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Course BUSI1602: Global Bus & Sustainabilty Course School/Level B/PG

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Tutor K Liu Submission Deadline 20/12/2016

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MEANING OF HUMAN CAPITAL AND HUMAN CAPITAL INVESTMENT

The first man which consider human as capital was economist Adam Smith.Smith distinguishes four capital in “The Wealth of Nations”,The fourth is “a society for all the inhabitants or members have the useful ability”.Theodore Schultz was a founder of the theory of human capital,he gives a brilliant exposition on the concept of human capital.He points out:people get the skills and knowledge. These skills and knowledge is a capital is largely discreet investment results. Spending directly for education,health care and thus aiming at obtaining a better way out of domestic migration is a clear illustration of the human capital.

The investment is a very important economic concept.It is to invest certain funds or resources of an undertaking with a view to future benefits or benefit activities.Becker believe that investment in human capital is used to increase people's voluntary and affect its future monetary investment income and consumption.Schultz further states that humans have five categories of economic value:learning ability,the ability to complete meaningful work,a variety of cultural and recreational activities,creativity and ability to cope with the non-equilibrium.Moreover,Edward and Jacob Dennison discuss the human capital and human capital theory from different angles.

HUMAN CAPITAL INVESTMENT PLAN WITH INTERFERANCE TOWARDS EMERGING ECONOMIES

Human capital is the \"accumulated stock of skills and talents,and it manifests itself in the educated and skilled workforce in the region\" (Mathur,1995:205).Human capital is some times measured in terms of persons-years of education and it can be increased through formal or informal education or training(Mathur,1999).In this sense,human capital is not limited to formal education.It includes experience;practical learning that takes place on the job,non traditional technical training regimens that enhance skill development(Davidsson and Honig,2003).Human capital have a vital impact  on economic development and growth at macro level.

Human capital plays an vital role in economic development in myriad ways.A study was conducted by Baldacci,Clements,Gupta and Cui(2004),analysed data from 120 developing countries collected from 1975 to 2000.And the results were positive.They demonstrated that \"the impact of education on growth is  more pronounced in low-income countries,where an increase in 1 percentage point in the composite enrollment rate is associated with a 0.1 percentage point increase in per capita GDP growth.This effect is 1.5 times that in middle-income countries\"(Baldacci et al,2004).

Human capital also helps in improving economic growth by having a positive impact on total facor productivity of a given economy.Miller and Upadhyay by using 83 countries\' data were able to show that \"human capitl has a significant effect on output when is included as a factor of production.The inclusion of human capital in the production functions lowers the elasticity of output with respect  to labor when compared to the production function without human capital\"(2000:402).

CHINESE HUMAN CAPITAL INVESTMENT PLAN

Human capital has been deemed to be of paramount importance since 1970s,and concrete steps hve been protect it and advance it.Since,using 1995 data on public expenditures on education as shares of GDP.Heckman(2003) found that China had only spent about 2.5% of its GDP on human capital investment.In stark contrast,China had devoted roughly 30% of its GDP to physical capital invetment.The resulting ratio of annual investment in physical capital to human capital was much higher than in most other countries in the world.Heckman heavily criticized China\'s underinvestment in human capital at the China\"(Heckman,2004,p.795).

CHINESE ECONOMIC GROWTH(1979-THE PRESENT)

Since,the introduction of economic reforms, China's economy has developed substanistially faster than during the pre-reform,and,for the most part,has avoided major economic distriputions.From 1979 to 2014,China's annual real GDP averaged nearly 10%.This has meant that,on average,China has been to two times the size of its economy in real terms every eight years.

The global economic slowdown, which began in 2008,affected the Chinese economy(especially the export sctor),China's real GDP fell from 14.2% in 2007 to 9.6% in 2008, and slowed to 9.2% in 2009. In response, the Chinese government implemented a large economic spur tie together and an expansive monetary policy. These measures boosted domestic venture and expenditure and helped prevent a sharp economic stoppage in China. From 2009 to 2011, China's real GDP growth averaged 9.6%. China's economy has slowed in recent years—real GDP growth fell from 10.4% in 2010 to 7.8% in 2012, to 7.3% in 2014. The IMF projects that China's bona fide GDP growth will slow to 6.8% in 2015 and to 6.3% in 2016.

