International Workshop‘Skills Development for SMEs and Entrepreneurship’Upgrading Workforce Skills in SmallBusinesses: Rev...
Context for studyLearning/skill levels Workplace is where most adults learn Most workplace are small firms Large firms con...
Small firms and training – identikit profile  Inverse and disproportionate relationship between firm size  and training in...
Objectives of study    Consider barriers to expanding small employer    investment in training    Review the range/nature ...
Definitions, scope, sources  ‘SME’ category too broad; focus here is on small/micro, <100  employees  Management training ...
Barriers to small firm training(1) Information/      Lack of HR functions; analytical constraints; limitedknowledge       ...
Areas for policy action1    Influence… perceptions/culture/ambition2    Address… outreach/information/employer enactment c...
A. Employer outlook Direct focused approaches (compulsory framework in France vs  voluntary frameworks (UK ‘pledges’; ‘in...
B. Information and guidancePublic funded provision for individual small employers:‘Training conversations’ Sector Council...
C. Forms of trainingDesign of flexible and ‘bite sized’ units…Belgium (F+W) voucher system – targeted on small/microfirms...
D. Tax incentivesGeneral encouragement to investment; potential for targeting(Malta!)… both increasing training and restri...
E. Training subsidies    Generally induces increased investment in training    Potential for small firm targeting in sub...
E. Subsidies (continued)      Large subsidy needed to overcome greater costs (incl.       indirect costs) and barriers fa...
F. Training Levies   Different types – mainly compulsory (train-or-pay) or    voluntary/collective sectoral   Targeting ...
G. Rights to training leave   Focused not upon firms, but employees – more likely to be    targeted on type of worker tha...
I. Employer networksPooling resources and cooperation in a variety of ways (GTOs, supplychains etc.) => small firm benefit...
J. Accounting standardsAccounting approach to change valuation/perspectives w.r.t.training expenditureConcept needs furthe...
‘Next practice’   ‘Best practice’ is highly subjective in relation to engaging small    employers in training, since subj...
   Holistic approach to determine the balance between skills objectives relating    to small businesses, and individual/g...
I a - stone issues and policies in skills upgrading in small enterprise
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I a - stone issues and policies in skills upgrading in small enterprise

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The upgrading of workforce skills is key to the competitiveness of SMEs. In today’s business environment there is a premium on innovation that enables firms to develop new products and services, new production processes and new business models. This requires both in-house innovation and the ability to absorb knowledge from other firms and organisations, both of which call for a skilled labour force. Skills are also a critical but understated resource for entrepreneurship seen in the sense of business creation. Similarly to workforce skills, entrepreneurship skills will boost the competitiveness of local businesses thanks to the improved strategic and management competences of the entrepreneur.

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I a - stone issues and policies in skills upgrading in small enterprise

  1. 1. International Workshop‘Skills Development for SMEs and Entrepreneurship’Upgrading Workforce Skills in SmallBusinesses: Reviewing International Policy and Experience Professor Ian Stone DUBS i.e.stone@durham.ac.uk
  2. 2. Context for studyLearning/skill levels Workplace is where most adults learn Most workplace are small firms Large firms contribute less to skills pool Ageing workforce Demographics and pensions - lengthening careersEconomy/firm perspective Small firms and dynamism Training linked to firm survival and growthGovernment Financial constraint – spend, effectiveness, efficiency Rethinking role, targets etc.
