Overcoming Human Capital Voids in Underdeveloped Countries

Research Summary In underdeveloped countries like those in Sub‐Saharan Africa, firms suffer from human capital voids (i.e., a prevalence of very low levels of skills among individuals). These human capital voids have a negative effect on performance improvement. However, managers can solve this negative effect by choosing organizational upgrading mechanisms that are contextually appropriate. In particular, operating joint ventures with foreign partners compensate for this negative effect, whereas internal research and development (R&D) amplifies this negative effect. Managers should also monitor and push for the reduction of country‐level human capital voids because the influences of organizational upgrading mechanisms change. In countries with more developed human capital, joint ventures have a weaker compensating effect, and R&D investments cease to amplify the negative effect. Managerial summary 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 effect of the human capital deficiencies of employees on firm performance improvement. We propose that external mechanisms (e.g., operating a joint venture with foreign partners) are better than internal mechanisms (e.g., internal research and development) because external mechanisms provide appropriate ready‐made knowledge for learning of low‐skilled labor, whereas internal mechanisms create additional learning inefficiencies. However, these influences change in countries with more developed human capital: external mechanisms have a lower compensating influence, whereas internal mechanisms become less inefficient. Copyright © 2016 John Wiley & Sons, Ltd.