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Introduction

Researchers have argued that humanresources may be seen as a source of sustained competitive advantage fororganizations (Barney, 1991, 1995;Becker & Gerhart, 1996). The under-

lying assumption is that human resourcesare unique to the extent that competitorscannot imitate them. This research has ledto the identification of a number of human

resource management practices that con-tribute to company performance across dif-ferent organizations (Huselid, 1995). In a lit-erature review, Delery and Doty (1996)

identified seven such practices that havebeen consistently considered strategic HRMpractices. They defined strategic HRM prac-tices as those that are “theoretically or em-pirically related to overall organizationalperformance” (p. 805). These practices in-clude internal career opportunities, formaltraining systems, results-oriented appraisals,employment security, participation, job de-scriptions, and profit sharing. This approachhas come to be known as the “best prac-

tices” or universalistic approach.Within the best practices approach tostrategic HRM, the first practice, internal ca-reer opportunities, refers to the organizational

STRATEGIC HRM PRACTICES AND

THEIR IMPACT ON COMPANY

PERFORMANCE IN CHINESE

ENTERPRISES

S Y E D A K H T A R , D A N I E L Z . D I N G , A N D G L O R I A L . G E

This study examined the factorial validity of strategic human resource man-

agement practices and their effects on company performance in a sample of

465 Chinese enterprises. Data were collected through two questionnaire sur- veys among general managers and HRM directors on product/service per-

formance of their companies and a range of strategic HRM practices. Our

findings indicate that a valid set of strategic HRM practices (training, partici-

pation, results-oriented appraisals, and internal career opportunities) affect

both product/service performance and financial performance. Employment

security and job descriptions contribute uniquely to product/service per-

formance, whereas profit sharing contributes uniquely to financial perform-

ance. © 2008 Wiley Periodicals, Inc.

Correspondence to: Syed Akhtar, Department of Management, City University of Hong Kong Phone: (852) 2788-7870, Fax: (852) 2788-7220, E-mail: [email protected].

Spring 2008, Vol. 47, No. 1, Pp. 15–32

© 2008 Wiley Periodicals, Inc.

Published online in Wiley InterScience (www.interscience.wiley.com).

DOI: 10.1002/hrm.20195



16 H UMAN R ESOURCE M ANAGEMENT , Spring 2008

preference for hiring primarily from within(Delery & Doty, 1996). Second, training sys-tems refers to whether organizations provideextensive training opportunities for their em-ployees or whether they depend on selectionand socialization processes to obtain requiredskills. Third, appraisals are conceptualized interms of outcome-based performance ratingsand the extent to which subordinate views aretaken into account in these ratings. Fourth,employment security reflects the degree towhich employees feel secure about continuedemployment in their jobs. Although formal-

ized employment security is gener-ally on the decline, organizationsmay have either an implicit or anexplicit policy. Fifth, employeeparticipation, both in terms of tak-

ing part in decision making andhaving opportunities to commu-nicate suggestions for improve-ment, has emerged as a strategicHRM practice. Sixth, job descrip-tion refers to the extent jobs aretightly and clearly defined so thatemployees know what is expectedof them. Finally, profit sharing re-flects the concern for overall orga-nizational performance on a sus-tainable basis.

Other approaches to strategicHRM research include contin-gency and configurational ap-

proaches. The contingency approach impliesthat organizational strategy (e.g., cost, qual-ity, innovation) moderates the relationshipsbetween strategic HRM practices and com-pany performance. In other words, a particu-lar HRM practice may influence companyperformance positively in combination withone strategy and negatively in combinationwith another strategy. The configurational

approach builds on the two previous ap-proaches and synthesizes them into a high-order system in which researchers are inter-ested in identifying the unique patterns of strategic HRM practices that are optimally ef-fective. Although compelling theoretical ar-guments have been made in favor of the con-tingency and configurational approaches, weargue that currently there is relatively weak

empirical support for these approaches.Progress in this area of research would seemto depend on the emergence of new tech-niques to measure HRM configurations.

The present study adopts the best prac-tices approach to examining strategic HRMpractices and their influence on companyperformance. It contributes to the extantliterature in three ways. First, it examinesthe factorial validity of the previously out-lined seven strategic HRM practices in thecontext of Chinese enterprises using a largesample that cuts across firm age, size, in-dustry sector, ownership, and location of the enterprise. We expect that our resultswill help to determine whether or not meas-ures of strategic HRM practices can be gen-eralized across organizations and countries

with a view to facilitating comparative re-search. Second, we discuss in some detailhow the seven strategic HRM practices cur-rently are applied in Chinese enterprisesand their development trends. This willshed some light on how Western HRM con-cepts and practices are adapted in the newlyemerging market economy of China. Third,we examine how these strategic HRM prac-tices impact a firm’s product/service per-formance and financial performance. Thiswill help identify a set of strategic HRM

practices that influence both these perform-ance indices.

Literature Review and ResearchQuestions

How valid is the use of strategic HRM prac-tices in Chinese enterprises? Have thesepractices been adapted when applied in theChinese context? Do these practices matterin terms of their influence on company per-formance? These questions need to be raised

in the context of the Chinese economy,which is in transition from a centrallyplanned economy to a form of a free marketeconomy. Of particular interest are thechanges that have taken place in peoplemanagement because traditionally, this areais one in which large differences have ex-isted between communist and advancedmarket economies (Ding, Fields, & Akhtar,

The present study

adopts the best

practices approach

to examining

strategic HRM

practices and their

influence on

company

performance.

Human Resource Management DOI: 10.1002/hrm



Strategic HRM Practices and Their Impact on Company Performance 17

1997; Warner, 1996). In the following sec-tions, we present an overview of the litera-ture that has raised these questions and hassought their answers.

