Capital Resources

Capital resources are the man-made assets employed in the manufacturing of further goods. The spectrum of the term ‘Capital Resources’ is broad enough to capture every invention of man within a manufacturing facility. 

Definition

Capital Resources refer to all the man-made assets that are used to manufacture goods. These resources include tools, machines, equipment, buildings, etc.

Any tool or resource employed by a business in the production process of goods or services is termed as a capital resource. It can vary from something as petty as a pen or a file cabinet to something as substantial as heavy machinery. These resources help the productive activities of a company. Capital resources are exploited in manufacturing and service companies both, for their essential nature.

Examples

  1. Study Staples Co. is an academy that offers services in the educational field. It conducts physical classes along with the distribution of curriculum notes among the students. Considering the impact of COVID-19 and the government-imposed SOPs, Study Staples Co. had to shut down the academy and shift to online classes.

To conduct smooth online classes, the company has decided to purchase specialized devices (Mic, Laptops, Touchpads, Stylus pens, etc.). This investment will help Study Staples Co. in the provision of educational services. All of these devices, being man-made and helpful in the provision of services, qualify as Capital Resources.

  1. ABC Ltd. is a furniture manufacturing facility. It has two factories across the town, that refine and carve wood into furniture. Lately, ABC Ltd. won two new contracts and resultantly fell short of enough resources (factory space, wood-cutting machinery, etc.) to comply with the customer demands.

It order to establish the new contracts; the company is planning to rent out a new factory and purchase new machinery and all the required tools. All these resources being man-made and helpful in the production of goods, qualify as Capital resources.

Characteristics of a Capital Resource:

Production of goods or provision of services of any kind requires the contribution of several kinds of resources. The capital resources at any business, nevertheless, must meet the following qualities to be classified as a capital resource.

  • Must be man-made.
  • Must contribute to the production process of a business. It can help in the production of goods or provision of services.
  • Should have a life expectancy of more than one-time usage. The life of a capital resource can vary, but it must not be consumed within once. Anything that is consumed within the production process is more likely to be classified as a raw material than a capital resource.

Any resource that passes the above-mentioned checks qualifies as a capital resource. The machines, tools, and equipment being used at any factory-site or manufacturing facility make the best example of a capital resource; it contributes to the production of goods, can be used for more than once, and is man-made.

Raw materials are not Capital resources.

Raw materials are the materials, elements or substances that go into the primary phase of production of any product. It is the basic material from which a product is manufactured after further processing.

Not to be confused, the definition of Capital resources accounts for all the assets that aid the production process. However, the raw products that are entirely consumed in the production process are not capital resources. Raw materials that are processed or refined to produce the final product are commodities.

Example:

Pretty Printers Inc. is a printing press. They print newsletters, magazines, business cards, posters, and papers of all kinds. Given the recent updates in the print industry, the company felt a need for equipment updates. Most of their customers now demand flyers printed on a glossy text paper and not on a simple paper.

Pretty Printers Inc. is planning to purchase a Glossy page printer, special glossy cartridge and 10 cartons of A5 sized Glossy text paper.

The printer and cartridge qualify as capital resources for they meet all the three criteria,

  • Both the assets are man-made.
  • They contribute to the production of Glossy page flyers.
  • They can be used for more than once and can produce multiple flyers.

The Glossy text paper however doesn’t qualify as a capital resource but as a commodity as it is the basic paper (raw material) over which the flyer would be printed. Each paper is consumed within the flyer printing and thus is a raw material.

Capital Resources can be diverse:

There can never be an exhaustive list of capital resources. Every business has a different nature and a unique product or service to offer. Alike the goods or services they produce, the capital resources vary between different manufacturers.

Even within the same industry and the same product line, the capital resources of each manufacturer can be different. Looking at some examples can help understand.

Bakery:

Imagining the production process of a bread loaf in a bakery; the bread pan, molds, mixing and grinding machines, oven etc. all are the examples of capital resources employed by a bakery. All of these assets are made by man and play a substantial part in the production of bread.

Construction Company:

Considering a construction site, there can be various resources that aid the construction process. Supposing the construction of a building, the graders, bulldozers, excavators, shovels, carts, etc. all qualify as machines and tools made by man that aid the production process, and therefore make capital resources of a construction company.

