Overcoming Human Capital Voids in Underdeveloped Countries

We analyze how firms in underdeveloped countries overcome human capital voids – a prevalence of very low levels of skills among individuals – to improve performance. Building on the knowledge-based view, we argue that managers can strategically select organizational upgrading mechanisms to compensate for the negative impact of employees' human capital deficiencies on firm performance improvement. We propose that external mechanisms (e.g., operating a joint venture with foreign partners) are better than internal ones (e.g., internal research and development), because external mechanisms provide ready-made knowledge that is appropriate for low-skilled labor to learn, whereas internal mechanisms create additional learning inefficiencies. However, in countries with more developed human capital, these influences change: external mechanisms have a lower compensating influence, while internal ones become less inefficient