Tag Archives: education

U.S. Competitiveness: Time to Close the Skills Gap and Revive US Leadership

Any discussion about the United States’ lead in global competitiveness is intimately tied to the challenges of maintaining America’s competitive advantages. What are some of the statistics measuring competitiveness? The U.S. economy is suffering a relative decline in the world economy as measured by the WEF’s Global Competitiveness Report,[1] falling to 5th place from 1st in 2007. Similarly, in IMD’s World Competitiveness Yearbook,[2] although the U.S. maintains its number one position in overall competitiveness, the country’s ranking for Government Efficiency, one of the report’s four pillars of competitiveness, has seen a dramatic slide, falling from 5th place in 2002 to 25th last year (out of 60 economies). And if this isn’t worrying enough, a study published in 2012 by Harvard Business School indicated that no fewer than 71% of respondents of a survey sent to nearly 10,000 HBS alumni expected U.S. competitiveness to decline over the next three years. Other global rankings sound varying degrees of alarm: In the Heritage Foundation’s Freedom Index,[3] the U.S. ranks twelfth in the world in terms of economic freedom; in the World Bank’s Doing Business Report,[4] the U.S. ranks 4th in terms of the ease of doing business, including a dismal 64th place for the ease of paying taxes (no surprise for those who are brave enough to fill out their own tax returns!). And the Information Technology and Innovation Foundation (ITIF) highlighted in 2011 the fact that the U.S. ranked 4th in innovative-based competitiveness (out of 38 economies), but fell second to last in the rate of progress since 2000, ahead of only Italy.[5]

Consequently, amid the many calls for a new “Sputnik moment”, what should be the key focus of President Obama’s remaining two years? Washington’s urgent to-do list for domestic policy have included finding a bi-partisan solution to avert the fiscal cliff, upgrading infrastructure, introducing more “business-friendly” regulation, restoring America’s technological lead, improving the educational system and skills base, increasing exports and encouraging American companies to re-shore manufacturing activities. But I would suggest that the U.S.’ biggest priority should be investing in skills and education, which are ultimately the critical contributors to lifting and sustaining U.S. competitiveness. Consequently, this will entail tackling the education establishment’s institutional resistance to change. Strong teacher’s unions are constantly creating obstacles to needed changes to K-12 schooling instead of legislators shaping education policy around the critical needs of society and business.

If the United States is in the midst of an historical manufacturing revival as some experts suggest,[6] then developing a long-term skills’ strategy is vital to ensure that the U.S. can capitalize on this trend. What are the explanations behind this renewal? Mainly that outsourcing to low-cost countries is no longer as cost-effective with labor costs rising in many of these countries (the seductive “China Price” is slowly being eroded) and more expensive transportation costs due to higher oil prices. In addition, the U.S. is expected to benefit from an enormous energy windfall thanks to shale gas, helping to make it one of the lowest-cost countries in terms of energy. If you add the benefits of higher quality manufactured goods and state-of-the-art innovation capabilities, the U.S. has a fair chance of regaining its historical leadership in advanced manufacturing.

Meeting the challenges of this “manufacturing revival”, however, puts the onus on closing the skills gap via more and better-targeted investment in education and training. Due to the time lag involved in preparing tomorrow’s skilled workforce, the question remains: “Will the U.S. miss the train?” President Obama pledged to revitalize U.S. manufacturing, boost exports and create more jobs—an electoral promise critical in tackling America’s historically high levels of unemployment brought on by the financial crisis. But time is running out for the Obama administration to fulfill this promise. Closing the skills gap is essential to sustain any revival in manufacturing, whether it is American companies re-shoring production back to the U.S. (e.g. GE, Ford, Caterpillar) or foreign companies attracted to a more cost-competitive United States (e.g. Toyota, Siemens). In today’s globalized world, firms must take into account “total” costs along the entire supply chain, not only labor costs, but also the costs of holding inventories, transportation and energy costs, and the costs associated with how quickly a firm can respond to changes in demand in terms of lead times. The U.S. offers many of these advantages including access to the world’s biggest market, and a growing and dynamic market to boot, huge factors of attractiveness for companies worldwide.