How Valid Are Strategic HRM

Practices? It must be said that before the economic re-forms began in 1978, China’s state-ownedenterprises (SOEs) virtually dominated in-dustrial production. HRM practices amongthese enterprises were embedded in the so-called “iron rice bowl” (tie fan wan) that en-sured centrally planned job allocation, life-time employment, egalitarian pay, and“cradle-to-grave” welfare (Ding, Fields, &Akhtar, 1997; Warner, 2004). However, over

the last two decades, China has experiencedphenomenal growth in foreign direct invest-ment (FDI), foreign-invested enterprises(FIEs), and subsidiaries (Warner, 2004).

In 2004, China approved the opening of more than 43,000 new foreign-invested en-terprises, an increase of 6.29% over 2003,and the total amount of foreign direct in-vestment reached more than U.S. $60 bil-lion, an increase of 13.3% over the previousyear (China State Statistics Bureau, 2005).These economic reforms have brought about

unprecedented changes in human resourcemanagement practices. The personnel re-form legislation of 1992 and the 1994 LaborLaw have guided the “three systems reform”that involved the introduction of labor con-tracts, performance-related reward systems,and contributory social security (Warner,2004). A new HRM terminology has emergedin joint ventures and multinational corpora-tions that seems to be distinguished from thepersonnel management terminology of thepre-reform era. Compared with the pre-re-

form era, recruitment and selection have be-come more market-oriented, remuneration isincreasingly tied to performance, and life-time employment is being phased out (Row-ley, Benson, & Warner, 2004).

On revisiting human resource manage-ment in China, Warner (2004) observed thatwhereas in many SOEs conventional peoplemanagement continued to be the norm, sub-

stantial changes were taking place with re-spect to HRM in large FIEs and wholly ownedforeign enterprises. In addition,strategic HRM practices have beenintroduced in giant SOEs thathave gone through reforms andhave become publicly listed com-panies (Ding & Akhtar, 2001). InFIEs, human resource managersare usually expatriates or localChinese who have gone throughprestigious business educationprograms. These managers are fa-miliar with modern managementlanguage and are expected to fol-low the “best practices” in strate-gic HRM, “as exemplified by theirown corporations internationally

or in other MNCs operating inMainland China. They may, of course, have to adapt their prac-tices to Chinese conditions”(Warner, 2004, p. 619).

It is clear to us that both localand global competitive pressuresare at work in a move toward aconvergence in strategic HRMpractices in China. Whether ornot measures of these practices, asconceptualized in the Anglo-

American HRM literature, can beconsidered to be valid with appli-cability across different organiza-tions and national settings is anempirical question that we willaddress in this study. In view of recent developments in strategicHRM in Chinese enterprises, weexpect that the conceptual struc-ture of these practices, as ex-plained in Delery and Doty’swork (1996), will be reflected in

an empirically valid structure.

How Are Strategic HRM Practices Applied?

Strategic human resource man-agement often is viewed as a set of decisions regarding the acquisition, alloca-tion, utilization, and development of human

It is clear to us that

both local and

global competitive

pressures are at

work in a move

toward a

convergence in

strategic HRM

practices in China.

Whether or not

measures of these

practices, as

conceptualized in

the Anglo-American

HRM literature, can

be considered to be

valid with

applicability across

different

organizations and

national settings is

an empirical

question that we

will address in this

study.





resources that affect organizational perform-ance (Dyer, 1984). In the following sections,we discuss the prevalence of Delery andDoty’s (1996) seven strategic HRM practicesapplied in the Chinese context, and their cur-rent status and development trends.

In a cross-cultural study of managerial attitudes about HRMpractices, Jennings, Cyr, andMoore (1995) found that trainingand development is perceived asthe most important strategicHRM practice by managers. InChina, the amount of invest-ment in training employeesvaries widely across firms withdifferent ownership types (Drost,Frayne, Lowe, & Geringer, 2002).

In his empirical study, Zhao(1999) noted that about half of the SOEs in his sample allocateda negligible amount of annualexpenditure on training, lessthan RMB¥30 per employee (U.S.$1 = RMB¥8.07).

On the contrary, in FIEs, sub-stantial amounts have been spenton training employees, sincetraining is seen as a critical andeffective tool to ensure product

and service quality and standards.In multinational corporations,training is the keystone for local-ization of top and senior man-agers. Trained Chinese managershave successfully replaced expa-triate managers at the corporateand department levels. In Erics-son China Ltd., for example, outof 12 senior managers at the cor-porate level, nine are local Chi-nese. Also, out of 25 department

directors, 21 are Chinese man-agers (Wenmi Net, 2007).

In FIEs, it is recommendedthat local managers need to be consulted asthe company strives to integrate its corporateculture with Chinese traditions and customs(Yang, 1998). In SOEs, workers’ congresses aretraditionally the primary channel for em-ployee involvement in management activi-

ties. Workers’ congresses, with trade unionsas executive agents, are entitled by law to ap-prove or disapprove of companies’ strategicplans and to have a say in major issues re-lated to the welfare of workers (Ding, Ge, &Warner, 2001). However, the significance of workers’ congresses has declined in recentyears. In the large, reformed SOEs, such aspublicly listed firms (PLFs) and joint-stockcompanies, employee representatives areelected to participate in the meetings of theboards of directors, representing workers andmanagers in the major corporate decisions.

The abolition of the “iron rice bowl” isbelieved to have contributed to the increasedlabor productivity in Chinese firms. How-ever, in an environment where almost allwelfare benefits come with full-time employ-

ment and where the newly established socialsecurity system provides only minimal pro-tection, job security has become very impor-tant for all employees.

