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The training conundrum

For small companies to compete against bigger ones, they must invest in human capital, says Félix Mitnik, coordinator of a project for supply chain development in Cordoba, Argentina, financed by the IDB's Multilateral Investment Fund (MIF).

But the project, designed to increase the levels of productivity and competitiveness in small companies, revealed that they themselves invest little in training. Are they acting against their own interests then?

Not quite. As an incentive for small business owners, the program subsidized the training—paying half the cost of the course for every employee enrolled—and developed an information system on the training market.

The program exceeded its goals, Mitnik pointed out. At close to 8,000, the number of companies enrolled was almost four times the target of 2,000. The number of trainees, however, only modestly outperformed expectations: 21,322 individual subsidies were granted, compared with a target of 20,000.

Satisfaction among participants was high, added Mitnik, and the training was more effective when provided at the workplace.

But when monitoring results more carefully, the Mitnik team concluded that the outcome wasn't entirely positive.

Although training is key for socioeconomic development, it is difficult for small companies, stressed Mitnik. The short life span of SMEs—a high percentage of them die before the training can produce results—, plus the low wages they pay, along with the possibility that better trained workers could be lured away by big companies, do not work in favor of investing in staff. Nor do the pervasive lack of job stability in SMEs, the poor prospects for promotion and a career path, or the opportunity cost of the training itself.

The project evaluation showed that the companies investing more in training are the bigger ones, not family-owned, and under innovative management. Companies providing services are more keen on training than companies providing goods.

And it was generally the supply side that went out in search of demand—training companies had to market their services—, while most small companies have the habit of not investing in training. A surprising result of the evaluation was the evidence that companies whose business is to market the benefits of training and provide training to other companies do not train their own employees. “They are small companies themselves so they follow the pattern of small companies and do not invest in their own training," said Mitnik.

Job training is very limited in SMEs, the expert said. Both in Cordoba and the rest of Latin America and the Caribbean, investment in human capital should be stimulated. But there are exceptions in other parts of the world. Mitnik highlighted the example of Singapore. "It is a thinking society," he said, that views training as generating great economic benefits in the long term . SMEs in Singapore “cannot afford the luxury of having anybody without the proper training."