CAUSES OF CHINA'ECONOMIC GROWTH

Economists generally attribute much of China's rapid economic growth to two main factors: large-scale capital investment (financed by large domestic savings and foreign investment) and rapid productivity growth. These two factors appear to have gone together hand in hand. Economic reforms led to higher efficiency in the economy, which boosted output and increased resources for additional investment in the economy. China has historically maintained a high rate of savings. When reforms were initiated in 1979, domestic savings as a percentage of GDP stood at 32%. However, most Chinese savings during this period were generated by the profits of SOEs, which were used by the central government for domestic investment. Economic reforms, which included the decentralization of economic production, led to substantial growth in Chinese household savings as well as corporate savings. As a result, China's gross savings as a percentage of GDP is the highest among major economies. The large level of savings has enabled China to substantially boost domestic investment. In fact, China's gross domestic savings levels far exceed its domestic investment levels, which have made China a large net global lender.

Several economists have concluded that productivity gains (i.e., increases in effectiveness) have been another major factor in China's rapid economic growth. The improvements to output were caused largely by a reallocation of income to more productive uses, especially in sectors that were formerly greatly controlled by the central government, such as agriculture, trade, and services. For illustration, agricultural reforms boosted production, liberation workers to pursue employment in the more productive manufacturing sector. China's decentralization of the economy led to the rise of non-state enterprises (such as private firms), which tended to pursue more productive activities than the centrally controlled SOEs and were more market-oriented and more efficient. Additionally, a superior share of the economy (mainly the export sector) was bare to competitive forces. Local and out-of-date governments were allowed to set up and operate various enterprises without interference from the government. In addition, FDI in China brought with it new technology and processes that boosted efficiency.

CHINA'S TECHNOLOGICAL DEVELOPMENT

Business R&D expenditure as a share of GDP for China was 1.4% in 2012, above the EU share of 1.3%, and much above that of for instance Spain (0.68%) and Italy (0.69%), but below that of Germany (1.95%). The development in public sector R&D expenditure (as a share of GDP) in China has not altered that much over the last 5 years. Besides the far above the ground R&D intensity of the business sector, the non-R&D innovation expenditures of Chinese firms were even supplementary clearly higher - 1.19% in 2010 compared to 0.56% in the EU, and above the level of any of the selected countries, such as Germany and the catching-up country Poland. Although there is a difference in the definition used for SMEs, the share of SMEs innovating in-house was 17.5% for China in 2010, higher than the 11.3% for Poland and 10.8% for Romania, but lower than the EU average of 31.8%.

The innovation output gauge concerning SMEs introducing product or process innovations indicates that Chinese SMEs seemed to perform better than for instance those of the UK or Spain. Chinese SMEs (the so-called small above scale enterprises) appear to be an vital new driver for the increased R&D expenditures. In 2011 their R&D expenditures were equal to 11,913 million Euro. According to the latest update for 2012 this has increased to 14,905 million. With reference to the input of medium- and high-tech product exports to the trade balance there has been a steady increase from 2006 to 2011. However, the economic output in terms of licence and patent revenues from overseas has remained very restricted.

Using Elsevier's Scopus database, an analysis of the evolution of China's research capacity in key scientific disciplines for the years 2000, 2005, 2010 and 2011 was conducted. The analysis of the scientific fields consisted of two layers. Firstly, the general embryonic trends of 12 fields are presented, with the scrutiny focusing on the integer and growth rate of publications in the selected years. The criterion in selecting key scientific fields was a combination of three areas: strong, fast growing and matching of grand challenges. Secondly, a deeper analysis is provided on collaborative research between China and the EU3 in six selected fields - Chemistry; Computer science; Environmental science; Medicine; Pharmacology, toxicology and pharmaceutics; Physics and astronomy.

The empirical analysis focused on two indicators: the development of industry R&D costs widely familiar as one of the main drivers of generating new products and/ or new processes that encourage added value and further productivity growth; and patent applications.

The results of that empirical analysis visibly emphasize the recovering performance and capabilities of research and innovation in China over the past 20 years. Though the analysis exposed noteworthy sectoral and technological differences in China´s STI development, the overall growth with respect to patent applications and private R&D investment was striking. Most notably, the overall growth of the indicators under consideration has not been fraught by the global economic crisis.