It has now become a popular practice inChinese firms that each employee has clearlydefined duties, which are evaluated regularlyto determine his/her level of compensation. Job descriptions are the centerpiece for the so-called “post wage system” ( gangwei gongzizhi),which developed from the reward system re-form in Chinese enterprises (for a detailed dis-

cussion of the evolution and reform of the re-ward system in Chinese enterprises, see Ding& Warner, 2001). The “post wage system” iscomposed of two parts: a basic wage (deter-mined by the intensity and complexity of jobduties) and a supplementary wage (deter-mined by the accomplishment of job duties).This system is accompanied by clear job de-scriptions and a strict performance appraisalsystem. In recent years, the “post wage sys-tem” has increasingly added elements of skills and capabilities. The system is called

ganwei jineng gongzizhi, and it emphasizesclear job responsibilities, professional skills,and qualifications, the ability to innovate,and results-based performance appraisal(Ding & Warner, 2001; Warner, 1995).

Performance appraisal in China has beenundergoing significant changes since the eco-nomic reforms began in 1978 (Shen, 2004). Itis not used just for managers’ promotions

Workers’

congresses, with

trade unions as

executive agents,

are entitled by law

to approve or

disapprove of

companies’

strategic plans and

to have a say in

major issues related

to the welfare of

workers (Ding, Ge,

& Warner, 2001).

However, the

significance of

workers’

congresses has

declined in recent

years.





and transfers, but for line workers as well. Re-cent research conducted by the Developmentand Research Center of the China StateCouncil reported that 67.3% of the sampledfirms utilize performance appraisal. Of 1,044enterprises, the majority reported that ap-praisal had positive impacts on employeeperformance ranging from moderately effec-tive to very effective. About 37.2% of thesampled firms asserted that performance ap-praisal is not as effective as expected. The rea-sons for the unsatisfactory results of perform-ance appraisal include unclear performanceobjectives and evaluation criteria, the lack of feedback and two-way communication, un-cooperative attitudes by employees arisingfrom a sense of being monitored and con-trolled, and the lack of a corresponding re-

ward and punishment system to match ap-praisal results (Guo & Suo, 2005).In recruiting and retaining qualified pro-

fessionals, such as technical, marketing, andmanagerial staff, providing opportunities forcareer and personal development plays animportant role in attracting young Chineseholding graduate and postgraduate degrees(Caplan, 2003). As Chinese society graduallymoves toward becoming a knowledge soci-ety, career management has become an in-creasingly important part of human resource

strategies, especially in the high-tech sector.More and more companies provide opportu-nities for development and continuouslearning in return for high performance andproductivity during an employee’s stay(Larkin, 2005).

The deteriorating performance of SOEsprompted the Chinese government to shiftthe focus of SOE reform to ownership andcorporate governance restructuring in themid-1990s. The main purpose of the owner-ship reform was to improve the efficiency of

SOEs through clarification of property rightsand relationships with government agenciesto reduce day-to-day government administra-tive intervention in the operations of SOEs.An important part of the ownership reformwas employee ownership (i.e., some com-pany stock is sold to employees), thus linkingthe benefits of the employees with companyperformance. According to a recent report by

the China State Council, owner-ship reform increased the effi-ciency of SOEs and reduced theirfinancial debt (Deng, 2005).

Do Strategic HRM Practices

Matter? It is one thing to have strategicHRM practices in place; it is an-other to have such practices makea difference to company perform-ance in the presence of stronginstitutional influences. Some re-searchers have argued thatChina’s economic, social, and po-litical institutions remain decisivein how firms operate in the coun-

try (Peng, 2000). For FIEs to oper-ate successfully, the choice of local partners is crucial in estab-lishing networks of stakeholders(Beamish, 1993), while the modeof entry is constrained by institu-tional environments and firm-government relations. Do thesesignificant institutional forces forfirm performance imply thatstrategic HRM practices do notmatter in developing and secur-

ing competitive advantage?Law, Tse, and Zhou (2003)

have argued that while this maybe the case in formerly centrallyplanned economies that are se-verely distorted by institutionalforces, “China’s situation is chang-ing rapidly” (p. 257). Realizing theheavy burden of loss-making SOEson the country’s nascent financialsystem, China is actively reform-ing large enterprises in the state

sector with the slogan “graspingthe large” (Nolan, 2001). Thesmall SOEs are left out and en-couraged to seek privatization ontheir own. This change is a bigstep forward in the direction of afree market economy. Also,China’s entry into the World TradeOrganization (WTO) has further

Also, China’s entry

into the World Trade

Organization (WTO)

has further removed

barriers to

competition, even in

regulated sectors

such as

telecommunications,

banking, and

insurance. These

indicators of

changing situations

imply that even

though institutional

forces may remain

potentially

influential,

enterprises seeking

competitive

advantage must

increasingly rely on

internal

management

processes, including

human resource

management.





removed barriers to competition, even in reg-ulated sectors such as telecommunications,banking, and insurance. These indicators of changing situations imply that even thoughinstitutional forces may remain potentiallyinfluential, enterprises seeking competitiveadvantage must increasingly rely on internalmanagement processes, including human re-source management.

Barney’s (1991) resource-based theory of the firm often has been used to support thecontention that strategic HRM practices may

create distinctive competencies asa source of sustained competitiveadvantage. Not all human capitalresources, however, lead to thisend result equally. Human re-sources that are valuable, rare, dif-

ficult to imitate, and supportedby the organization can lead tosustained competitive advantage(Barney & Wright, 1998). In thecontext of a transitional economysuch as in China, these resourcesinclude “experienced and tal-ented managers, qualified engi-neers and technicians, and com-petent marketing staff” (Ding &Akhtar, 2001, p. 948). Accord-ingly, in this study, we examine

the influence of strategic HRMpractices relating to managerialand professional employees ontwo indexes of company perform-ance: product/service perform-ance and financial performance.

