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It’s a War for Talent in the Emerging Markets Right Now

Posted By Guy Pfeffermann, Thursday, June 26, 2014

Private equity (PE) is a major source of investment in emerging markets.  PE refers to an asset class in which investors purchase the illiquid equity or equity-like securities of operating companies. This equity is not publicly traded but instead held in private hands. In exchange for their capital, PE firms take concentrated minority or majority ownership in a company. PE investors typically hold these securities for three to seven years, with the expectation of generating attractive risk-adjusted financial returns when exiting.

According to the Executive Vice President of the International Finance Corporation – an arm of the World Bank Group – it stands at about $320 billion.  As we know, most jobs in the developing world are generated by the private sector, and PE is an effective tool in building the companies that drive economic growth in every industry – manufacturing, services, technology and others. Local entrepreneurs are opening their shareholding structure to outside investors, which then play a role in strengthening these firms. This is particularly important in countries where risk capital is scarce and institutional capacity weak. Complementing bank lending, bond markets, microfinance, etc., PE investment generates returns for investors while helping emerging economies to overcome poverty. In other words, PE is a high-impact industry. [1]

Some PE funds are invested in frontier markets, for example Bangladesh, DRC, Liberia, Haiti, Madagascar, Nepal, and Sierra Leone, as well as in more prosperous emerging markets such as Kenya, Tunisia, Mexico and, of course, China. A PE investment generated over 250 new jobs in Madagascar’s packaging industry, On average 584 jobs were created in the 1,100 companies supported by IFC PE funds reflected in a 15 percent annual job creation rate across the portfolio.

A recent survey by the Emerging Markets Private Equity Association (EMPEA), a nonprofit organization shows that PE industry growth is severely limited by shortage of local skills in the developing world. [2] The survey reflects the experiences of 88 respondents representing 70 PE fund managers based in 34 countries and operating across the emerging markets, as well as interviews with industry professionals. About three-quarters of respondents operating in Sub-Saharan Africa and Emerging Asia anticipate competition for qualified talent will intensify.  As one fund manager put it: “It’s a war for talent in the emerging markets right now”.

Operational expertise is the skill in shortest supply relative to demand across virtually ask emerging markets. Even in the BRIC countries, while practitioners report an adequate supply if finance-related skills among recent graduates of MBA programs, they point to a dearth of qualified mid-level and senior candidates who marry knowledge of local markets with operational backgrounds and/or PE deal-making experience. The shortage of operational expertise is seen as particularly acute in Central and Eastern Europe and India, where about 80 percent of respondents report that the demand for this skill outstrips supply.

Local business schools are not supplying a sufficient supply of PE talent. Therefore, while most respondents stress the importance of familiarity with the local market, when asked to list the best-represented business or graduate schools among entry-level hires, they cite schools based in developed markets. Our vision here at GBSN is for the developing world to have the management talent it needs to generate prosperity. By fostering connections between top international business schools and developing world educators, GBSN helps schools and faculty at different stages of development learn from one another. Our dynamic network catalyzes new ideas, cultivates partnerships and disseminates knowledge around the globe.



[1] Source: IFC and Private Equity, 2014.

[2] Private Equity Talent Management in Emerging Markets Survey, 2013.:

http://empea.org/research/publications/private-equity-talent-management-in-emerging-markets-survey/

 
Guy Pfeffermann is the Founder & CEO of the Global Business School Network

Tags:  Emerging Markets  Local Talent  Management Education  Private Equity 

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