Inter-firm cooperation in training

Competition between firms has been identified as being the basis of efficient markets. Competition leads to benefits for consumers and drives firms to greater efficiencies in the production of goods and services. However, research and experience suggest that cooperation among firms provides benefits in a range of business service activities such as marketing or training services. For many firms, particularly small-to-medium-sized firms, cooperation with other firms becomes a key strategic focus in the effort to realise business efficiencies.

Based on a survey of 600 firms in five manufacturing industries, Richard Cooney and Michael Long investigate cooperation among firms in the provision of training. It explores various aspects of cooperation in these industries and identifies the policy implications of such training arrangements for the vocational education and training (VET) sector.

Key messages

• A modest proportion (less than 20%) of Australian manufacturing firms participates in cooperative training arrangements. For those firms that do, such arrangements are only part of their overall training effort.

• Cooperation in training occurs largely through pre-existing business-to-business relationships. Cooperative training arrangements help firms to reinforce these relationships, provide better-quality training and save money.

• The VET sector currently has only a marginal involvement in cooperative training arrangements.To expand this role, training providers need to develop networks within the business community and arrangements capable of meeting the needs of a cluster of firms.

While acknowledging the low response rate of the survey (21%) and the potential sample bias towards firms that provide training, this report provides an important contribution to understanding the nature and extent of inter-firm cooperation in training and the potentially significant role that the VET sector has in these relationships.

Readers interested in employers’ use of vocational education and training should also see:

• Australian vocational education and training statistics: Employers’ use and views of the VET system 2007 – Summary (NCVER, 2008)

• R easons for training:Why Australian employers train their workers by Andy Smith, Eddie Oczkowski and Mark Hill (NCVER, forthcoming).

Tom Karmel
Managing Director, NCVER

Industry policy emphasises the importance of competition between firms as the basis of efficient markets and as a stimulus for improved firm efficiency. Yet research has shown that much can be gained from cooperation among firms in a range of activities, especially those involving the transfer of knowledge, such as training. These cooperative arrangements are common in the more regulated training systems of Germany and France. Recent reforms in the United Kingdom have sought to improve the level and quality of training by promoting, within a less regulated training environment, cooperative training activities among employers.

This study focused on cooperation among firms when training their employees. Specifically, it examined jointly conducted training by two or more firms and sought to discover the characteristics of these firms, the kinds of business practices that support such cooperation, the kinds of training that are delivered jointly and the benefits that arise from such training for the participating firms.

This report presents the results of a survey of 598 Australian manufacturing firms in five industries:

• clothing and footwear

• engineering

• information technology

• scientific and medical equipment

• processed foods and beverages.

The survey was conducted between August and November 2005. The response rate of 21.0% to the survey means that caution is required when interpreting and using the results. Comparison with other studies suggests that the sample may be biased towards firms that provide training, which means that the estimates of the level of inter-firm cooperation in training may be too high. Any bias should have less effect on comparisons among firms that provide training and on descriptions of the benefits and barriers to cooperation in the provision of training.

How many firms have cooperative training arrangements?

Only a modest proportion of Australian firms (17.6%) provided employee training in cooperative arrangements with other firms. Among firms that did not have cooperative training arrangements, 14.2% provided no training, while the remaining 68.2% provided only stand-alone training. Cooperative training was only one component of the training effort of the small number of firms that engaged in it.

How significant or important are the cooperative training arrangements?

Cooperative training arrangements are an important part of the total training effort of firms that have established them. Almost one in ten firms (8.7%) believed that cooperative training arrangements form a very significant part of their total training effort. A similar proportion (10.7%)
indicated that cooperative training arrangements were very important for the business, while 13.7% rated such arrangements as being a very significant part of their business.

Which firms cooperate with other firms in providing training?

The comparisons reported in this section are between firms that provide employee training with and without any cooperative training arrangements. They exclude firms that provide no training to avoid confusing the likelihood of providing employee training at all with the likelihood of having cooperative training arrangements.

Among firms that provide some training for their employees, the firms more likely to cooperate with other firms to provide joint training are in a strong business position in competitive markets. They are profitable medium-sized and larger firms with a growing workforce. These firms see the skills of their workforce as a source of competitive advantage, and joint training is only one part of their total training effort.

Firms engaged in cooperative training do so as part of direct business-to-business relationships. They are likely to be vendors of capital equipment and work with firms outside their own industry. The provision of training is in many cases seemingly part of a package of services delivered in conjunction with new capital equipment and technology.

There is little evidence of firms being part of local or regional networks for the joint delivery of training. Furthermore, network agents, such as technical and further education (TAFE) institutes, employer associations and other training brokers, have little involvement in the provision of cooperative training.

Why do firms cooperate with other firms to provide training?

Firms who do participate in cooperative training arrangements derive a number of significant business and training benefits from cooperation. Cooperation strengthens direct business-to-business relationships and it provides a higher quality of training at reduced cost through the use of shared facilities, training materials and trainers. Firms were generally pleased with the outcomes of their cooperative training, with 10.4% indicating that such training resulted in significant improvements to employee skills and performance. A similar proportion (11.4%) also rated the benefits from cooperative training arrangements for the overall training effort as significant.

There were also suggestions that cooperative training arrangements helped management to keep up to date with trends and new developments in training.

What are the characteristics of the cooperative training arrangements?

Firms typically engaged in cooperative training arrangements with only one to three other firms (73.7%). Firms had a small number of partners for joint training and this was mainly facilitated by the informal liaison of human resources personnel. Most cooperating firms received no support from outside bodies (80.6%).

Training for basic vocational qualifications and licences was more likely to be delivered jointly, as was training in new technology, new products and new work methods.

What are the implications?

While few firms currently participate in cooperative training arrangements, the potential for such arrangements among firms seems encouraging.

• Nearly a third of firms with cooperative training arrangements expect that these arrangements will become more important in the future.

• More than two-fifths of firms that provide employee training without cooperative training arrangements would be likely to accept cooperative training opportunities if offered.

• A fifth of firms that do not provide any employee training would be likely to accept cooperative training opportunities if offered.

There is scope for more cooperation between firms in training their employees and there are benefits to be gained in doing so. Some firms that did not currently have cooperative training arrangements with other firms indicated that assistance from government, industry or employer organisations would encourage them to seek out cooperative arrangements.

Addressing the limited understanding possessed by some employers of the possible forms of cooperation may contribute to expanding cooperative training activity. Strengthening the role of third party agents to facilitate cooperative arrangements would also stimulate the formation of such arrangements. The challenge for the vocational education and training (VET) system is to develop inter-firm networks capable of meeting the needs of these firms, which is dependent upon the establishment of institutions and agents with the ability to facilitate the creation and maintenance of networks. Without policy and program support, cooperative training arrangements will continue to be the province of a small number of firms who independently initiate their own joint training activities.