Hairdressing Salon:

A hairdressing salon provides hair styling services to its customers. Several tools that are used in the provision of hairdressing services include scissors, brushes, hair straightener, blow-drier, spray bottle, etc. Considering their contribution to the provision of services, these assets act as the capital resources at a hairdressing salon.

How is a Capital resource different from other resources?

Broadly speaking, there are three main classifications of resources. Together, these resources make all the resources present in an economy. Everything that goes into the production process, roots from either of these three classifications of resources.

These three resources include capital resources, natural resources, and human resources. Each of them forms a substantial production component. Developing a better understanding of each kind of resource helps us distinguish a capital resource from all other resources.

Natural Resources: 

These are the elements and materials that are god gifted e.g. water, sunlight, fossil fuels, gold, iron, clay. The factor that distinguishes these resources from capital resources is human intervention

Any resource that comes directly from nature shall be classified as a Natural resource. However, any kind of human intervention may cause to change its category.

For instance, crude oil when extracted from the land, is a natural resource. If the same oil is filtered and refined, it becomes a capital resource. Similarly, raw wood straight from forests is a natural resource. Any kind of human intervention (cutting, refining, shaping) leads it to be a capital resource.

Human Resources:

Human resources refer to the human activity. It refers to the mental as well as physical activity of humans expended in the production process. 

For example, a chair making factory, shall need wood (natural resource) and wood-cutting equipment (capital resource), but without a human operating the machine (human resource), chairs cannot be produced.

Capital resources, on the contrary, refer to the man-made objects, items, and tools that are used within a production process. The physical and mental human activities that contribute to a production process do not make capital resources.

Capital Resources v/s. Factors of Production:

Capital Resources are not to be confused with Factors of production; they both are different. However, some items that individually fall in both categories may overlap in some cases.

Factors of production are defined as all the resources used in the production of goods and services; these make the building blocks of an economy and constitute all the resources needed to produce goods and services of any kind.

Don’t let the definition confuse you. There is one major element that distinguishes capital resources and factors of production i.e. Man-made. All resources employed within a business fall within one or another category of factors of production, whereas only the man-made resources qualify as capital resources. 

How capital resources are different from factors of production?

Different businesses use different resources for the production of their goods and the provision of services. However, the easiest way to classify each is to know if it is man-made or not. Here is how the four factors of production resemble or differentiate from capital resources.

Land: As a FOP, land refers to land and all the natural resources utilized in the production of goods. It not only includes land but every raw material that comes from the land including gold, minerals, ore, oil etc. Land and all renewable and non-renewable resources that are fetched from the land are not man-made but god-made and thus they do not fall within the category of Capital resources. 

An interesting point to note is, that any raw material that comes from the land is not a capital resource. However, if it is further worked upon or refined, it may qualify as a capital resource. Land itself makes a FOP, but after being constructed or releveled, it may become a capital resource.

Labor: Labor also known as human resources is the work done by people. It includes all the physical and mental activity by man that goes into production.

Capital resources, however, include only man-made assets (goods, equipment, infrastructure, etc.). Labor, therefore, qualifies as a human resource and not a capital resource.

Capital: By the term capital, capital goods are meant. These refer to man-made objects including machinery, equipment, tools, hammers, buildings, etc. that contribute to the production process.

Capital Goods are almost identical to capital resources. Most of the capital resources fall in this category of Factors of production. 

Entrepreneurship: Entrepreneurship refers to the business idea. This FOP is the driving force that combines the other three FOPs to successfully run a business.

Conclusion:

There can be multiple resources that aid the production process and within the category of capital resources there can be diverse capital resources for different or even the same industries. The points to remember in reference to ‘Capital Resources’ are as follows.

  • Capital resources refer to the ‘man-made’ assets used in a production process, whether in a manufacturing business or a service business.
  • The three-point criteria for identifying a capital resource include; it must be man-made, must contribute to the production process and it could be used for more than once.
  • Capital resources do not include the raw materials that go into the production process. These only include the assets that aid the production.
  • Capital Resources are different from Factors of production i.e. land, labor, capital, and enterprise on several bases. However, at some point, FOP and capital resources may overlap.
  • Natural and Human resources do not make a part of capital resources.

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