  3. 3. Small firms and training – identikit profile Inverse and disproportionate relationship between firm size and training investment Significant proportion do no training (formal); even allowing for formal/informal difference, still a large gap Even more pronounced for education investment vs vocational training Training typically not measured for effects, incorporated in strategies, or allocated a budget Most perceive no need for it (‘have all the skills we need’) Absence of appreciation of ‘latent’ skills needs Yet… some small firms have training profiles nearer to medium and large firms
  4. 4. Objectives of study Consider barriers to expanding small employer investment in training Review the range/nature of national and local policies that have addressed the issue Identify effective approaches/mechanisms of potential interest to policy-makers … Remembering to set the review and its findings in context of different policy traditions, institutional structures and business cultures, and evolved rather than strategically designed systems
  5. 5. Definitions, scope, sources ‘SME’ category too broad; focus here is on small/micro, <100 employees Management training excluded Focus on demand – but recognition of supply issues as linked CVT rather than initial training (apprentices etc.) Not focused on training of unemployed/vulnerable workers Report based on extant policy reviews, national studies, interviews, desk search etc; builds on previous work for SSSDA/UKCES in UK, incl. recent Employers Collective Measures programme
  6. 6. Barriers to small firm training(1) Information/ Lack of HR functions; analytical constraints; limitedknowledge management capability; training perceived as a ‘cost’(2) Scale/resources Risk aversion; survival goals; shorter time horizons; higher opportunity costs for formal training; higher notional discount rates for training investments Access issues; type/quality/scheduling; lack of customisation;(3) Training supply very significantly higher fee costs Spillovers; ‘poaching’; division of benefits from training;(4) Externalities patterns of training determined by risk reduction/loss minimisation(5) Capital market High financial costs combined with mobility of directimperfections collateral (the employee); current accounting systems fail to measure skill investment as asset creation(6) Dynamic system ‘Low skills equilibrium’; (sectoral) cumulative process; loweffects spec products/services; path dependency of low skills/unambitious production methods Contrast of high V-A production strategies (HPW etc.) with positive reinforcement cycles
  7. 7. Areas for policy action1 Influence… perceptions/culture/ambition2 Address… outreach/information/employer enactment capacity3 Achieve… demand-supply system convergence4 Integrate… different forms of training (formal and informal/OJT)5 Refocus… the supply-demand relationship6 Address… cost/affordability issues (tax breaks, subsidies)7 Develop… collaboration and resource pooling8 Build… training partnerships, including with large firms*Development of NVCER (2007)
  8. 8. A. Employer outlook Direct focused approaches (compulsory framework in France vs voluntary frameworks (UK ‘pledges’; ‘intrusive’ competitions Canada; creation of change agents, Portugal) Adjuncts to training funding systems (Netherlands Levy system found to encourage a training culture) Indirect expansive approaches (New Workplace Development Programme, Finland; Competence Reform, Norway)Problems in reaching smaller/less ambitious firmsWider system/culture plays significant role e.g. Finland, France formally required worker representation and training consultation/plans
  9. 9. B. Information and guidancePublic funded provision for individual small employers:‘Training conversations’ Sector Council training advisors,CanadaIndustry Training Officers, New ZealandAs part of more integrated training approaches:S Africa’s national levy allows micro/small firms to claim fromfunds only if have appointed (internal or external) SkillsDevelopment Facilitator (for skills plans, accreditation etc.)Netherlands’ levy scheme incorporates advisory support foridentifying training needs
  10. 10. C. Forms of trainingDesign of flexible and ‘bite sized’ units…Belgium (F+W) voucher system – targeted on small/microfirms; eligible for firm specific and general training; encouragescourse design initiatives by providers; on-line purchase/low costSwedish Lifelong Learning Project integrates CTV within acontinuous learning framework – aims to meet skillrequirements rather than formal qualification targetsNZ Qualifications Framework - designed to facilitate flexiblecombinations of course units, tailored to small firms/sectors
  11. 11. D. Tax incentivesGeneral encouragement to investment; potential for targeting(Malta!)… both increasing training and restricting deadweightcan target small firms, e.g. with low previous training spending(Netherlands)tax credits for small firms with >certain level of spending(France)Belgium’s (F) Vlamivorm project - property tax reductions fortraining spending; targeted low training sectors + firmspreviously increasing training (73% <10 employees)Problems: formal rather than informal training; small firmsneed far higher concessions than large (S Korea); large firmsbetter able to benefit; small firms uncertain in dealing with taxauthorities
  12. 12. E. Training subsidies  Generally induces increased investment in training  Potential for small firm targeting in subsidy schemes – e.g. restricted to small firms or size-based graduated  Targeting potentially reduces deadweight  Ireland’s Training Support Scheme (eligibility - business- related training plan); employers choose training provider; deadweight half the level for large firms  Small firms discouraged if targeting leads to administrative complexity; larger firms have more administrative capacity  Mainly relate to formal training