Just one example, a manager from Boeing mentioned to me that the company was working round the clock to meet backlogged orders for planes, demand increasingly driven from overseas, but couldn’t find enough skilled workers to meet the growing needs. This is a story I often heard while at IMD: Companies in many Western economies are struggling to keep up with demand (increasingly from emerging markets), not because of a lack of capacity but due to an insufficient number of qualified workers. What can be done? Three recommendations were proposed in July 2012 by the President’s Council of Advisors on Science and Technology[7]  to support advanced manufacturing. This multi-stakeholder council, made up of business leaders, academics and scientists, called on President Obama to make good on his promise to create an “economy built to last” by: a) enabling innovation, b) securing the talent pipeline, and c) improving the business climate. Just to focus on the second recommendation, that of building, attracting and retaining talent, the Council recommended an advertising campaign to promote manufacturing as an exciting career path, building on the skills of returning veterans, investing in more community colleges, creating partnerships between industry and these colleges, as well as promoting manufacturing fellowships and internships.

I would add re-focusing career choices towards high value-added, knowledge-intensive manufacturing, and educational curriculum towards the STEM branches of science, technology, engineering and mathematics. Supplement this with more technical training during or after high school, similar to the apprenticeship programs found in Switzerland and Germany, and ensuring that young people finish their education (less than 58% of students in the U.S. graduate on time at four-year colleges).[8] Lastly, improve the quality of U.S. high school education. Despite the fact that more than half of the world’s 100 leading universities are American (and eight of the top ten),[9] American high school graduates rank poorly in international test scores: in the OECD PISA rankings, American 15-year olds ranked 26th in mathematics, 17th in reading and 21st in science (out of 34 countries).[10] No American President should sleep well with these results.

Since most experts acknowledge that advanced manufacturing is the best bet for creating high-paying jobs, with the additional advantages of contributing to innovation and reducing the U.S. trade deficit, President Obama would do well to heed the advice of his Council and set into motion the steps necessary to reverse the decline in U.S. manufacturing and technological leadership. Education and training are critical to provide an appropriately skilled workforce that will ensure long-term sustainable growth and restore the U.S. lead in competitiveness. Investing in the skills of the American people has got to be the overall objective of any U.S. administration, but for this to happen, the United States needs cultural change, especially a move away from an entitlement society, and strong leadership in government.

 

[1] Global Competitiveness Report 2013-2014, World Economic Forum.

[2] World Competitiveness Yearbook 2013, IMD.

[3] 2014 Index of Economic Freedom, Heritage Foundation.

[4] Doing Business Report 2014, World Bank and IFC.

[5] Atlantic Century II – Benchmarking EU and U.S. Innovation and Competitiveness,Information Technology and Innovation Foundation (ITIF), July 2011.

[6] The Boston Consulting Group claims that the U.S. is on course to regain its status as a global industrial powerhouse, boosting goods exports and creating between 2.5 and 5 million jobs by the end of the decade (“Rising U.S. Exports—Plus Reshoring—Could Help Create up to 5 Million Jobs by 2020”, BCG, September 21, 2012).

[7] “Report to the President on Capturing Domestic Competitive Advantage in Advanced Manufacturing”, Executive Office of the President, President’s Council of Advisors on Science and Technology, July 2012.

[8] U.S. Department of Education.

[9] The 2013 Academic Ranking of World Universities (ARWU), Center for World-Class Universities at Shanghai Jiao Tong University.

[10] Program for International Student Assessment (PISA), OECD, 2012.

