SMEs are the ‘local’ experts- with in-depth knowledge of local sectors, skill gaps and employment challenges. They hold enormous opportunities for skills-based employment generation, especially in the area of apprenticeships. India is home to some 76 million small scale firms where the average employment is less than six people.
FICCI President Sandip Somany, in how the Apprentice Act can be made more SME-friendly expounds that if the Act were to allow hiring even one apprentice, and let’s say half the firms take on one apprentice each, this translates into 40 million new jobs.[i]
The contributing power of SMEs forms the backbone of most economies. Case in point- the German ‘Mittelstand’ of SMEs make up 70% of all jobs and 90% of all apprenticeships,[ii] generating 35% of total corporate turnover which in GDP contribution terms translates to nearly 55%.[iii]
Scaling Up Skilling
German SMEs literally train the nation. Companies with less than 500 employees were responsible for providing nearly 82% of the 1.51 million vocational training places available in Germany in 2016.iii Skills training and workforce capacity building for SMEs should hold centre-stage in any well thought out policy-making.
As international employment expert Nigel Meager commented: “… if a locally based training policy, responsive to local needs, makes sense at all, it does so only where the definition of “local” corresponds to some economic entity on the ground such as a local labour market, or travel-to-work area. And, arguably, where ‘local’ corresponds to some political entity on the ground, in the sense of providing a mechanism for forging a consensus on policy.” [iv]
What Are the Benefits?
SMEs no doubt will want the critical question of ‘return on investment’ or ROI answered. Why should they invest time, financial, administrative and human resources on engaging apprentices? Well, for good reason. Our post, which specifically focuses on ROI for Indian SMEs from investing in short and long-term apprenticeships, reveals that a business is able to recoup costs and see a return during the training period itself or within the first year of retaining an apprentice as a full-time employee.[v]
As apprenticeships are an age-old powerful competency-based way of ‘growing your own’, SMEs stand to benefit their own bottom line and that of their local economies by leveraging the many well documented advantages of apprenticeships. Lack of large-scale empirical research on how Indian SMEs can boost local economies makes us turn to data from nations with mature apprenticeship systems. The CIPD in the UK[vi] has found apprenticeships benefiting employers in a number of ways:
• A whopping 80% of employers have maintained or improved future skills in their businesses
• Production and service improvement in goods and services experienced by 70% of employers
What About the National Economy?
The UK has found that every £1 that is spent on apprenticeships, the national economy gains £21. If employers continue to onboard more apprentices, the multiplier effect on the economy would be a total gain of £109 billion by 2050. These gains are made up of higher wages, business profits and taxes, reduced unemployment benefit payments, and direct ROI to businesses per apprentice.[vii]
Local Talent and Social Mobility
Hiring locally gives businesses access to a local pools of candidates. And one way to do that is to engage with local schools and higher education institutes. Hence, time and again we have stressed on the importance of integrating vocational education and skills training with mainstream education.
Local hiring of apprenticeships also provides school drop-outs or other youth disenfranchised from conventional education an alternative route to become skilled by the ‘learning by doing’ or the ‘earning while learning’ methods- both hallmarks of the apprenticeship model. This hold special significance in a country like ours where school-dropouts peak at the secondary school level.[viii] Overall in higher education, India’s enrolment rate stands at 23%, as against about 87% in the US, and 57% in the UK.[ix]
Ergo, apprenticeships become a powerful way to rope in local youth and provide them a platform to integrate with a formal workforce and increase economic mobility.
How Is It Done?
Countries have trialed different approaches to mobilise local businesses in hiring and training apprentices. Bridge institutions such as local employer groups, sector skills agencies and group training associations (GTAs) are some examples. GTAs typically comprise of small groups of firms from the same local area and same or allied industries which solve common problems of skill shortages, recruitment and training of local youth.
For More Read Engaging Employers Locally
[i] Government should amend Apprentice Act to create more jobs: FiCCI’s Sandip Somany, Jan 7 2019, LiveMint
[ii] Germany’s Mittelstand puts happy workers over profits, Oct 16 2018, Financial Times
[iii] SMEs are driving economic success Facts and figures about German SMEs- Federal Ministry for Economic Affairs and Energy- 2017
[iv] Meager, N. (1991) TECs: a revolution in training and enterprise, or old wine in new bottles? Local Economy, 6, pp.4-20.
[v] Using Benefit Cost Calculations to Assess Returns from Apprenticeship Investment in India: Selected SME Case Studies, Dr. Sandra Rothboeck, ILO (2014)
[vi] CIPD- Apprenticeships That Work-A guide for employers February 2017
[vii] Apprenticeships contribute £34 billion per year to UK economy- Centre for Economics and Business Research
[viii] Educational Statistics at a Glance, 2018, Department of School Education & Literacy, MoHRD
[ix] Trends in school enrolment and dropout levels, Oct 02 2017, LiveMint