During the literature review, it was found that many issues related to human capital development remained largely unexplored. For instance, very few studies provided a systematic examination of either the extent of human capital development determinants, or their impact on firms operating within special economic performance.
In this section, an initial research concept, which is intended to guide this study, is presented in (Figure 3.5). This research concept will be discussed in two stages. The first stage will involve the development of a human capital indicator (HCI), while the second stage will involve the determination of the drivers of human capital.
Understandably, given the crucial role played by human capital, it is therefore imperative to have greater scrutiny of it. This study proposes to do that using an indicator as a proxy for human capital development.
3.5.1 Human Capital Development Indicator “HCI”
This research will exploit commonly used variables in measuring the human capital indicator within the context of Dubai’s special economic zones. The variables to be used are: the education level, training (public and proprietary skills), on-the-job training (learning-by-doing), and finally the ability to apply the learnt skills (bridging the know-do gap). These variables are be used in the research concept to measure the level of human capital within SEZ firms; they will be validated later, through the first phase within the case studies chapter, in order localise the research concept and hence producing the proposed research framework.
3.5.2 Perceived Determinants of Human Capital Indicator in Dubai’s Special Economic Zones
This section introduces the discussion on the perceived determinants of the human capital development in Dubai’s special economic zones. Determinants are classified into two: A. Firm Specific and B. Free Zone Specific
I. Firm Specific Determinants
These are the determinants which are related directly to the firms operating within the special economic zones fence.
a) Firm’s Specification (Type and Size)
Porter (1990) argues that multi-national establishments have a positive impact on human capital development. It is seen as an important variable in determining the Human Capital Indicator. Also the volume of the capital invested (FDI) would be another variable to
explain positively how firms are willing to invest in their people to maintain a considerable amount of return on their capital invested.
b) Firm’s Performance
Firms’ performance in terms of revenue generated per employee is argued here to be another variable that would impact positively the HCI. The debate is that firms, in order to generate a considerable amount of revenue, need to have high calibre employees to raise the productivity rate better than using the same resources and machinery. (Engman et al, 2007). Crook, et al (2011) discuss the relationship between human capital and firm performance measures using a meta-analysis technique to analyse 66 studies with 68 samples involving 12,163 observations. The results of the analysis leave “little doubt” of the human capital significance to firms’ positive financial growth. In this stream of thought, firms should develop, retain, and hunt for the business-specific knowhow which has invaluable role in firms’ performance as well as the targeted competitive edge. Human capital is essential to firms in order surpass others and achieve success.
c) Firm’s Level of Research and Development
Romer (1990) argues that firms have an incentive to invest in research and development (R&D) activities to continually introduce new creative and sophisticated products that will sustain or generate a greater profit, and if firms have chosen to do that, then employees are trained to use the new sophisticated machinery that will produce the new product, therefore it can be argued that the level of R&D undertaken by firms positively influences human capital development.
II Special Economic Zones Specific Determinants
These are the determinants related directly to the special economic zones themselves.
a) Special Economic Zones: Level of Clustering
The level of clustering within the zones is to have a positive impact in determining the human capital indicator (HCI). We have seen it mentioned in the previous section and addressed by Porter (1990) in the literature review section, who argues that clustering in any economy would impact its human assets growth and development.
b) Special Economic Zones: Culture
Hofstede (1980) argues that societies which rank high in those two dimensions, usually do not accept change easily, and are very risk averse. Decisions are not reached quickly; accountabilities are distributed to more than one person, so that no one takes the blame if anything goes wrong. People are not willing to take risks and move into the future on their own. They prefer that others such as regulatory bodies lead them and secure the future. Human capital development requires moderate to high risk individuals who are willing to learn, upgrade their skills, and take risky decisions; these are the characteristics of individualistic societies. This study hypothesises that high scores on those two national cultural dimensions negatively influence the human capital development indicator.
c) Special Economic Zones: Knowledge Spillover
The SEZ’s platform induced knowledge spills over, bringing technological improvements and skills development to the domestic market. Most SEZs were found to be economically efficient and generating returns well above the estimated level. SEZs were a significant source of employment in the observed countries and in some cases zones were also able to promote local entrepreneurship. Conversely, as countries further develop their industrial
capacity, market advantages given by zone programs as well as the opportunity costs of labour in SEZs tend to shrink. Without effective long-term linkages with the domestic economy through profit generation for local shareholders, continued national interest in zone programs is considered likely to be lost (Engman et al, 2007).
3.6 Summary
This chapter described Dubai’s position in human capital development and the role of special economic zones in attracting foreign direct investment. Having a limited oil supply, Dubai is taking serious measures to diversify its economy by building cluster-specific economic sectors. The major challenges faced by Dubai are the small population, high dependence on low skilled labour, an inefficient education system, and the mismatch between education outcome and strategic economic sector needs. In order to overcome these challenges, Dubai has adopted the notion of special economic zones to attract multinational companies and accelerate domestic human capital development through the spillover effect. With almost 32 current special economic zones, it is believed that human capital has been developed throughout the last 3 decades of operations. However, there is a strong need to measure the extent of human capital development as a result of Dubai’s investment in special economic zones.
The following research concept summarises the outcome of the literature review on how special economic zones impact human capital development. This is theorised mainly by two sets of variables. The first set is firm specific which are: type, size, performance and the firm’s level of research and development. The second set of variables is: zone specific which are the level of clustering within the zone, knowledge spillover, and the culture of avoidance and collectivism. Most of the variables are hypothesised to drive human capital development positively except the culture of avoidance and collectivism.
Figure (3.5): Research Concept
Special Economic Zones (SEZ) and Human Capital
Special economic zones bring in: 1- Learning stage to establish
new economic sector 2- Equip people with new
learning outcome to establish a new economic cluster that does not yet exist.
Human Capital Accumulation within Dubai Special Economic Zones
Human Capital Indicator: A) Education level
B) Training (public and proprietary skills) C) On-the-job training (learning-by-doing) D) Ability to apply the learnt skills (bridging
the know-do gap)
Variables Influencing Human Capital in SEZ
Firm Specific
1- SEZ Firm Type (FT)
2- SEZ Firm Size (FS)
3- SEZ Firm Performance (FP)
4- SEZ Firm level of Research and Development (RD)
SEZ Specific
5- SEZ Level of Clustering (CL)
6- Culture of Avoidance (CA)
7- Culture of Collectivism (CC)
Chapter Four : Research Methodology
4.1 Introduction
This chapter presents the research methodology used for this study. It opens by defining the relevant types of methods of research. Then it explains the research methods used for this study.
Research is a process of investigation, providing a solution to a problem, or increasing the body of knowledge. It is characterised by a systematic approach or methodology which complies with research ethical standards. Furthermore, research aims to explain new phenomena, review existing knowledge, explore, and analyse more general issues. (Collis & Hussey, 2003).