The rise of China's scientific and technological capabilities can also be pragmatic in the global distribution of industrial R&D expenditures which have altered considerably during the time period  between 2000 to 2009. China has improved its  R&D expenditures considerably, both in absolute terms as well as in terms of its global share in total R&D expenditures. China's global share more than doubled between 2002 and 2009, from 5.0% to 12.1%. During the financial crisis of 2008/09, a period regarded as by decreasing R&D expenditures in some countries, China's total R&D expenditures continued to grow. These results convincingly illustrate the rising importance of R&D expenditures as a driving force for generating innovation in China. They point, on the one hand, to a bottomless modify in the structure of the Chinese economy with a growing share of knowledge intensive industries, in particular in telecommunications and electronics. On the other hand, they replicate substantial efforts by the Chinese government to accelerate the transformation of the Chinese economy to a supplementary productivity-driven, knowledge based economy.

China's approach to STI international collaboration

China´s approach to international STI collaboration takes on many forms - from joint academic research to technology transfer and licensing, Foreign Direct Investment (FDI), mergers and acquisitions – which enable it to be associated with various sources of skill. Joint Ventures were found to be one of the main forms for Chinese companies (SOEs in particular) to encourage international research assistance and to access foreign technology, funding, management and promotion expertise. Joint research centres, programmes and research networks were also found to be accepted forms of scholastic collaboration.

The main guiding policy for Science, Technology and Innovation is the Medium and Long Term S&T Development Plan 2006-2020, whose goals are more detailed in five year plans, such as the current Twelfth Five -Year-Plan for Science and Technology Development. These policies explain an increasing focus on STI as a means to address societal challenges as well as a focus on building up indigenous innovation by improving university-industry links, attracting overseas talent, enhancing intellectual property rights protection, and strengthening international cooperation.

CASE OF BYD

In 1995, BYD Company Limited started  with 20 employees and US$ 300,000 in initial investment.The company has grown at an average of 70% per year. Today, the Chinese company has a staff of 190,000 employees worldwide and around US$ 9.1 billion in sales. The company started its performance manufacturing mobile phone batteries and then moved on making OEM handsets for the information technology industry. In 2003, slowly and gradually it entered the auto and renewable energy sectors.

According to the company executives, BYD is the largest manufacturer of pure electric vehicles worldwide which manufactures plug-in electric vehicles (PHEV)   and second generation of dual hybrid vehicles, known as Dual Mode. The company's Qin model ranks as the first in sales in China and third worldwide. The company is also first in the production of ironphosphate batteries used in their EV models, andin the broad range of energy storage units with different applications. It entered in the automobile business in 2003 and in 2008, it launched its first PHEV, the F3DM sedan, and in 2010 its first BEVs: the crossover sedan e6 and the 12-meter K9 bus, both to be used in public transportation. The Automotive Testing Technology International recognized the company's test facility as the “2013 Crash Test Facility of the Year”.

The support of Chinese government for EV industry

The support of local as well as  central governments in China has been middle to BYD's expansion. The electrified transportation vision and the 7 + 4 EV strategy are supported by subsidies which motivate the production and commercialization of different types of EVs. Table 2 refers to the incentives that the central government provides for the purchase of electric vehicles among them the purchase of the pure electric BYD e6.

Moreover, central government incentives and Chinese cities support the production and marketing of pure electric and/or hybrid vehicles in their particular districts. Normally, tax incentives are given to local automakers, which are based in the city itself or its province. Gong, Wang and Wang (2013) argue that local governments should end protectionist measures in the electric vehicle segment. Existing policies and incentive programs create subsidies only to areas where vehicles are produced, which may be warding off investors from other Chinese regions as well as international automakers. There is some limited evidence that this is changing.

TFL Corporation case

The firm was established in 1981,with $1,500 loan and has grown to become one of the leading company in long-lasting goods manufactures in China.The enterprise is involved in the following industries:electronics,information technology,telecommunication and home appliances.According to the Chairman and CEO,Mr. Dongsheng Li,the practices responsible for 50%growth rate are:1) gaining advantage by resource integration 2) the combination of marketing with strategic planning 3)stress stressing

along with effectiveness, and 4) striving for innovation from practice.

It entered the Chinese market in 1990 by acquiring a small Hong Kong company by using \"marketing with strategic planning\".Then it decided to follow a proprietary distribution network different from existing state owned companies.The state owned distribution channels limited the ability  for doing marketing at mass level so it adopted the above policy.