There is now empirical support to indi-cate that strategic HRM practices have posi-tive and additive effects on company per-formance across different organizationalsettings in Anglo-American samples (Arthur,1994; Delaney, 1997; Delery & Doty, 1996;

Guest, Michie, Conway, & Sheehan, 2003;Guthrie, 2001; Huselid, 1995; Ichniowski &Shaw, 1999; MacDuffie, 1995). Although sev-eral studies have explained developmentsand trends in the HRM field in Chinese en-terprises over the past two decades (Warner,2004), only a few recent studies have exam-ined the linkage between HRM practices orsystems and company performance.

For instance, Bjorkman and Fan (2002)conducted a study of 62 manufacturing FIEsand wholly owned foreign subsidiaries. Theyreported significant positive effects of theHRM system and HRM-business alignment oncompany performance. They created an HRMsystem index based on average standardizedscores on 11 strategic HRM practices, andcompany performance was measured by man-agerial assessments of satisfaction with prof-itability and overall performance. Similarly,Law et al. (2003) conducted a study of 122firms across nine cities to test, among otherthings, the effect of the strategic role of HRMon firm productivity and return on equity. Re-porting positive effects on both indexes, theyconcluded that “good HRM does matter tofirm performance in a transitional economy”

(Law et al., 2003, p. 263). The present studyextends these previous studies by way of ex-amining individual effects of these strategicHRM practices on firm performance.

Method

Sample

To investigate strategic HRM practices andtheir impact on firm performance in Chinesefirms, a large-scale questionnaire survey was

conducted in three major cities, Guangzhou,Shanghai, and Nanjing. These three citieswere selected based on their level of economicopenness and development. Guangzhou isthe capital city of Guangdong province, lo-cated in Southern China. Benefiting from itsproximity to Hong Kong, Guangdongprovince is one of the top destinations for FDIin the country. Shanghai is China’s economicand financial center and has the highest percapita GDP among all Chinese cities. Nanjingis the capital city of Jiangsu province, located

along the lower Yangtze River. In comparisonwith the other two cities, Nanjing is less de-veloped in terms of GDP per capita, infra-structure, household consumption, andhuman resource development.

We based the sample frame on the ChinaIndustrial Enterprises Database , compiled bythe China State Statistics Bureau, to coverthe manufacturing and service sectors. The

There is now

empirical support to

indicate that

strategic HRM

practices have

positive and additive

effects on company

performance across

different

organizational

settings in Anglo-

American samples.





manufacturing sector includes a broad rangeof businesses in electronics, garments, engi-neering and chemicals, and pharmaceuti-cals. Some enterprises have multiple opera-tions. The service sector includes enterprisesin insurance and banking, import and ex-port trading, and retailing (departmentstores) and advertising.

To solicit participation from the selectedenterprises, we contacted the enterprises bytelephone and through our interpersonalnetworks at local universities. If a particularenterprise declined our invitation, we re-placed it with another enterprise in the same

industry. We then mailed 600 questionnairesto these enterprises with the promise thattheir individual responses would remainconfidential. We received 465 usable ques-tionnaires, a response rate of 78.0%.

Table I shows the characteristics of thesample. Firms with an age of 3–5 years con-stituted 34.4% of the sample, 42.2% were6–15 years old, and 23.4% were older than15 years. Small firms with fewer than 100employees accounted for 28.2%, 35.7% of the sample were medium firms with 100 to500 employees, 25.1% were large firms with501 to 2,000 employees, and the remaining


Category Frequency Percent

Age

3–5 years 160 34.4

6–15 years 196 42.2

> 15 years 109 23.4

Size

employee < 100 131 28.2

employee 101–500 166 35.7

employee 501–2,000 118 25.4

employee > 2,000 50 10.8

Sector

Electronics 93 20.0

Garment 39 08.4

Engineering 54 11.6

Chemical and pharmaceuticals 88 18.9

Service 74 15.9

Mixed 117 25.2

Ownership

State-owned 136 29.2

Publicly-listed 47 10.1

Foreign-invested 282 60.6

Location

Nanjing 175 37.6

Shanghai 122 26.2

Guangzhou 168 36.1

T A B L E I Sample Characteristics




10.8% were giant firms with more than2,000 employees. Of all the firms in our sam-ple, foreign-invested enterprises accountedfor 60.6%, state-owned enterprises were29.2%, and publicly listed firms were 10.1%.Of these enterprises, 37.6% were from Nan-jing, 26.2% were from Shanghai, and the restwere from Guangzhou.

Data Collection

We collected data from multiple sources ineach enterprise. The general managers or their

deputies responded to the surveyon company performance, whilehuman resource directors re-sponded to the strategic HRMpractices questionnaire. This was

done to match the nature of in-quiry with the relevant source of information on the one hand, andto overcome the simultaneity biasin the survey responses on theother. The questionnaires wereoriginally prepared in English andthen translated into Chinese by aprofessional translator and back-translated into English by anotherprofessional. The back-translatedversions were compared with the

originals to ensure accuracy. Thetwo questionnaires are briefly de-scribed below.

Strategic HRM Practices

Questionnaire

This questionnaire elicited information fromhuman resource directors on backgroundcharacteristics of the organization and sevenstrategic HRM practices related to internalcareer opportunities, formal training sys-

tems, results-oriented appraisals, employ-ment security, participation, job descrip-tions, and profit sharing. We adopted Deleryand Doty’s (1996) survey instrument tomeasure these practices. The instrumentcontains multi-item scales on seven strategicHRM practices except for profit sharing,which is based on a single item. We addedone item to the profit-sharing scale to make

it a multi-item scale. The item was “individ-uals receive ownership shares as incentivepay.” Responses to scale items ranged from 1(not accurate at all) to 4 (very accurate).

