Incentives vital to spur firms to invest in 4IR training of workers: ADB study

The Philippines and other countries in Southeast Asia should consider providing incentives and support programs to encourage firms to train and reskill their employees for the Fourth Industrial Revolution (4IR).

This is one of the key recommendations proposed by a new Asian Development Bank (ADB) study that looks at how four Southeast Asian countries-Cambodia, Indonesia, the Philippines, and Vietnam-can transition their economies effectively to the 4IR.

4IR refers to a range of new technologies that combines the physical, digital, and biological worlds and that has profound effects on the workplace. These technologies include cyberphysical systems, the Internet of Things, Artificial Intelligence (AI), cloud computing, and cognitive computing.

The study, “Reaping the Benefits of Industry 4.0 Through Skills Development in High-Growth Industries in Southeast Asia,” found that employer-led training efforts in the four countries remain limited.

In fact, surveys found that less than one-fifth of firms in Cambodia and less than a quarter of those in Indonesia provided formal training for their employees, said the paper released this month.

And 4% more employers in the Philippines and 5% more in Vietnam would rather hire new staff with the required skills than retrain existing workers, and that 74% in the Philippines and 68% in Vietnam simply expect employees to pick up skills on the job.

These low training rates, the study noted, are due to a limited awareness among employers of the need to take up new skills for 4IR, and a lack of understanding of different types of 4IR technologies and their productivity benefits in some industries.

The report also noted that 59% of employers in Indonesia and 44% in the Philippines cited insufficient time as one of the top reasons for not undergoing training courses, reflecting a lack of priority accorded to training.

About 40% of employers in Indonesia and the Philippines also cited not knowing what courses their employees should take to skill up in AI knowhow as reason for not providing formal training to workers.

Similarly, employers in the four countries were generally unaware of the relevant courses available and the training institutions that offered them.

The study found that the low training rates were likewise the result of weak market-driven economic incentives for employer-led training efforts. This is a result of thin budgets available for training and a strong reliance on short-term contracting in some labor markets.

“Given these challenges, it is critical to develop a set of support programs to encourage firms to invest in relevant 4IR training for their workers,” the report said.

To do this, these countries can identify appropriate incentive programs for firms and analyze the direct and indirect economic benefits of the incentive scheme and associated training programs.

Their governments can then proceed to pilot programs in a number of priority sectors and scale up the program to include other industries, and incorporate lessons learned from the pilot.

At the same time, the study urged governments to consider “a set of unique priorities” when implementing their respective policy actions.

These include focusing on addressing information and capability gaps in the manufacturing industries, where awareness of 4IR technology opportunities is more limited than in services industries.

There also tend to be large knowledge gaps on 4IR technologies between large and small firms in the manufacturing industries. Many of the manufacturing firms analyzed have ecosystems characterized by a small number of larger companies and many smaller micro, small, and medium-sized enterprises (MSMEs), which often serve as suppliers to the larger companies.

This was found to be the case for Cambodia’s garment industry, Indonesia’s automotive manufacturing, the Philippines’s electronics, and Vietnam’s agro-processing.

“Given that the large and small companies are often not in direct competition with each other-and indeed exhibit strong interdependencies-there is a compelling push for there to be knowledge transfer on 4IR adoption and skills development strategies from the larger companies to their MSME suppliers or subcontractors,” said the report.

It also pressed for the adoption of a gender-sensitive lens for certain industries where job displacement impacts of 4IR technologies were found to be particularly pronounced for female workers. This is the case for the garment manufacturing and tourism industries in Cambodia, the electronics sector in the Philippines, and the agro-processing industry in Vietnam.

It is thus important that the training programs incorporate gender-sensitive approaches, said the study.

Finally, ADB underscored the importance of understanding the variation in key skills by industry. For example, in tourism the most important skill will be “written and verbal communication,” and in electronics it will be “numeracy.”

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