities in Asia Pacific
Of the seven new cities added this year to the Index coverage, Port Moresby is among the top 10 highest risk cities to employers not only in Asia Pacific but also globally.
The APAC cities making up the top 10 highest risk cities list include Chongqing, China; Jaipur, India; Colombo, Sri Lanka; Hanoi, Vietnam; Almaty, Kazakhstan; Ulaanbaatar, Mongolia; Phnom Penh, Cambodia; Dhaka, Bangladesh; Karachi, Pakistan and Port Moresby, Papua New Guinea.
The lack of a stable and transparent government continues to be an obstacle to implement and enforce business-friendly employment practices in these cities.
Governments in the high-risk locations may at times even be confrontational to businesses. The lack of government investment in developing and improving the education and talent development infrastructure increases an employer’s risk in finding skilled talent, as the current infrastructure is unable to support employers’ workforce demands.
In this aspect, Ulaanbaatar has comparatively lower educational risks due to the historical influence of the Soviet Union which placed emphasis on education infrastructure.
Even as organizations try to cope with a challenging business and talent landscape in high-risk locations, they are still displaying a keen interest in investing in these places due to the high economic growth potential of such locations.
Port Moresby is one such location. The risks prevalent in Port Moresby include its inadequate infrastructure, high crime rates, poor government support, and lack of transparency. Nevertheless, regardless of the inherent risks, organizations are still looking to set up operations in Papua New Guinea due to the economic potential arising from the abundant natural resources found in the country.
Organizations intending to invest in Port Moresby, however, should be prepared to face the lack of a sufficiently skilled local workforce which is perpetuated by the small working age population and under-developed education system.
The unavailability of skilled workforce is the reason why global MNCs in the natural resources industry rely heavily on contract expatriates in filling up key positions. These MNCs have also invested heavily in developing training and development programs to equip locals with specific skills for natural resources extraction industries.
In China, go west!
The past year has seen many companies setting up operations in second-tier inland Chinese cities, especially for manufacturing and research & development.
The shift inland is due to the high costs of labor and infrastructure in first-tier cities as well as new opportunities in these rapidly growing markets.
While the attraction of lower operating costs and new markets will continue to draw investors to Tier-2 cities, companies need to be sensitive to the inherent people risks in these locations, such as risks related to uncertain and ambiguous government policies, the limited capacity of the education system and a lack of standards in setting consistent employment practices.
The quality of talent in second-tier cities is another concern because many investors have had difficulty securing talent with the same experience and education levels as in the first-tier cities of Beijing and Shanghai.
The shortage of qualified talent has forced many organizations to invest more than they had expected in training and development of their new staff. With the increased competition in the second-tier cities, a heightened talent war could easily develop, which will, in turn, lead to higher talent costs and attrition rates.
Higher costs and lower availability of talent are not just the results of new investment. The effects of China’s one-child policy are slowly taking a toll on the available working age population.
Inevitably, slow or non-existent population growth will perpetuate the current talent shortage problem organizations are facing. A large young workforce has been the foundation of China’s competitive advantage in manufacturing.
As this advantage slowly disappears, labor costs will rise and productivity growth will be critical to maintaining a competitive advantage. A “structural mismatch” in education is likely to exacerbate the eroding competitive advantage in labor. While China is producing millions of graduates, they are quite often ill-equipped with the skills needed by businesses and an economy that still focuses on blue-collared jobs.
India’s promise of lower risk
Unlike China, India’s working age population is projected to grow and become more urban in the next decade. Demographers expect to see one million people entering India’s workforce every year for the next two decades.
As much as this provides a large labor pool, a mismatch of skills in the employment market will reduce the availability of talent with the necessary qualifications. The Indian government has plans to increase the employable skills of half a billion Indians by 2022.
It has also started upgrading its current vocational training institutes in order to offer courses more relevant to market demands and collaborated with organizations to set up skills development centers. This enables organizations in India to better “reap” the demographic dividend from its growing population.
With economic growth in India slowing in the past year, the Indian government has tried to introduce reforms in a bid to attract foreign investors and encourage growth.
The reforms come none too soon since much needs to be done to reduce bureaucracy and the levels of corruption. The reforms, combined with the steps to address the long-term structural issues, hold the promise of reducing the risks related to recruitment and employment that are so often prevalent in India.
Prospects for future
Organizations need to be aware of the myriad risks related to talent and be ready to face the challenges posed by developing economies in the region.
Pro-actively identifying and addressing the risks will improve an organization’s competitive position. Through a planned and thoughtful approach to People Risk, companies can successfully tap the vast potential of a skilled talent pool present in the developing economies of Asia.