Survey of Company Performance

Consistent with Dyer and Reeves’s (1995) pro-posed dimensions of company performance,we used three items each to measure prod-uct/service performance and financial per-formance. Items on product/service quality,customer satisfaction, and technological inno-vation measured product/service performance,whereas items on profitability, sales growth,and returns on investment measured financialperformance. On each item, the general man-agers were asked to compare the performance

of their company to the performance of theircompetitors for the previous three years. Re-sponses were obtained on a five-point scale,ranging from 1 = very low to 5 = very high.Each dimension had a coefficient alpha of .77in the present study.

Results

Factorial Validity of Strategic HRM Practices

We factor-analyzed the items measuringstrategic HRM practices (Delery & Doty,1996) using principal component factoranalysis followed by varimax rotation. TableII shows that this analysis resulted in theseven dimensions of strategic HRM practicesaccounting for 64.36% variance. Factor Iconsists of items that reflect frequency andextensiveness of training programs and theprevalence of programs that relate to skilldevelopment among new hires and pro-motability among existing employees. This

factor accounted for 12.17% of the variance(α = .83). Factor II contains items on em-ployee participation in decision making, su-perior-subordinate communication, and op-portunities for suggesting improvements. Itexplained 11.94% of the variance (α = .81).Factor III, which measures implicit and ex-plicit policy on employment security, ac-counted for 9.24% of the variance (α = .73).

The general

managers or their

deputies responded

to the survey on

company

performance, while

human resource

directors responded

to the strategic HRM

practices

questionnaire.





Factor IV includes items that indicate theextent to which job descriptions are com-prehensive, clear, specific, and up-to-date,explaining 8.30% of the variance (α = .66).Factor V represents outcome-based perform-ance appraisals, accounting for 8.16% of variance (α = .83). Factor VI contains itemsthat reflect the extent to which supervisorsrecognize career aspirations of their subordi-

nates and the extent to which employees areprovided with clear career paths and promo-tional opportunities. This factor explained7.67% of the variance (α = .64). The last fac-tor, which measures the prevalence of stockownership and profit sharing, accounted for6.88% of the variance (α = .70). This factorincludes an item on stock ownership thatwas added by the authors to turn Delery andDoty’s (1996) original single-item scale intoa multi-item scale.

Trends of Mean Scores and Correlations

Table III presents descriptive statistics on the di-mensions of strategic HRM practices and com-pany performance and the zero-order correla-tions between them. It can be observed thatjob descriptions and result-oriented appraisalsobtained relatively high mean scores of 2.80

and 2.70, respectively, whereas profit sharingand employment security obtained relativelylow scores of 1.69 and 2.41, respectively. Also,correlations between strategic HRM practicesranged from –.03 to .56. Profit sharing and em-ployment security had either weak or non-significant correlations with other strategicHRM practices, whereas training had a sub-stantial correlation.

Table III further shows that the meanscore on product/service ( M = 3.48) washigher than the mean score on financial per-formance ( M = 2.85). The two dimensions of company performance had a moderate corre-lation of .46. Correlations of product/serviceperformance with strategic HRM practicesranged from .01 to .42, whereas those for fi-nancial performance ranged from .01 to .27.Also, product/service performance and fi-nancial performance had nonsignificant cor-relations with profit sharing and employ-

ment security, respectively.

Main Effects on Company Performance

We used multiple regression analysis to ex-amine the main effects of the seven HRMpractices on financial and product/serviceperformance of the company. In the process


Variables M SD 1 2 3 4 5 6 7 8 9

1. Training 2.57 0.75 —

2. Participation/voice 2.59 0.68 .52 —

3. Employment security 2.41 0.74 .20 .31 —

4. Job description 2.80 0.59 .46 .40 .10 —

5. Results-oriented appraisal 2.70 0.82 .46 .40 .13 .43 —

6. Internal career opportunities 2.64 0.57 .56 .53 .16 .39 .42 —

7. Profit sharing 1.69 0.82 .19 .14 .05 –.03 .13 .19 —

8. Product/service performance 3.48 0.80 .42 .30 .11 .31 .30 .26 .01 —

9. Financial performance 2.85 0.68 .27 .22 .01 .15 .20 .24 .17 .46 —

Note. N ranged from 406 to 465. Responses were obtained on a four-point scale, ranging from 1 = not at all accurate to 4 = very accurate

for the dimensions of strategic HRM practices and on a five-point scale, ranging from 1 = very low to 5 = very high for the dimensions of

company performance. Correlations of .10 or more are significant at the .05 level, and correlations of .15 or more are significant at the.01 level.

T A B L E I I I Descriptive Statistics and Correlations




of this analysis, we controlled for the effectsof company age, size, sector, ownership, andlocation. Results presented in Table IV showthat except for profit sharing, all other strate-gic HRM practices had significant effects onproduct/service performance and explained14.0% of the variance. The significant betacoefficients ranged from .09 ( p ≤ .05, one-tailed) for employment security and internalcareer opportunities to .28 ( p ≤ .01, two-tailed) for training.

Significant effects on financial perform-ance were limited to training, participation,results-oriented appraisals, internal careeropportunities, and profit sharing, account-ing for 7.0% of the variance. The significantbeta coefficients ranged from .08 ( p ≤ .05,one-tailed) for results-oriented appraisals to

.15 ( p ≤ .01, two-tailed) for training. Thesefindings indicate that a set of strategic HRMpractices (training, participation, results-oriented appraisals, and internal career op-portunities) affects both financial andproduct/service performance. Employmentsecurity and job descriptions contributeduniquely to product/service performance,whereas profit sharing contributed uniquelyto financial performance.

