Report on the Global Shortage of Skilled Workers

September 2013

Skills in Shortage

Global Impact of Skill Shortages

Drivers Propelling the Skill Shortages

Scenario in 2020, and Steps Ahead

Solu?ons Adopted

Key Ques?ons to Consider

Objective

Shortage of skilled workers is prevalent across most countries as of 2012. This shortage is also on the rise, having an impact on the opera=ons of companies. This is especially accurate for companies opera=ng in secondary industries such as manufacturing, construc=on, and mining.

In this report, The Smart Cube examines this shortage across several countries globally, its drivers, and its impacts across industries and economies

Contents

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Most recruiters consider the absence of technical skills as the main driver for skills shortage across a myriad of industries

SKILLS IN SHORTAGE

Job roles aected by labor shortage2012

Against the milieu of the slow-paced global economy, employers are experiencing diculLes in lling vacancies due to lack of qualied and employable workers; as the global economy is recovering, the labor market is increasingly Lghtening with acute shortage in the Asia Pacic and the Americas region

Procurement

Procurement has grown from being the purchasing

department at companies to an area of strategic importance

This has resulted in the growing demand for logisLcs, supply chain, and procurement professionals globally

Finance/Accounts

An increasing number of rms are facing a shortage of high-skilled professionals with

extensive nancial knowledge; there is a shortage of locally

available talent in several parts of the world

Engineering

There is a signicant shortage of engineers globally, which directly impacts the ability of companies to

invest and take up projects There is also a shortage of

engineering leaders who can take up management roles in dierent

engineering elds

IT

According to Hays, a leading recruitment rm, informaLon technology (IT) skills, such as JAVA, .NET, C++, are in scarce supply globally during 201213 The growing importance of IT has resulted in the shortage of workers across the bandfrom CIOs to

programmers, and IT support sta

There is a signicant shortage of vocaLonally trained individuals to occupy roles such as those of electricians, welders, plumbers, and, maintenance and repair

workers, globally

Skilled Trade Companies across industries face a severe shortage of research and development (R&D) sta;

R&D is intrinsic to the companys technological advancement and top line performance, impacLng

its compeLLveness

R&D

Major Technical Skills in Shortage

Source Hays Global Skill Shortage Index (2012)

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Apart from technical skills, employers believe that skilled labor with adequate soft skills is also in shortage

SKILLS IN SHORTAGE

Job roles aected by labor shortage2012

Work Ethics

Leadership

Language CommunicaCon

Team Work

Major SoD Skills in Shortage

The a_tude of employees and their lack of work ethics are major concerns across companies;

employees o`en lack in areas of Lmeliness, willingness to work, and

other hygiene factors While this does not directly impact the availability of skilled labor, it

certainly aects quality

Employers nd it most dicult to ll leadership

roles, such as CEOs, CIOs, and Directors; this is especially true for technical leadership jobs in developing countries

Companies are coming across candidates who lack the ability to work in teams and senior-level employees

who lack people management skills; these skills aect the eciency levels in organizaLons,

which are must haves for most employers

Many recruiters face a shortage of individuals with good

communicaLon skills; this goes beyond language barriers and can be observed in cases where candidates are not uent and coherent even in their naLve

languages

Workers procient and uent in English are scarce globallyespecially in countries where

English is not the naLve language Apart from English, companies look for individuals who can speak the naLve language of the country of operaLon; this has parLcularly

become important with the global movement of talent

Companies across industries are also facing challenges of shortage of labor with so` skills such as communicaLon, language, work ethics, and leadership

Source Hays Global Skill Shortage Index (2012

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Secondary industries face the brunt of this shortage; the key skills in shortage globally are skilled trade workers, engineers, technicians, and sales representatives

Source: Talent Shortage Survey Results, Manpower Group (2012);

Notes: 1) Impact of skill shortage on the primary industry has not been assessed, due to the lack of a dened entry level skill set

SKILLS IN SHORTAGE

Intensity and Geographic Spread of Key Skills that are in Shortage2012

High-skilled Workers AYained ter?ary educa?on (college level)

