In the US, companies spend up to 10% of their employee costs on learning & development. In India, they spend just 1-2%. Why this gap?
Breakthroughs in technology have enabled digitisation and globalisation at an unprecedented pace in every industry. If one looks at what is happening with transportation (on-demand, electric, driver-less), commerce (online, on-demand, personalised), healthcare (artificial-intelligence-assisted diagnosis), etc, it will undoubtedly dismantle several existing business structures, and bring in new innovators who can leverage these changes.
Large economies like the US have always stayed ahead of such disruptive cycles in business and technology, by sustained investments in research, innovation and human capital. On the human capital front, as per industry reports, US companies, on an average, budget 8-10% of their total employee spend on training, with a total annual outlay of over $100 billion. This is also a market that has been growing at 15% year-on-year since 2012.
India, on the other hand, is currently a much smaller economy, at about a tenth of the US. However, the corporate training market is disproportionately small as a percentage, with estimated spends of only 1-2% of employee costs and a total outlay of less than $1 billion. So, what ails this industry in India?
Reasons for slow growth
Low corporate training budgets: Indian organisations have traditionally seen low investments in longer-term initiatives like R&D—and employee training is no exception. This is further complicated by high employee turnover (of about 15-20% across industry), which leads to a perceived loss of the investment incurred by the employer.
*Generalist mindsets in career planning: Employees in India tend to move towards generalist ‘managerial’ roles fairly quickly—as compared to ‘specialist’ mindsets in economies like the US, where professionals plan long stints to hone specialised skills.
*Significant focus on entry-level skills training: Given the inadequacies in India’s current education system that does not adequately provide for vocational and employment-ready skills, a significant portion of organisational training budgets, even at leading IT services companies, goes towards entry-level skill building. The leading IT companies have significant budget outlays for training thousands of fresh recruits for 3-6 months every year.
Even the government’s skilling initiatives are mostly focused on imparting employability-related skills for millions of working-age youth. There is an ambitious initiative under way to impart job skills to as many as 500 million people by 2022 under the Skill India Mission.
The opportunities ahead
According to the IMF, India is projected to become the sixth-largest global economy by 2020, and the third-largest (behind China and the US) by 2030. To put this in perspective, currently India is home to only seven companies in the Global Fortune 500, compared to 128 based in the US and 98 in China. So, the next 10-15 years could see over 100 Indian companies in the Global Fortune 500 list.
Such phenomenal growth is unlikely to happen by focusing on employability-level skilling alone—rather, Indian companies will have to lead from the front, develop high-end expertise and set global benchmarks. What this naturally entails is that significant investments will be made in long-term initiatives including R&D-led innovation and organisational capability-building via training. Such investments will grow to far higher levels than at present, rivalling the spending by today’s leading economies like the US. For employees, there will be a much stronger focus on higher-end skills and specialised career paths.
The lower end of this spending is likely to be on self-paced, technology-driven and cost-effective solutions—while at the high-end, solutions that involve global expertise tailored to an Indian context will be seen. All this points to a huge corporate ed-tech market in the making in India.
Subrata Ghosh is CEO, Redstone Learning, a leading global education technology (ed-tech) company.