Findings Relating to Control Variables

Table IV shows that except for ownershipand location, none of the other covariates(age, size, and sector) had a significant ef-fect on product/service performance. Com-pared with both SOEs and publicly ownedenterprises, FIEs (β = .18, p ≤ .01, two-tailed)had better product/service performance.However, enterprises located in Guangzhou(β = –.14, p ≤ .05, two-tailed) had signifi-cantly lower product/service performance

than did those located in Shanghai.Results presented in Table IV further

show that the size of the enterprise and lo-cation did not significantly contribute to fi-nancial performance. However, enterpriseswith combined product and service opera-tions had significantly lower profitabilitycompared with enterprises that were in asingle line business (β = –.12, p ≤ .01, one-

tailed). Age and ownership also significantlyinfluenced this dimension. Older enterprises(β = –.20, p ≤ .01, two-tailed) were likely tohave lower financial performance than wereyounger enterprises. FIEs (β = –.14, p ≤ .05,two-tailed) were likely to be outperformedby SOEs in financial performance. It must benoted here that in our sample, most of theFIEs were joint ventures. It is observed thatjoint ventures experience a high failure ratein the competitive Chinese market (Shenkar& Yan, 2002).

Discussion

About the Factorial Validity

Results obtained from the ex-ploratory factor analysis shownin Table II suggest that Delery andDoty’s (1996) conceptualizationof strategic HRM practices has anoverall factorial validity. Deleryand Doty (1996) derived thesepractices from the extant litera-ture, observing that “we identi-fied seven practices that are con-sistently considered as strategicHR practices” (p. 805). They de-

fined strategic human resourcepractices as those that have a the-oretical or empirical bearing onoverall organizational perform-ance. Although they did not re-port factor analyses in their study,items measuring these practices in the pres-ent study resulted in seven dimensions thatclearly reflected the original conceptualiza-tion. There were no item overlaps, and allthe dimensions were internally consistent.These findings indicate that the strategic

HRM practices utilized in the present studycan be used with confidence in future stud-ies of Chinese enterprises.

The apparent conceptual convergence instrategic HRM practices can be explained bythe phenomenal change that has taken placein the personnel practices in Chinese enter-prises since the economic reforms began in1978. As we explained in the literature review,

Results presented in

Table IV show that

except for profit

sharing, all other

strategic HRM

practices had

significant effects

on product/service

performance and

explained 14.0% of

the variance.






Independent Variable Product/Service Performance Financial Performance

Model 1 Model 2 Model 1 Model 2

Control variable

Age (log)

Size (log)

Sector

Service (referent)

Electronic

Garment

Engineering

Chemical and pharm.

Mixed

Ownership

State-owned (referent)

Public-owned

Foreign-invested

Location

Shanghai (referent)

Nanjing

Guangzhou

Main effect

Training

Participation/voice

Employment security

Job descriptions

Result-oriented appraisals

Internal career opportunities

Profit sharing

F

R 2 cumulative

R 2 change

F for R 2 change

T A B L E I V Standardized Regression Weights for Company Performance

.04

.00

.10

–.02

.08

.03

.03

.03

.21**

.00

–.14*

3.33**

.09

—

—

.06

–.07

.04

–.04

.05

.01

–.02

.03

.18**

–.03

–.14*

.28**

.13**

.09†

.15**

.12**

.09*

.02

6.22**

.23

.14

9.91**

–.22**

.05

.11

–.05

–.05

–.06

–.08

.04

–.13*

.01

.05

3.58**

.09

—

—

–.20**

.01

.06

–.08

–.06

–.09

–.12†

.02

–.14*

–.02

.01

.15**

.10*

–.01

.06

.08†

.12**

.11*

3.96**

.16

.07

4.24**

Note. N = 406 (after listwise deletion of missing data).

†p ≤ .05 (one-tailed), *p ≤ .05 (two-tailed), **p ≤ .01 (two-tailed).




the pre-reform Chinese economy was domi-nated by SOEs and personnel practices werecharacterized by centrally planned job alloca-tion, lifetime employment, egalitarian pay,and “cradle-to-grave” welfare (Ding et al.,1997; Warner, 2004).

However, China’s open-door economicpolicy, huge growth in foreign direct invest-ment, proliferation of foreign-invested enter-prises, the Labor Law of 1994, accession tothe WTO, and the like have created condi-tions conducive to adopting strategic HRMpractices in the relatively developed coastalregions (Warner, 2004). The “three systemsreform” that involves the introduction of labor contracts, performance-related rewardsystems, and contributory social security is agood example of the adoption of these HRM

practices (Warner, 2004). Also, recruitmentand selection have become more market-ori-ented, and lifetime employment is almost athing of the past (Rowley et al., 2004). Simi-lar practices can be observed in giant SOEsthat have successfully gone through the re-form process. In both FIEs and reformedSOEs, HRM managers are well educated inbusiness management. It is thus clear thatthere is internal as well as external pressuretoward increasing convergence in strategicHRM practices.

About the Application of Strategic HRM

Table III shows that the mean scores of jobdescriptions and results-oriented perform-ance appraisals ranked first and second, re-spectively. As mentioned previously, thesetwo practices are key elements of the so-called “post wage system” currently widelyused in almost all Chinese enterprises (Ding& Warner, 2001). In the past few years, the

Chinese government has been moving to-ward reducing structural imbalances in itseconomic sectors by rationalizing and updat-ing its industries. Priority has been given tothe development of high-tech and high-value-added industries, such as the electron-ics and telecommunications industries. The“post wage system” has been refined to in-corporate elements of knowledge, capabili-

ties, and skills to better cope with perform-ance management for professionals in high-tech and high-value-added sectors.