Medium-skilled Workers AYained some level of post secondary educa?on (professional, voca?onal training)

Low-skilled Workers AYained only primary, and some level of secondary educa?on

Secondary Industries

Manufacturing

ConstrucCon

Oil & Gas, and Mining

AutomoCve

Energy and UCliCes

TerCary Industries

IT

Professional Services

Financial Services

Travel &TransportaCon

All Industries

Key Industries Impacted

Geographic Spread of Shortage

Intensity

of Sho

rtage

Skilled Trade Workers

Engineers

Technicians

AdministraLve & Support Sta

Managers & ExecuLves

Sales RepresentaLves

Laborers

Drivers

IT Sta

AccounLng & Finance

Low High

Low

High

Key Industries Impacted

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In Americas and Europe, skill shortages of engineers and skilled trade workers is impacting the manufacturing industry severely

IMPACT OF SKILL SHORTAGE IN AMERICAS AND EUROPE

Americas

Key Countries Aected

Region DescripCon Main Industries Impacted

Top 3 Job Roles in Shortage

Brazil 1. Technicians 2. Skilled Trade Workers 3. Engineers

Oil and Gas, Mining

There were only 1.95 engineers per 10,000 inhabitants in Brazil in 2012

In the oil and gas, and mining sector, employers also face shortage of geophysicists, rig managers, tool pushers, and experienced execu?ves

US According to a joint report by DeloiYe and

Manufacturing Ins?tute published in 2012, 5% of jobs (600,000 jobs) in the US manufacturing sector remain unlled due to lack of skilled labor

Manufacturing 1. Skilled Trade Workers 2. Engineers 3. IT Sta

Europe

Americas Outlook Skills shortage in the Americas is likely to become severe by 201516

Shortage in the US is expected to further worsen by 2015 due to increasing re?rements Countries such as Brazil will need to invest in technical training ins?tutes to cope with the expected increase in labor shortage

Romania

Bulgaria

Germany

Manufacturing

Manufacturing

Manufacturing 1. Skilled Trade Workers 2. Engineers 3. Sales Representa?ves

1. Engineers 2. Skilled Trade Workers 3. Sales Representa?ves

1. Engineers 2. Skilled Trade Workers 3. Management Execu?ves

Europe Outlook Talent shortage is expected to worsen in Europe by 201516

This is mainly due to an aging popula?on in many countries; another factor contribu?ng to increasing shortage is the s?gma associated with technical and voca?onal educa?on, which dissuades many students from studying skilled trades

Skill shortage is impac?ng Germanys manufacturing sector; according to the Federal Labor Agency of Germany, the country will face a shortage of six million workers by 2030

Eastern European countries, such as Bulgaria and Romania, face labor shortage There is a skill shortage in Romania due to the

absence of people with technical skills

Employers cite lack of individuals with industry-specic qualica?on as a major reason

Source: Talent Shortage Survey Results, Manpower Group (2012); Skills Gap in US Manufacturing, DeloiYe and Manufacturing Ins?tute (2011)

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Oil and gas, mining, construction, and IT industries are facing severe skill shortages in Asia-Pacific and Africa

IMPACT OF SKILL SHORTAGE IN ASIA-PACIFIC AND AFRICA

Asia-Pacic

Key Countries Aected

Region DescripCon Main Industries Impacted

Top 3 Job Roles in Shortage

Japan 1. Technicians 2. Skilled Trade Workers 3. Engineers

Oil and Gas, Mining

Japan faces a severe shortage of engineers due to declining enrolments in engineering, followed by a low birth rate in the country; this is impac?ng the manufacturing sector, par?cularly digital technology, automo?ve, and steel

Australia

Manufacturing

1. Skilled Trade Workers 2. Engineers 3. Sales Representa?ves

Asia-Pacic Outlook Asia will require a large pool of skilled workers and the skill shortage gap is expected to widen ?ll 2015-16

This will be driven by strong growth in developing economies, warran?ng the need for skilled workers; further, aging popula?on will also contribute to the talent shortage, along with low employability of graduates

