Examining Return on Human Capital Investments in the Context of Offshore IT Workers

The rapid pace of technological innovation necessitates Information Technology (IT) services firms to continually invest in replenishing the skills of their key asset base, the human capital. We study the impact of human capital investments in the context of the Indian IT services industry, which has experienced double digit growth rates in the last decade. Indian IT services firms invest significant resources towards training and education of their employees. We examine whether these human capital investments directed towards employee training are effective in improving employee performance and productivity. Our rich employee level panel data set affords us the opportunity to link formal training with performance at the individual employee level. Controlling for unobservable employee characteristics and possible selection bias, we find significant a positive impact of training on employee performance. An additional training course, on an average, helps employees improve their performance by 3.6%. We also investigate the mediating role of employment related characteristics and the type of training on the link between training and performance. We find that employment characteristics such as work experience and whether the employee is a direct hire from an educational institution or a lateral hire from another IT services firm play a significant role in shaping the impact of training on performance. Interestingly, we find it that there is systematic superiority in the high experience laterals’ ability to extract value from firm-provided training. We find significant differences between the impact of specific versus general training and domain versus technical training on performance. We also find that domain and technical training have a substitutive relationship. Taken together, these findings suggest that the value of training is conditional upon a focused curricular approach that emphasizes a structured competency development program. Our findings have both theoretical and practical significance, most important of which is that they justify increased human capital investments to fuel future growth of this important component of the global economy.