In the post-reform era, job security isnot guaranteed. This is reflected in the rela-tively low mean score on employment secu-rity in our sample. Managers increasinglyare under pressure to compete for limitednumbers of managerial positions as SOEsstreamline their organizational structures tobecome efficient. Applicants need to have agood track record and show evidence of managerial capabilities and skills in order toremain in or bid for new posi-tions. In Chinese, this phenome-non is called jingzheng shanggang (Cheng, 2005). Similarly, inmany FIEs, it has become a com-

mon practice to demote or to re-place incompetent and nonper-forming managers (Yang &Zhang, 2005).

Our results further show thatstock/profit sharing has the low-est mean score. A possible expla-nation is that stock options as in-centive pay for senior managershas been experimented with inonly a small number of compa-nies. In our sample, more than

60% of firms were FIEs, in whichprofit sharing is rarely used tomotivate employees.

The mean scores for training,participation, and internal careeropportunities were in the middlerange of the seven strategic HRMpractices. This shows that al-though Chinese enterprises haverecognized the importance of these threepractices, the application of these practiceshas met with some problems. For example,

training in most Chinese enterprises is con-strained by the lack of money, and as such,training is almost at the bottom of the prior-ity list in company budgets (Zhao, 1999).

The application of employee participationin Chinese enterprises may have been hin-dered by traditional Chinese values. The Con-fucian doctrine of “maintaining harmony”advises that people not cross their personal


The apparent

conceptual

convergence in

strategic HRM

practices can be

explained by the

phenomenal change

that has taken place

in the personnel

practices in Chinese

enterprises since the

economic reforms

began in 1978.




boundaries of responsibility or interfere in an-other’s business ( yuezudaipao). Consequently,Chinese managers tend to concentrate theirefforts on performing the duties defined intheir job descriptions. It is rare for Chineseemployees to cross boundaries and to take theinitiative to give critical feedback and suggestimprovements. Therefore, effective employeeparticipation mechanisms have not been es-

tablished prevalently in Chineseenterprises. However, the situationmay change gradually, as moreChinese firms recognize the bene-fits of adopting employee partici-pation (Wang & Mobley, 1999).With their increasing educationlevel, Chinese employees, espe-cially those returning from over-

seas with management education,tend to embrace the concept of employee participation in man-agement.

It also must be noted thatonly a proportion of FIEs hasachieved a high degree of local-ization of senior managementteams. The career development of local managers is constrained bylimited opportunity for promo-tion and by unclear and blocked

career paths (Wong & Law, 1999).In SOEs, streamlining of adminis-trative structures puts heavy pres-sure on Chinese managers tocompete for the reduced numberof positions.

About the Impact on Performance

Although previous studies haveused different measures of firm

performance (Guthrie, 2001; Har-tog & Verburg, 2004; Huselid, 1995; Rogg,Schmidt, Schull, & Schmitt, 2001), the find-ings of our regression analyses are consistentwith the general consensus on a positive link-age between strategic HRM practices and firmperformance. In our study, we have identifieda set of strategic HRM practices that affect bothproduct/service performance and financial

performance. These practices include training,participation, results-oriented appraisals, andinternal career opportunities. We considerthese practices as the “core” of strategic HRMin Chinese enterprises because they are com-mon in explaining variance in the two per-formance indices. The significant impact of training on both product/service performanceand financial performance confirms previousstudies that training and development is per-ceived as an important strategic HRM practiceby managers (Jennings et al., 1995).

With the deepening reform of the rewardsystem in China, a results-oriented appraisalsystem gradually has replaced the egalitarianpay system that existed in all Chinese enter-prises in the pre-reform era. The results-ori-ented appraisal system provides substantial in-

centives for employees to work hard toaccomplish their performance objectives.Therefore, it is reasonable to suggest that a re-sults-oriented appraisal system has significanteffects on both measures of performance.

Our findings on the significance of thefour “core” strategic HRM practices for prod-uct/service performance also are consistentwith the results of a recent study by Shipton,Fay, West, Patterson, and Birdi (2005), whoreported a positive linkage between strategicHRM practices and product innovation.

Overall, the four “core” strategic HRM prac-tices provide firm ground for nurturing, in-volving, motivating, and promoting profes-sional and managerial employees. A practicalimplication of this finding is that enterprisesthat have institutionalized these “core” prac-tices will have sustainable competitive ad-vantage over the long term.

We also found that certain strategic HRMpractices have a unique influence on one per-formance measure or the other. Profit sharingsignificantly influenced only financial per-

formance. A possible explanation could bethat managers, motivated by bonuses basedon company profits, tend to pursue short-term profitability. In Chinese enterprises, thisdynamic has led to insufficient investment innew product and service development.Therefore, we suggest that firms that adoptprofit-sharing programs should base bonusesnot only on profitability, but also on other


In the post-reform

era, job security is

not guaranteed. This

is reflected in the

relatively low mean

score on

employment

security in our

sample. Managers

increasingly are

under pressure to

compete for limited

numbers of

managerial positions

as SOEs streamline

their organizational

structures to

become efficient.




indices—namely, new product development,quality of product and services, and customersatisfaction. Another explanation is thatstock sharing as an important component of ownership reform in China has provided analternative means for financing enterprises.Tseo, Sheng, Zhang, and Zhang (2004) foundthat firms sell company stocks to employeesmore for new capital financing than for pro-viding incentives to employees. The financialcapital gathered from selling shares to em-ployees provides much-needed investmentfunding, which in turn brings potential prof-itable opportunities to the company.

