Capacity building of developing countries good for international business
Development cooperation, particularly through educational capacity building, contributes to growth of the middle class in developing regions, which, in turn, contributes to the sustainability of international business.
The role of a growing middle class
International businesses benefit when the economic welfare of developing countries increases. The increasing spending power and a growing middle class are important for the sustainability of these businesses.
Until recently, many western companies which are established in developing countries produced goods for the western market. The current global financial crisis has shown that reliance on a limited market is a risk to their sustainability. The decreased spending on luxury goods (such as flowers, furniture, wine) has made entrepreneurs seek new markets in emerging economies. With success. The growing middle class in these economies now serves as an additional market that absorbs surplus products. In fact, they are becoming the key markets, in absolute terms. Even products produced in the west (dairy and meat) have found a large market in the Gulf region and BRIC countries.
The importance of emerging and developing economies as key markets will probably increase in the near future. High populations and increased purchasing power in these regions will ensure that this position is retained.
Business as usual
The IMF World Economic Outlook shows that in 2007 the economic growth in emerging and developing countries overtook that of the EU (in absolute terms). And that gap continues to rise sharply (Figure 1). Of course, countries such as China, India and oil producing developing countries are responsible for most of this growth, but it is clear that this growth is true in many other developing countries as well (Figure 2).
However, what we currently see is that many of the international enterprises that are establishing operations abroad, are not enthusiastic about making contributions that develop or engage the local context. Their focus is almost exclusively on making a profit by manufacturing goods for advanced economies. It’s the business-as-usual scenario. There is little adaptation to the changing world macro-economics. What will it take for international businesses in advanced economies to acknowledge this new economic reality?
The triple bottom line
The People-Planet-Profit model has also been cast aside and lip service is being paid to Corporate Social Responsibility (CSR). Yet growing and maintaining a competitive advantage as a business requires one to care about the sustainability of one’s market and resource base.
The triple bottom line remains important and we cannot afford to close our eyes to the reality of its necessity! Involvement of international businesses in development cooperation should not only be guided by the pursuit of quick wins. Interventions that do not bear immediate returns on investments, but contribute to overall societal development must be part and parcel of public-private partnership collaboration. Supporting capacity building in education (one of the key pillars in the social sector) is the only way towards the attainment of long lasting and thriving international partnerships and sustainable benefits for all parties.
So what can education do?
Economic growth in developing economies points to a growing potential to absorb technologies relevant to further development of the local context. The formal economic sector in developing countries is small but growing rapidly, typically being characterised by SMEs. Many of these enterprises start out in the informal sector since employment opportunities in the formal sector are minimal. Sustained growth, stabilisation and formalisation of such businesses is good for overall national economic development and expansion of the international business market.
This increasing and highly diverse economic activity in developing countries offers numerous, varied and interesting applied research opportunities to higher technical education institutions and companies in developed economies. Such research can be done within the context of the business and international cooperation ambitions of the organisations or development cooperation plans at national level.
The case of the Netherlands
The best partners for building the capacity of the private sector in developing countries are in the TVET field (both at the secondary and tertiary level). This is due to the orientation of this type of education to the labour market. In the Netherlands, this sector has proven itself in this regard. Tertiary level professional education produces two-thirds of all tertiary level graduates trained in the country. The combined contribution of tertiary and secondary level professional education to the graduate population produced in the country is 82%. Many of these graduates end up in SMEs, as these too are characteristic of the Dutch economy. Unfortunately, the role of this sector in Dutch international cooperation programmes is to date, negligible. The strengths of the sector with regard to capacity building for the private sector are underutilised. This is really a missed opportunity.