The IT and professionals services industry is facing a shortage; according to NASSCOM and McKinsey, only 10% of IT graduates in India are employable in the industry

Construc?on

India IT

Civil and mining engineers, construc?on managers, brick and ?le layers are the toughest posi?ons to ll Universi?es are unable to produce qualied people

to match the high industry demand

1. IT Sta 2. Marke?ng Sta 3. Engineers

Africa Skill shortage in Africa is equally distributed across countries, with a majority of them facing a scarcity of quality workers As African economies expand, the demand for skilled labor is expected to increase and widen the skill gap The skill gap is mostly aYributed to the frail educa?on system and inadequate technical training in the region According to a survey conducted by the Na?onal Employers Federa?on in 2010, 96% employers in Namibia agreed that the country had a shortage of skilled labor The shortage of skilled workforce is aec?ng the oil & gas sector in East African countries, such as Uganda, Tanzania, and Kenya According to the 2011 IT Web-JCSE Skills Survey, an adverse impact of the shortage of informa?on and communica?ons technology (ICT) skills was reported by 66% of

companies across industries in Africa

Outlook for labor availability in Africa is bleak ?ll 201516, and companies will have to resort to in-house training and expat recruitment in order to ll vacancies

Source: Talent Shortage Survey Results, Manpower Group (2012); East Africa Skill Shortages, The Africa Report (October 2012)

Notes: 1) Skill shortage in Africa has not been assessed on the same parameters as other regions, due to lack of adequate informa?on

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Industry Speak

INDUSTRY SPEAK

The Hays Global Skills Index and report illustrates a major paradox in the worlds skilled labor markets. Many countries are suering chronically high levels of unemployment, yet employers are struggling to nd enough skilled individuals to ll the posts

available. Alistair Cox, Chief ExecuLve Ocer, Hays (2012)

As the global recovery gathers pace, cul=va=ng future talent and allevia=ng the shortage of skilled workers is becoming vital to ensure economic growth. With unemployment high around the world, migra=on is an emo=ve subject but strategic migra=on will be necessary to create a global workforce and alleviate the current shortage. Countries should be developing policies, which facilitate posi=ve migra=on to fuel economic growth

through providing skilled workers where they are needed, rather than crea=ng barriers to immigra=on. Jeery A. Joerres, Chief ExecuLve Ocer, Manpower Group (2010)

As we move further into recovery and business plan for growth, the demand for people with high-quality skills and qualica=ons will intensify. In the future, people with qualica=ons in science and math will be par=cularly sought aQer, and rms say it is

already hard to nd people with the right technical or engineering skills. Richard Lambert, Director General, ConfederaLon of BriLsh Industry (2010)

Increasing talent shortage in Asia Pacic could harm organiza=ons' innova=on eorts as CIOs struggle to adapt to ongoing technological change. Half of employers in the region have problems with skills shortages. IDC Report on Growth of IT in Asia Pacic (November 2012)

Concerns about nding sucient skilled employees in technical and engineering job func=ons is likely to grow in the future. EIU Survey on Skills Gap (2012)

The success of any na=onal or business model for compe==veness in the future will be placed less on capital and much more on talent. We could say that the world is moving from capitalism to talen=sm. Talent grows businesses and economies: understanding and harnessing talent mobility is now more cri=cal than ever. The talent crisis points out serious imbalances in human capital markets. On one side, there are talent shortages. On the other, high

unemployment rates and employability challenges slow down economies and threaten future growth across the globe. The new Millennial genera=on is calling for a change. At the same =me, talent is landing at the top of CEOs agendas. Klaus Schwab, Founder and ExecuLve Chairman, World Economic

Forum (2011)

"Foreign direct investment (FDI), and the projected increase in FDI into Africa, will mop up talent. The demand for talent in Africa is going to outstrip supply. As a result of the higher demand for talent, the price of talent is going to go up, and it is going to con=nue to go up, for as long as there is a skills

shortage.Ray Harraway, Tax Human Capital Director at Ernst & Young Africa (March 2012)