  13. 13. E. Subsidies (continued)  Large subsidy needed to overcome greater costs (incl. indirect costs) and barriers faced by small firms  Broader support crucial, especially advice and support:  e.g. UK piloted Small Firm Development Accounts (targeted <50 empl.) - funded ‘training champion’, training plan, 6 mths mentorship, training network membership, proportion of external costs of training  UK Employer Training Pilots – subsidies for Level 2 training, information and support, covered indirect costs
  14. 14. F. Training Levies Different types – mainly compulsory (train-or-pay) or voluntary/collective sectoral Targeting of small firms more feasible where public funds involved or in compulsory schemes. Netherlands’ scheme finances collective training for employers, including OTJ training, advisors, influences ‘culture’ among members – but small firms benefit less than large ones Can be used to encourage cooperative behavior (Spain – joint plans from sector/territorial groups of small firms), organise complementary support (Italy – funds training plans, training via vouchers for micro firms) and improve quality of training supply (Denmark – funding development/testing of training programmes) Many schemes do not target by firm size; lower rates in France and Quebec compulsory levies allow firms to opt out
  15. 15. G. Rights to training leave Focused not upon firms, but employees – more likely to be targeted on type of worker than firm Major problem with cost (direct and indirect); public spending level in support consequently important Compulsory system in France funds replacement staff for firms with <50 employees; reaches micro/small firms – aided by levy-funded advice and information to allow firms to support the employee training requestsH. Job-rotation schemes Used in Germany + Denmark for replacement workers and ALP Denmark experience suggests mainly relevant to larger SMEs; Germany local schemes attract small firms - but largely skilled/ management staff and costly
  16. 16. I. Employer networksPooling resources and cooperation in a variety of ways (GTOs, supplychains etc.) => small firm benefits [economies of scale, information,tailoring/quality of training provision, externalities (-)poaching(+)dynamic effects]S Korea - levy-supported Training Consortia of SMEs appoint trainingmanagers to liaise with local providers to deliver members’ training needs;smaller firms benefit in terms of cost and type/quality of training,including OTJ elementsIreland – Skillnets - sector/area-based networks helping small firms tostrategically address joint training requirements; supports network andcustomisation of training for member firms. Additional support/highergrants for enterprises most in need of vocational enhancement. Clearsmall firm benefits/response (85% participants <50; 40% < 10)Network principles also in Canada – Workplace Skills Initiative; and UKnew Growth and Innovation Fund (GIF)
  17. 17. J. Accounting standardsAccounting approach to change valuation/perspectives w.r.t.training expenditureConcept needs further development, but practicality questions forsmall firms, who are unlikely to be receptiveK. Pay-back clausesSystem for reducing risk relating to training investments -already utilised in differing degrees, but enforcement problemsparticularly for small firmsL. Occupational licensingRange of occupations/sectors in which this might be expanded asa compulsory measure to drive up skills levelBut - limited number of potential occupations, and significantcosts of administration and training - effect on small firmsdepends upon funding support
  18. 18. ‘Next practice’ ‘Best practice’ is highly subjective in relation to engaging small employers in training, since subject (type of firm) and context (spatial, cultural, sectoral) vary to such a large extent. Issue needs to be addressed with respect to both the static and dynamic aspects of the problem; sub-optimal small firm investment in skills emerges from complex situations, made up of multiple behaviors and processes, and interventions need to acknowledge this. Given the context of tighter budgets, policy-makers generally will be under pressure to move in the direction of (1) reduced public spending, (2) more precise targeting to ensure value for money, and (3) a switch from direct subsidies to indirect or facilitation spending. Findings of this report can support this process through showing (1) available types of intervention mechanisms, (2) key principles of their design, and (3) how different policy formulations affect policy effectiveness and efficiency.
  19. 19.  Holistic approach to determine the balance between skills objectives relating to small businesses, and individual/group skills objectives affecting social justice and labour market efficiency. Some types of small business are more susceptible to policy measures than others; offering higher net returns to public expenditure - especially if support is explicitly linked to business performance improvement. Other small employers may be more appropriately supported less directly through targeting of types of employees. Important policy issue is how to ensure support is available for those firms with ambitious production strategies. Some measures – tax breaks, and many subsidies – while targetable, address the issue in a narrow way. Report stresses importance of intervention mechanisms addressing the range of barriers to small firm engagement in training. It identifies some broad approaches (e.g. some levies, networks), amenable to different national contexts, that both address a range of barriers, and promote commitment (including financial) of small firms. Room for more subtlety in policy design/delivery – limited evidence of entrepreneurial methods, more use of behavioral ‘nudge’ techniques

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