The impact of inward FDI on the management of human capital development in developing countries: Lessons from Saudi Arabia

Abstract

The level of human capital development depends upon the quality of education and training which in many developing countries is low. In addition, the quality of human skills and knowledge is one of the key determinants of inward foreign direct investment (IFDI) in to developing countries. Literature witnessed the knowledge and skills gaps despite substantial investment in the education, training and human capital development. IFDI could fill the knowledge and skills gap in host developing countries. The aim of this research is to examine the impact of IFDI on human capital development in developing countries through FMNE subsidiaries’ human resource development and training programmes on local managers’ knowledge and skills development and the resultant impacts on local organisations and thereby on local human capital development. Qualitative methodology applied to analyse semistructured interviews with a convenience sample of 24 managers working in FMNE subsidiaries and local organisations in the Kingdom of Saudi Arabia (KSA). Findings showed that FMNE subsidiaries consider the development of knowledge, skills and abilities of the local managers as a strategic investment. Consequently, short and long training and development (T&D) programmes for local managers are provided both locally and overseas. FMNE subsidiaries trained local managers move from FMNE subsidiaries to local organisations for financial benefits, career progression and other reasons such as higher authority, balance between work and family, favourable location, avoiding work pressure and job security and stability. The mobility of FMNE subsidiaries trained local managers to local organisations leads to human skills and knowledge spillovers such as transfer of knowledge and skills, advancement of professional capabilities, improvement in work behaviours and development of intrapreneurial skills. These spillovers result in upgrading of management skills, availability of intrapreneurial skills, changes in work behaviour and ethics and improvement in capabilities and performance in local organisations. IFDI by FMNE subsidiaries thus leads to positive impacts on the local human capital development such as development of local knowledge and skills, leadership, professional capabilities and competencies in host developing countries. This study provides evidence that IFDI has positive contributions in local human capital development in host developing countries. Natural resource rich countries like the KSA should focus on good IFDI that not only exploits the natural resources but also contributes to local human capital development.