Source: Manpower Suggests Strategic Migra?on, Promo?ng Skilled Trades Key to Plugging Talent Gap, Manpower Group Press Release (August 2010)

Notes: 1) Images have been sourced from secondary sources including scienceonline.com

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The shortage of skilled labor is resulting in supply-demand mismatch, primarily due to lack of responsiveness of the education system to the needs of labor market

DRIVERS SKILL SHORTAGE

Mismatch between skill demanded and

supplied

Paradox for policy makers

high unemployment despite shortage of skilled labor

Industrial sectors such as construcLon,

manufacturing, and mining have been parLcularly

aected

Global Shortage of

Skilled Workers

Aging PopulaCon

Demand Outpacing Supply

Low employability of Graduates Ke

y Factors Impa

cLng

Sho

rtag

e

Very High

High

Medium

Low

Very Low

Impact on Labor Shortage:

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Aging population worldwide is having a severe impact on the size of labor force across the globe

DRIVERS SKILL SHORTAGE

Aging popula?on is aec?ng the labor availability in many countries, and this is likely to con?nue over the next decades According to a UN Report published in 2012, by 2050, the popula?on aged 60 and above will outnumber the popula?on aged

15 and below

Aging popula?on and increasing re?rements are aec?ng many developed countries including the US, the UK, and Japan There are approximately about 810 million individuals aged above 60 as of 2012 and this is projected to increase over 2 billion

by 2050

As of 2012, one out of every nine individual is aged 60 years or above, while by 2050, one out of every ve is likely to be in that age group

In 2012, the propor?on of older individuals (aged above 60) who are economically ac?ve is higher in the less developed regions (50% among men and 22% among women) than in the more developed regions (26% among men and 15% among women)

Older individuals in the less developed regions work un?l more advanced ages (above 60) largely due to the limited coverage of social security schemes, as well as low pension values received by those who are covered

Key Factors Impac?ng Shortage

Aging PopulaCon

55.7%

67.9% 68.0% 66.2% 66.6% 65.7%

58.6%

67.8% 64.0%

67.4%

62.2% 64.3% 63.0% 63.4%

57.9%

63.6% 60.3%

62.9%

Africa Asia Europe La?n America and the Caribbean

North America Oceania

2012 2025 2050

Percentage of PopulaCon Aged Between 15 and 64 Years, 20122050

Source: UN

Source: Ageing in the Twenty-rst Century: A Celebra?on and a Challenge, UNFPA (October 2012); Department of Educa?on, Australia (2012)

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Low employability of graduates and demand outpacing supply are the key factors driving the global shortage of skilled workers

DRIVERS SKILL SHORTAGE

Source: Talent Shortage Survey Results, Manpower Group (2012)

Demand Outpacing Supply

One of the main drivers of skill shortage globally is the lack of a link between what is taught in schools and what is needed by at the job front, which leads to high levels of unemployment

In many countries the educa?on system only provides theore?cal knowledge and students are onen not equipped with requisite job skills

Further, the curricula is onen out-dated, and students have no present day relevant knowledge; this is par?cularly true for technical professions and low quality of teaching is also prevalent in many ins?tutes

The lack of employability skills also contributes to the diculty faced by employers to ll vacancies In many cases the labor shortage experienced in a eld is not due to the shortage of adequate personnel, but due to their low

quality and employability; employers nd candidates lacking generic skills such as communica?on, team work, and ?meliness

Employability of fresh graduates is a major concern in certain Asian and African countries; according to an annual employers survey conducted by Manpower Group in 2012, 28% of employers in Asia stated that low employability is a problem within the region

Key Factors Impac?ng Shortage

Low Employability of Graduates

In many parts of the world, the demand for skilled labor is growing at a rate, which is outpacing the labor supply growth Increasing demand is based on increased investments in projects and growth in various sectors IT, oil and gas, and mining industries in Australia are witnessing high levels of growth and in turn are demanding skilled labor;

the growth of the labor market however, is not able to match the total demand

According to the American Society of Engineering Educa?on, as of 2012, the US needs to graduate 10,000 addi?onal engineers every year to keep pace with the demand