In 1991, TCL established its first surreptitiously guarded warehouse in

Shanghai. Managers speedy exposed that having manage over the

distribution network shortened the market channel between manufacturing

plants and end customers, giving TCL an unequaled advantage over other

Chinese state and secretly owned manufacturers in the home appliance

market. With demand signals traveling through the private warehouse

Network, TLC found it could offer more product variety, allowing

Opportunities to experiment with different models of television sets to

determine what pleased the customer. This was in contrast to the

traditional “planned economy” approach of state owned manufacturing

facilities with production levels centrally planned, sovereign of

consumer demand. TCL is one of the first examples of China's shift to a

market economy.

Entering television market

With the private distribution network in place, television production

has become the mainstream business for TCL during the last 12 years.

2001, the product line accounted for 40% of sales. Currently, four fully

owned plants and two OEMs are manufacturing four product lines of

televisions under the brand name “TCL KING.” Pricing ranges from $110 to $480. In total, there are 24 sku's distributed among seven different sizes of picture tubes. The 21”, 25”, 29”, and 34” are the most popular.

TCL has some of the fastest television production assembly lines in the

world. On average, its Huizhou plant can produce 5.5 color television

sets per minute.

Description of the problems

The high expenditures for television distribution, accounting for 8%

of total sales, recently forced the company's management to consider a

re-design of the private network. The aim was to understand if costs

savings result from:

1) Finishing some of the RDCs and reallocating the assigned branch

warehouses

2) Moving the safety stock from BWs to RDCs

3) Fixed obligation of plant DCs shipment to RDCs

4) Optimizing the amount of direct shipments from plant DCs to BWs

The focus is on the minimization of distribution costs, the inventory

carrying cost at the RDCs, and the fixed and variable costs of maintaining

the RDCs. This constitutes a basic approach to distribution network

modelling that has wide application in the United States beginning in the 1980's. The study did not consider plant assignment of production or any aspect of fixed manufacturing. It was assumed that each plant would continue manufacturing the full line of products.

Results of the above study

In total, the initial modelling effort shows that distribution costs can

be reduced by about 35% from closing five RDCs and reducing safety

stock at the BWs. Most of the investments are in transportation and inventory cost. Though this analysis is a crude initial step, it shows that large possible exists to diminish logistics costs in China by the application of optimization techniques developed in Western economies. As this process unfolds, China will reduce logistics costs making the manufacturing segment of the economy even more competitive on a world wise basis.

From the study it can be said that there is a strong relation or bond between business sustanability develop the technological development in China as China is the known as the one of the fastest country in terms of science and technology.

CONCLUSION

In a nutshell,it can be said that human capital and human capital investment  in emerging countries must be motivated more and more to develop that  particular country.As,by doing it the employment rate,GDP growth rate can be increased without any doubt.

REFERNCES

Adam Smith,The Wealth of Nations(M),Beijing Commercial Press,1964,75

Bergsten, C. F., C. Freeman, N. R. Lardy and D. J. Mitchell (2009). China's Rise: Challenges and Opportunities. Washington, DC: Peter G. Peterson Institute for International Economics and Center for Strategic and International Studies.

BYD Company Limited (2015). Interviews with company management headquarters and Brazilian subsidiary in May 4 and April 15, 2015, respectively.

Greenwood J. and B.Jovanovic,1990.Financial,Growth and the distribution of income.Journal of political economy,98.

Gong, H., Wang, M.Q. and Wang, H. (2013). New energy vehicles in China: policies, demonstration, and progress. Mitigation and Adaptation Strategies for Global Change Journal. 18(2), 207-228.

Heckman, J. J. (2003). “China's Investment in Human Capital.” Economic Development and Cultural Change, 51 (4): 795-804.

Heckman, J. J. and X. Li (2004). “Selection Bias, Comparative Advantage and Heterogeneous Returns to Education: Evidence from China in 2000.” Pacific Economic Review, 9 (3): 155-171.

Heckman,J.J.(2015).China\'s Human Capital Investment.China Economic Review,16(1)(50-70)

IMF,World Economic Outlook,October,2015.

Theodore Schultz,Discussion of the Human Capital Investment:Beijing Institute of Economics Press 1990,82

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