Assessing the Current Human Resources Talent Pool in ASEAN
Foreign investors looking at ASEAN need to understand the availability of talent and regulatory conditions as it exists in each member state. A regional bloc with over 600 million people, ASEAN is endowed with a diverse workforce, but these are spread across different levels of the developmental spectrum.Efficiency-driven economies in ASEAN, such as Indonesia, Vietnam, Thailand, and the Philippines boast of competitively priced labor and basic regulatory infrastructure. ASEAN members at this stage of development can be utilized for the manufacture of complex goods and the provision of limited value-added services.
Factor-driven economies, such as Cambodia, are characterized by low education levels and incomes and are best positioned to provide basic manufacturing services and the production of basic components as part of an extension of more complex production lines from countries such as China. Further, innovation-driven economies like Malaysia and Singapore can conduct high-value manufacturing, provide professional services, and assemble complex components. However, human resources are considerably more expensive in these countries.
Prior to the pandemic, Cambodia had the highest labor participation rate in Southeast Asia with over 80 percent of the working population aged between 16-and 64 being employed or seeking employment. However, Cambodia’s workforce is characterized by low education and low-to-medium-skill levels, in addition to low-technical literacy. Of the more than three million ‘wage employees’, more than 50 percent are concentrated in three sectors: textiles, garments, and footwear manufacturing; agriculture; and construction.
Some 89 percent of the workforce has completed primary education (or less), while only six and five percent have completed secondary and post-secondary school, respectively. The majority are still employed in Cambodia’s textile, garment, and tourism industries play an important role in the country’s economy, contributing to over 30 percent of the total GDP combined.
The government is looking at new sectors to help with economic development. The country is eager to develop its human resources in manufacturing, such as food and beverages, plastics, as well as paper processing.
Indonesia has ASEAN’s largest labor force of over 136 million people with the majority being relatively young. Higher education institutions are dominated by smaller private providers of lower quality, while public universities are highly competitive. Further, the disparity in economic development between each province means unemployment rates between provinces can vary substantially.
Indonesia only has an estimated 55 million skilled workers. According to the Master Plan for the Acceleration and Expansion of Economic Development in Indonesia (MP3EI), the country will need 113 million skilled workers by 2030. Furthermore, many vocational training programs do not meet industry needs. This has contributed to the fact that the majority of the country’s workforce is employed in the informal sector.
Indonesia is expected to experience a demographic bonus in the coming decade with 70 percent of the population becoming working adults by 2030, making the country ripe for increasing economic growth. As such, policymakers are prioritizing vocational training to strengthen the skills of the Indonesian workforce as the country looks to solidify its standing as a G20 member.
Malaysia is fast becoming a sub-regional interconnectivity hub for Southeast Asia and according to the World Bank, the country is likely to transition to a high-income economy between 2024 and 2028, despite setbacks caused by the pandemic. Living standards have been transformed in less than a generation and poverty has been slashed to less than one percent of the population.Further, Malaysia’s GNI per capita is at US$11,200 which is only US$1,335 short of the current threshold level that defines a high-income economy. The government has recognized the importance of developing high-quality human capital to facilitate economic growth.
Despite its status as a growing regional hub, only 28 percent of Malaysia’s workforce is classified as highly skilled, and more than half of the jobs in the country are at risk of displacement by technology.
Like many of its ASEAN peers, Malaysia also suffers from a shortage of skilled workers (only 28 percent of Malaysia’s workforce is classified as highly skilled) and employers’ over-reliance on cheap and unskilled foreign labor has exacerbated this problem.
The government has enacted a multi-pronged approach to developing the local labor market, such as increasing public-private partnerships in addition to initiatives to address the gaps in skills shortages. These include the expedition of disseminating knowledge transfer.
The Philippines has seen steady GDP growth over the last decade, but this performance has come with a pattern of slow job growth — GDP is not translating into meaningful job creation. The country has a labor force of about 42 million and a labor force participation rate of 63 percent. Over 10 million are in the informal sector, and nearly 40 percent of the workforce is considered employed in ‘vulnerable’ sources of employment.
According to the Philippine Department of Labor and Employment, the country has a shortage of an estimated one million skilled workers in the fields of engineering, architecture, and construction. A major contributor to this problem is the brain drain due to the large and sustained outmigration of nationals to work abroad. The Philippines has a sophisticated labor-exporting model, with the Commission on Filipinos Overseas (CFO) estimating that 10.2 million Filipinos are overseas.
The Technical Education and Skills Development Authority is collaborating with the Information Technology and Business Process Association of the Philippines (IBPAP) to develop a blueprint with the aim of upgrading the Philippines’ IT-BPO sector, which the government hopes can provide 1.8 million jobs by 2022.