40% 41% 31% 30% 31% 34% 34%

2006 2007 2008 2009 2010 2011 2012

Companies Facing Diculty Filling Jobs Globally1, 20062012

Source: ManPowerGroup Survey (2012)

Notes: 1) This has been sourced from a survey conducted by ManpowerGroup in 2012 with 38,000 employers

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Globally, a shortage of high- and medium-skilled workers, and a surplus of low-skilled workers is expected by 2020; this represents a training and development opportunity

SCENARIO 2020

Source: The World at Work: Jobs, Pay and Skills for 3.5 billion people, Mc Kinsey Global Ins?tute (June 2012)

Mostly high- and medium-skilled workers are in short supply globally as of 2012 According to McKinsey Global Ins?tute, by 2020, there will be a 13% shortage of college-educated or high-skilled individuals globally Shortage of high-skilled workers will be most prevalent in developing economies, with about 50% of the shortage in China alone, in 2020 The expected shortage of medium-skilled workers (secondary educated) is about 15% by 2020 Most of this shortage is expected in developing and labor-intensive economies of South Asia and Africa However, by 2020, there is likely to be a surplus of low-skilled workers, largely in the developing countries Most of the excess supply of low-skilled workers is expected in India and other developing countries While the shortage of skilled manpower in developing countries can be overcome by improving the educa?on system, the problem in developed na?ons will be more

dicult to tackleas it is mostly not the educa?on, but the demographics that leads to the shortage

40 45

-94

High-skilled Workers

Medium-skilled Workers

Low-skilled Workers

Global Decit of Skilled Workers In millions, 2020

Source: The World at Work, McKinsey Global Ins?tute, June 2012

85 Million

Global Shortage of Skilled Workers in 2020

What will be the shortage of skilled workers in 2020?

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The availability of skilled labor in some of the prominent countries is unlikely to change drastically in the decade ending in 2020

STEPS AHEAD ?

Source: World Bank Educa?on Sta?s?cs

Availability of Skilled Labor2010 Availability of Skilled Labor2020

% Of Labor Force with College EducaCon

Size of Labor Force

5 10 15 20 25 30

800

0

500

150

100

50

China

India

Brazil

US

UK

Germany

Australia

Japan

Kenya

Romania

Size of Labor Force

5 10 15 20 25 30

800

0

500

150

100

50

% Of Labor Force with College EducaCon

China

India

Brazil

US

UK Germany

Australia

Japan

Kenya

Romania

Although the size of labor force and level of educa=on are set to improve, countries are not likely to undergo a major systemic change

This possible scenario in 2020, and its lack of progress from the present scenario, poses a serious ques=on for the decision makers today regarding the steps that need to be taken to tackle this

shortage over the next decade

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Governments are focusing on education, training and development, and policy related changes to tackle the talent shortage

SOLUTIONS ADOPTED

Source: Department of Educa?on, UK, Immigra?on rules aim to ease skill shortage in Germany, Business Day Live (February 2013)

The UK has a severe shortage of skilled labor, primarily engineers and technicians In May 2012, the UK government approved opening of 15 University Technical Colleges (UTCs) across the country during 201315

UTCs are designed to meet the shorqall of engineers and technicians by oering students a high-quality, technical educa?on, which can lead to appren?ceships and higher degrees

Once the 15 UTCs are set up, the UK will have a na?onal network of 34 UTCs In October 2012, the UK government announced a scholarship program to aYract top graduates to train as teachers for computer science

programs

The ini?a?ve is aimed at improving the standard of educa?on and thus, crea?ng a beYer pool of skilled labor The program is backed by companies such as Microson, Facebook, Bri?sh Telecom, and IBM to reduce the gap between the educa?on and

industry requirements

To eec?vely u?lize its oil resources, Ugandan government decided to develop resources with strong background in oil and gas within the country

The government sent people abroad for training courses who are now a part of the team leading their oil sector every year Till 2012, the government had sent 30 people to Trinidad & Tobago to study oil and petroleum related courses