Employment security and job descrip-tions are two other practices that positivelyaffected product/service performance butnot financial performance. In general, em-

ployment security has declined considerablyin the post-reform era of the Chinese econ-omy. Firms that provide employment secu-rity create a supportive environment for or-ganizational innovation (Shipton et al.,2005) and are in a better position to employcommitted professionals to enhance newproduct and service development.

Finally, in Chinese enterprises, job de-scriptions are the key element in perform-ance appraisal and reward determination. Inorganizations where performance goals are

quantifiable, employees are evaluated by ob-jective and quantified criteria. On the con-trary, where performance goals are difficultto quantify, such as product/service perform-ance criteria, clear job descriptions allow em-ployees to understand where their responsi-bilities lie, thus serving as a basis foraccountability and evaluation.

Limitations and Future ResearchDirections

Although this study contributes to HRM re-search, its limitations should be acknowl-edged. First, we used a perceptual perform-ance measurement in this study. Specifically,we used managerial perception of the com-pany’s product/service performance and fi-nancial performance compared with that of their competitors for the previous threeyears. Although the perceptual performance

measurement was adopted in previous stud-ies on the HRM and performance relation-ship (e.g., Delaney & Huselid, 1996), itwould still be worthwhile for future studiesto investigate the influences of strategicHRM on objective performancemeasurements, such as the ratioof profit to sales, return on assets,and return on equity.

Second, we performed regres-sion analysis on a cross-section of data gathered at one time to iden-tify the relationship betweenstrategic HRM and performance.It is important to use some longi-tudinal data in future studies toexamine the causal link betweenstrategic HRM practices and firm

performance. Third, our datawere collected in three maincities, Shanghai, Guangzhou, andNanjing. Future research may ex-tend the study to the less-devel-oped inland and western regionsof China, such as Chongqing,Chengdu, and Xi’an.

Fourth, our sample firms in-clude FIEs, PLFs on p. 18, andSOEs, and the majority of themare FIEs. Although FIEs are no

doubt the trendsetters for HRMpractices in Chinese enterprises,we should include other owner-ship types of firms in future stud-ies, especially considering thegrowing importance of privateenterprises in China’s economy.

Fifth, we adopted an organi-zational-level approach in theevaluation of the effectiveness of strategic HRM practices. However,factors at the micro level, such as

the level and experience of staff and job poaching, will affect theeffectiveness of strategic HRMpractices. The interactive effects of organiza-tional-level factors, such as industry withstrategic HRM practices, also must be investi-gated in future studies.

Finally, Chinese managers and employeesmay differ in their understanding of some of


In our study, we

have identified a set

of strategic HRM

practices that affect

both

product/service

performance and

financial

performance. These

practices include

training,

participation,

results-oriented

appraisals, and

internal career

opportunities. We

consider these

practices as the

“core” of strategic

HRM in Chinese

enterprises.





the practices, such as participation, from theirWestern counterparts. As the HRM practices of a country are heavily influenced by its culture(Satow & Wang, 1994), another important re-

search direction for us is to identifystrategic HRM practices withunique Chinese characteristics anddetermine if Chinese strategicHRM practices diverge from orconverge with Western strategicHRM practices.

Conclusion

The past few years have witnesseddramatic developments in strate-gic HRM practices in Chinese en-terprises. Not only have FIEs

adopted these practices, but large,reformed SOEs are also in theforefront of making thesechanges. Our findings support re-cent assertions by researchers thatstrategic HRM practices not onlyare widespread, but also are val-ued by Chinese organizations.

The Chinese economy seems to havegained momentum to nurture and develophuman capital with the purpose of becominga knowledge economy. A recent trend report

issued by a Chinese social science institute(Wang, 2005) observed that future develop-ments in strategic HRM would be character-ized by treating human resources as organiza-tional capital, emphasizing the managementof employee knowledge, skills, and capabili-ties; developing strong corporate culture;making performance appraisals objective andreward systems just and fair; redesigning jobsto facilitate career development; and chang-ing the role of the HR function from one of administrative bureaucracy to one of possess-ing the strategic role of facilitating andachieving strategic goals. These characteristicsof strategic HRM closely reflect HRM trends inadvanced economies. We believe that in adecade or two, with some local adaptations,mainstream strategic HRM will prevail in

most Chinese organizations.In the highly competitive Chinese market,a firm’s success increasingly will rely on thequality of its human capital. HR departmentswill have to design systems that enable theirorganizations not only to attract managerialtalent, but also to train, involve, motivate, andreward managers in ways that support organi-zational strategy. To move in this direction,the four core strategic HRM practices identi-fied in our study should be the fundamentalconstituents in designing these systems.

The Chinese

economy seems to

have gained

momentum to

nurture and develop

human capital with

the purpose of

becoming a

knowledge

economy.

SYED AKHTAR is an associate professor in the Department of Management at City Uni-

versity of Hong Kong. He received his MA in psychology from Delhi University and PhD

from the Indian Institute of Technology (IIT), Delhi. His research interests include strategic

human resource management, organizational commitment, and employee well-being.

DANIEL Z. DING is an associate professor in the Department of Marketing at City Uni-

versity of Hong Kong. He received his MA in international finance from the Shanghai

University of Finance & Economics and PhD in international business and comparative

management from the Anderson Graduate School of Management at UCLA. His research

interests are in the areas of multinational corporate strategy, international strategic al-

liance, foreign direct investment in China, conflict management in joint ventures, and in-

ternational HRM.

GLORIA L. GE is a senior lecturer in the Department of Management and International

Business, the University of Auckland, New Zealand. She received her MA from the

Shanghai University of Finance and Economics and PhD from City University of Hong

Kong. Her research interests include market orientation, strategic marketing manage-

ment, international marketing, human resource management, and China business.





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