Singapore has a highly-skilled population, and the government consistently monitors and analyzes its labor market to make evidence-based predictions on future needs. The country is recognized as a global leader in innovation, supported by a strong tertiary education system, and a business-friendly regulatory environment. According to the International Institute for Management Development (IMD) World Competitiveness Centre, Singapore was ranked ninth in the list of the most competitive countries for talent globally, in 2020. It was the only Asian country in the top 10 in this latest ranking.
Singapore’s workforce is aging. It is expected that by 2030, one in four Singaporeans will be over the age of 65, putting pressure on healthcare, pensions, and long-term economic growth. The government is expected to increase the retirement age to 63 by July 1, 2022.
Singapore has no natural resources, and therefore its government has successfully embraced its people as its most important asset. The government will continue to invest heavily in training programs and educational institutions. Singapore’s students consistently perform the best globally in mathematics and literacy skills. Moreover, Singapore will continue to excel in attracting foreign multinationals (MNC) to establish their regional headquarters in the city-state; it is home to over 7,000 MNCs.
Despite years of political instability, Thailand has been a popular destination for foreign investment, moving from a low-income to an upper-middle-income economy in less than a generation. Major sectors of the economy are electrical appliances and electronics (E&E), automotive, tourism, and metal processing.
Although its economy has a higher degree of complexity, the country still suffers from a severe lack of technical specialists and investments in innovation and technology. This is key if Thailand wants to escape the middle-income trap, which has plagued the country for years. For the economy to move to higher-value activities, Thailand needs to boost the availability of vocational skills, especially in science, technology, engineering, and mathematics (STEM) — the country has a systematic undersupply of secondary and lower vocational skills.
The government is aiming to revitalize vocational schools so that they meet regional standards, particularly as more investors in the country’s Eastern Economic Corridors (EEC) — a special economic zone — are adopting more modern technologies.
Vietnam has become an increasingly attractive place for businesses of all types, given the country’s growing consumer class and dynamic workforce.
Much of this economic growth has come from the movement of people from traditional agriculture to the manufacturing and services industries, in addition to the increased mechanization of the agriculture sector itself. Vietnam has one of ASEAN’s largest labor markets, which whose strength is approximately 56 million people, and with a labor participation rate of 76 percent. Due to the developing nature of the workforce in Vietnam, it is natural that there exists some difficulty in finding highly skilled employees — only 12 percent of Vietnam’s workforce are considered highly skilled.
Skills and talent shortages are particularly acute in industries such as technology and banking. The country is currently lacking over 70,000 IT workers per year and the government is setting a target of creating a pool of 1.3 million IT workers by 2025. Further, the US-China trade war has aggravated the existing shortage of quality labor as more companies shift all or part of their manufacturing to Vietnam, particularly for engineers, managers, and software developers.
To address the challenges within its labor force, the Vietnamese government has announced it will prioritize adapting its industries to a digital future and will improve the accessibility of on-the-job training programs in these fields. The vocational education system is also increasing its commitment to work with the private sector to establish more enterprise-based training programs. Vietnam’s business climate already encourages innovation and attracts foreign investment, so an enhanced learning ecosystem will allow the country to respond well to the latest technological disruptions.
ASEAN’s roadmap for human resource development
The ASEAN bloc is now the fifth-largest economy in the world, and the quality of its human resources will be vital to enhancing the sustainability and resilience of respective member economies. This is even more so after the disruptions caused to economic activity in the wake of COVID-19.Further, there are several megatrends that are set to impact human resources development in ASEAN, which include digital transformation, aging societies, social inequalities, and climate change.
The integration of digital technologies alone has redefined the scope of many current jobs and established new forms of labor while leaving other roles redundant. Investing in human resources that align with digital transformation will therefore be an important goal for many ASEAN members. That will also likely be followed up by new human resources development policy frameworks focusing on equitable education, life skills, and vocational training.
It will thus be essential for ASEAN countries to prepare their workforce to adapt to a changing environment and uncertain future. For more developed economies like Singapore, this has meant investing in upskilling / retraining – including over US$4 billion in 2021 for transitional upskilling and employment facilitation to support workers impacted by COVID-19.
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ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices throughout ASEAN, including in Singapore, Hanoi, Ho Chi Minh City, and Da Nang in Vietnam, Munich, and Esen in Germany, Boston, and Salt Lake City in the United States, Milan, Conegliano, and Udine in Italy, in addition to Jakarta, and Batam in Indonesia. We also have partner firms in Malaysia, Bangladesh, the Philippines, and Thailand as well as our practices in China and India. Please contact us at firstname.lastname@example.org or visit our website at www.dezshira.com.