The Effect of Corporate Investment in Human Capital on Employee's Performance: Major Korean Financial Corporation Examined

By Bae, Seong-O.; Patterson, Louise | Academy of Strategic Management Journal, April 2013 | Go to article overview

The Effect of Corporate Investment in Human Capital on Employee's Performance: Major Korean Financial Corporation Examined


Bae, Seong-O., Patterson, Louise, Academy of Strategic Management Journal


INTRODUCTION

The importance of investment in human capital by nations, businesses, and individuals for economic growth has been emphasized since Schultz (1961) and Becker (1975) invented the concept of human capital. Thus far, a number of studies were conducted on examining the impact of human resource development and education level on wage difference. In the meantime, Korean businesses have focused on education level and language ability when they hire new employees. After recruitment, they have made strenuous efforts to develop human capital by building employees' capacity through the use of education and training, OJT, degree programs, and support for certification acquisition.

Despite the above, the level of investment in education and training in Korean companies is still found to be significantly lower than that of foreign companies. In the case of large companies from the U.S, they invest on average 2-3% of their revenues in employees' training (American Society for Training and Development 2010). However, in the case of large corporations in Korea, the cost of employees' training accounts for only 1.34% of the entire labour cost (Korean Ministry of Labour 2009). In addition, according to the Korea Chamber of Commerce and Industry (2008), the participation rate of Korean adult workers in work-related training was the lowest among OECD members. Consequently, the productivity level of the Korean workforce is 40% of that of advanced countries such as, the U.S. and the U.K.

This clearly demonstrates that Korean companies, from a strategic perspective, have not fully comprehended the concept of human capital, and that there is insufficient research as to the effect of corporate investment in human capital of their employees. In other words, there is a substantial importance for research on the question as to whether or not companies' investment in human capital of their employees has actually had a positive effect on employees' performance, and on the issue as to whether or not work-related investment by companies in their employees is made strategically by considering job performance. The reason why there is lack of research on the strategic enhancement of human capital investment is, first, it is difficult for the academia that come up with academic theories to gain access to corporate data, especially in Korea. It is challenging for corporations to produce and record the results of fair evaluation on employees' performance. There are limits that have acted as stumbling blocks for practical research.

To overcome the problems and limitations of previous studies, this study focuses on the evaluation of the effectiveness of Korean companies' human capital investment from the perspective of employees' performance, and, for improvements in employees' performance, on how to invest strategically in human capital to make it an efficient investment in a more practical way. Through this, this study tries to identify the effect of important components of human capital by focusing on the level of school education, job training, job experience, language ability, and certification on employees' performance. Furthermore, this study tries to build on academic knowledge by providing suggestive points for strategic employee HRD (human resource development) that Korean companies will consider in the future.

LITERATURE REVIEW

The previous body of research defined the concept of human capital as different depending upon times and academic background, but essentially there are common grounds as to the definition of human capital; it is essentially internalized within humans, it enhances productivity, it can be acquired through investment in education and training. To sum up concepts discussed so far, human capital within a business is a productive component that is internalized in humans and is formed by investment in diverse factors including school education, job training, job experience, etc. …

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