The German government is taking steps to liberalize immigra?on laws to make it easier for non-EU workers to nd employment in the country This is being done to overcome severe skill shortages in engineering, train-driving, electronics, and plumbing jobs; according to OECD, the

country will face a shortage of 5.4 million workers with voca?onal and ter?ary educa?on by 2025

The German Chancellors cabinet has passed new immigra?on rules in February 2013, to reduce red-tapism, in order to help workers get their qualica?ons recognized easily

Measures taken by the UK

Government

Measures taken by the Uganda Government

Measures taken by the German Government

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Industry players are adopting innovative strategies to tackle the talent shortage across a myriad of industries

SOLUTIONS ADOPTED

Source: Namibia Ins?tute of Mining Technology; Queensland LNG projects will need imported labour, Reuters (October 2011); Department of Educa?on, UK

Manufacturing

Case exampleMazak (US) Like most manufacturing rms in the US, Mazak was facing a

talent shortage during the last decade; however, instead of wai?ng for government to take steps, Mazaks leadership decided to take proac?ve measures

In 2008, the company started a training campaign for entry level posi?ons, which the company calls Tooling University The training program involves computer-based, classroom, and

on-the-job training with Mazak machines

Apart from its own training ini?a?ves, the company has also collaborated with local community colleges to oer a two-year program for appren?ce engineers and machinists

The companys president sees this as a remarkable improvement, which has enabled them to hire 300 individuals since 2008

Case exampleBechtel (Australia) Bechtel Australia was facing a talent challenge in the country

in 2011

The company reported that shortage of skilled labor nega?vely impacted its revenues in 2011, and that the company will combat this by hiring foreign labor

Riley Bechtel, CEO Bechtel, stated that the company will import workers such as electricians and welders into Australia to ensure that manpower shortage did not aect top line performance

ConstrucCon Case exampleRossing and De Beers (Namibia) Namibia has a popula?on of 2.3 million as of 2011, and the

country faces a severe labor shortage; mining is a cri?cal industry in the country and accounted for 9.5% of the countrys GDP in 2011

In order to tackle the shortage of skilled voca?onal workers in the country, Rossing Uranium (Rio Tinto) set up the Namibia Ins?tute of Mining Technology (NIMT) in 1991

NIMT func?ons as a technical and voca?onal ins?tute, oering courses in mining, manufacturing, and engineering

Further, in 2007 De Beers Namibia donated $308,000 to NIMT for its expansion plans

The ins?tute produces about 300-500 graduates annually, all of whom get absorbed in the mining industry

Oil and Gas, and Mining

IT

Case exampleIBM (Global) IBMs Academic Ini?a?ve program, provides educators free

resources to strengthen their curricula in elds such as cloud compu?ng, informa?on management, big data, and NoSQL databases

The program provides training material, curriculum guides, sonware, and hardware needed to teach analy?cs and informa?on management skills

These courses train students to occupy roles such as analy?cs specialists, data scien?sts, big data specialists, data and visualiza?on specialists

This was done to bridge the skill demand and supply gap in the IT industry globally, especially in the eld of big data and analy?cs

Measures Taken by Companies

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Your Checklist

SOLUTIONS ADOPTED

Below is a list of queries that senior execuLves, decision makers, and managers globally should reect on regarding the risk of shortage of skilled labor

Are your future talent needs impacted by the shortages experienced in the world? Do you operate in geographies where there is a skill shortage? Do the regulaCons in the geographies allow you to hire foreign workers? What impact will skill shortage have on your top line? What are the various steps your compeCtors

and the industry are taking in this regard?

Are you taking the necessary steps to insulate your company from this risk in the long term?

Contact our strategy team to take this forward and know about our various oerings in this space! info@thesmartcube.com

The Smart Cube is a global professional services firm that specializes in delivering custom research and

analytics services to corporations, financial services, and management consulting firms.

The Smart Cube has conducted more than 17,000 studies to date across virtually every major industry, function, and region through its global team of over

400 analysts.

The firm is headquartered in the United Kingdom with additional offices in the United States, China, Germany,

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