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Skill shortages in Japan

In IMD’s World Competitiveness Yearbook (WCY), which ranks the competitiveness of 60 economies worldwide, Japan is ranked 35th for “an educational system that meets the needs of a competitive economy”, 52nd for its university education, and 49th for its management education. The particularly low ranking for higher education places Japan as the only developed nation in a group of countries consisting of Ukraine, Argentina, China and Venezuela. Digging deeper into the data reveals yet more telling stories: Japan ranks third to last for language skills, second to last for English proficiency, and 52nd for the number of Japanese students studying abroad. Historically known for its conservative rote learning and old-school memorization, the Japanese educational system is not preparing students for today’s global knowledge economy in which an innovative and open mindset is increasingly essential.

The government’s “Abenomics” policies, named after current Prime Minister Shinzo Abe, have focused primarily on aggressive monetary easing and a fiscal stimulus package aimed at reversing nearly two decades of economic stagnation and deflation. But these are only two of the three major policies, called “arrows” by Mr. Abe, to revive the sluggish economy. The third arrow targets long-term economic performance and national competitiveness via structural reforms to sustain economic growth. Key components of this “growth strategy” include closing the gender gap, fostering global talents, and reforming the labor market to introduce greater flexibility in hiring and firing practices. This blog will focus on the first two of these.

The female brain drain

The participation of Japanese women in the workplace is a dismally low 42%. This helps explain the wide gender gap that keeps women out of top corporate positions (there are only 1.3% of women on corporate boards in Japan) and leading government roles (women occupy a paltry 13.4% of seats in Japan’s parliament). The major causes include cultural stereotypes, lack of child-care facilities, discriminatory tax laws, pay discrimination and a dearth of role models. These “lost women” come at a high price for the Japanese economy, where many highly educated women opt out of work after getting married or having children. There are also costs for society, which is aging fast and has one of the lowest fertility rates in the world (1.41). All this is spurring the Japanese government to take initiatives to stop the female brain drain, such as encouraging businesses to hire and retain women, promote maternity leave and provide child-care facilities.

Seeking globally-minded managers

One step toward developing more global talent in Japan would be to transform university education by adopting higher international standards. According to the Shanghai 2013 Academic Ranking of World Universities (ARWU), no Japanese universities rank in the top 20, although two, the University of Tokyo (21st) and Kyoto University (26th), are just outside.

With a low emphasis on creativity and innovation in the classroom, and rigid language and cultural barriers, Japanese companies are finding it hard to hire local managers who have the necessary skills to compete in international markets. Facing weak economic growth and domestic demand, companies have no choice but to “go global” and diversify into foreign markets. But the growing shortage of competent senior executives will hold Japanese companies back from successful internationalization. Again, the data is telling: Japan is the only developed nation in the WCY that ranks near the bottom (51st out of 60) for “the availability of competent senior managers.”

At the same time, strict immigration laws and the integration challenges facing foreign expatriates put the onus on developing local skills. The best solution would be to nurture local talent and cast a wider recruitment net to include more women. However, nurturing talent doesn’t only start at an early age but includes life-long learning that spans international exchanges, language skills and acceptation of cultural diversity. Japan performs poorly in each of these areas, especially for the “international experience of senior managers”, for which the country ranks third to last in the WCY.

Developing the global mindset of local executives can be achieved in a variety of ways:

  • Partnerships and exchanges with foreign companies to accelerate the two-way transfer of knowledge and management practices.
  • Experiencing a multi-cultural learning environment through international executive education programs.
  • Revising corporate remuneration policies to encourage managers to accept positions abroad.
  • Reforming universities to develop more global talents and encouraging cultural exchange programs.
  • Encouraging English proficiency (among other languages) in the school system and corporate world.
  • Opening up the corporate sector to more global competition and appointing foreign executives to top management positions.

Given Japan’s cutting-edge technologies and strong emphasis on business R&D, it’s a shame not to see this prowess being accompanied by similar managerial excellence.  Without a global mindset and intimate knowledge of foreign markets, Japanese companies may find that their “go-global strategy” is doomed to disappoint. Being a Japanese company in Japan is one thing, but succeeding abroad requires a host of soft skills and diversity that define the global leaders of the future.