Human Capital Growth Overseas Affecting US Trends

April 4, 2006 ( - US and European best practice companies estimate they are overspending by 10% and underperforming by 10% as a result of workforce deficiencies.

The trends in human capital study from PricewaterhouseCoopers (PwC) finds that Central and Eastern Europe as well as Asian economies are providing stronger competition for human capital as the working-age population is growing and becoming more skilled and knowledgeable in these regions.

The working-age populations (age 15-64) in the US and Western Europe is expected to decline by around 1% in the next five years, while the working-age population in Eastern Europe, India and China will grow by 2.5% or more in the same period.

In addition, the educated talent in Asian and European regions is growing. The report says the Philippines produces some 300,000 college graduates each year, all of whom speak English, while India produces two million college graduates each year, 80% of whom speak English.

As a result, outsourcing and offshoring are trends predicted to grow, and will no longer be driven only by cost factors. PwC predicts that this trend will increase by 6%-10% over the next three years for low value-adding work and by 4%-7% for higher value-adding knowledge-based work. Spending by UK and US-based companies on offshoring contracts worldwide is forecast to rise from €8 billion in 2004 to €48 billion in 2008, 40% of which is likely to come from the banking and insurance industries.

Other key trends noted in the PwC study include:

  • Increased corporate transparency: While regulatory initiatives and corporate scandals have driven a demand for extra financial reporting by companies to shareholders, the trend is also having an impact on reporting human capital measurements as well. The debate now concerns which human capital measurement will be most useful.
  • Leadership development remains a top business priority: 53% of US respondents to the study said that their senior management had attended one or more leadership development courses in 2004.
  • Diversity: The presence of women in professional positions (qualified but not supervisory) has risen from 29.3% to 32% and in managerial positions (supervisory and higher) from 24.6% to 25%. “A high consciousness of gender diversity may indicate an awareness of the advantages of a balanced diversity human capital mind-set overall,” PwC said in its report.
  • Talent development and education: The 2005 key trends in human capital report showed a leap of 35% in training investment by US companies during 2003 and a 2004 increase of 5.6%.
  • Work/life balance: Some studies have found thatcompanies in the FTSE 100 that operate ‘family friendly’ policies and working practices outperform their competitors. PwC found that the top 25% of performers in each sector have the most advanced work/life balance policies.
  • HR function: While the size and cost of the HR function has increased, PwC evidence shows that HR managers’ influence in organizations has not. In the US, 63% of HR directors have a direct reporting relationship to the CEO, compared with 81% in 2003.

The trends in human capital study found that the human capital return on investment ratio in the US rose from $1.42 in 2003 to $1.52 in 2004, while in Europe it rose from €1.13 to €1.14. The US human capital return on investment is 33% higher than in Europe. PwC attributes this partly to the fact that the average remuneration in the US of €70,090 is almost twice its Western European equivalent.

The PwC study can be obtained here .