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<ul><li> 1. In Search of the Best Human Resource Practices in Chinas Chain Stores Irene Hau-siu ChowDepartment of Management The Chinese University of Hong Kong Shatin, N. T. Hong Kong Tel: (852) 2609-7798 Fax: (852) 2603-6840 Email: irene@baf.msmail.cuhk.edu.hk&amp; S.S. LiuDepartment of Business ManagementSchool of Management South China University of TechnologyTel/Fax (020) 87113235 Email: ssliu@scit.edu.cn</li></ul><p> 2. 1 In Search of the Best Human Resource Practices in Chinas Chain StoresAbstractThis paper analysed a recent survey of human resource practices from 83 chain stores in China.It differentiated managerial staff (core) and operating employees according to different types ofhuman resource configurations. It also identified high and low adoption based on bundling of HRpractices using cluster analysis. The impact of HR practices alignment on enhancing firmperformance was evaluated using high adoption cluster. The findings advance our knowledge inthe HPWS literature and offer important insights for executives in formulating effective HRMstrategies.Keywords: High performance work systems, human resource practices, chain stores, ChinaThe effective utilization of human capital will be the ultimate determinant oforganisational performance (Adler, 1988). Managing people is a central challenge in everyorganisation. A firms intangible assets, such as the way it manages its employees, are morelikely to gain competitive advantage than its tangible assets (Jackson &amp; Schuler, 1995; Barney,1995). From the resource-based theory, the complexities of human resource value creationprocess can be treated as a source of sustained competitive advantage because the types ofactivities performed add value to the firm, such as more effective response to market demands(Wright, McMahan, and McWillians, 1994). A pool of skills and experience of workforce isunique, rare and not easily imitated or substitutable (Barney, 1991). In order to sustain the 3. 2competitive advantage through people, organizations need to manage their employees with a setof complementary HR practices in the form of high performance systems that will enable them toachieve simultaneously more flexibility, greater efficiency and the ability to gain maximumeconomic results. Thus more innovative practices and high performance systems are adopted tofoster high performance. A literature search shows an extensive study of high performance work systems (HPWS)in the last two decades (Becker and Huselid, 1998). The importance of HR alignment as a basisof competitive advantage is repeatedly iterated. Empirical studies revealed a strong and directrelationship between the quality of HR practices and return on shareholder investment (Delery &amp;Doty, 1996). HRM practices, in the form of high performance work systems, are associated withpositive performance outcomes (Appelbaum et al, 2000; Kravetz, 1988; Levering &amp; Moskowitz,1993; Huselid, 1995; Berg,1999), and higher financial success (Huselid, 1995; Lawler et al, 1995;Varma et al, 1999). The HRM system has a direct impact on employee skills, motivation and jobdesign/work structure. These attributes elicit greater productivity, creativity, performance andultimately to profits, growth, and market value (Neal &amp; Tromley, 1995). High performance work systems have been shown to contribute to firm performance inU.S. and other countries. Majority of previous studies were based in the Western context. Veryfew studies have been conducted on HR alignment in China. The present study focuses onalignment of HR practices in chain stores in southern China. Different institutional mechanismsmay shape HR policies and strategies (Paauwe &amp; Boselie 2003). Given the different institutionalenvironment and the high growth of the service sector in Chinas economy, it would beinteresting to find out how effective management of HR might contribute to positiveorganisational performance in the worlds largest emerging economy. The service sector has 4. 3become the major growth industry in China. The huge consumer base offers a lot of potential formultinational firms to enter the China market. The purpose of this study is to identify a numberof key coherent HRM dimensions of staffing, training, performance appraisal, reward, workstructure and job security and their impact on firm performance. The proposed relationship willbe empirically tested by surveying a sample of 83 chain stores in Guangzhou to find out whetherHPWS could be successfully transferred to the Chinese context. Results from the present studywill draw meaningful and practical implications. It provides valuable information to both HRacademics and practitioners by illustrating how effective human resource management can addvalue to organisations.REVIEW OF THE RELEVANT STUDIES Two major themes emerge in the HR research. First, the current studies tend to adopt asystems approach. The focus is moved away from separate HRM practices and employeeperformance to a more macro focus on the overall complementary set of HRM practices and firmperformance. HR is moving away from its traditional micro-focused role and is moving towardsa macro strategic paradigm, linking HR and business strategy. The strategic perspective HRMexamines the fit between various HRM practices and the companys business strategies(Delery 1998). Organisations are simultaneously seeking external fit between the HR functionand organisation strategy, at the same time achieving an internal fit among individual HRpractices. The second theme is HRM control systems (Snell 1992). Organisations are increasinglytransition from controlling employees to eliciting commitment from employees (Pil andMacDuffie 1996). Under the control-based culture, HR is focused on administrative aspects and 5. 4union issues. Training is viewed as expenses to be minimized, not as investments;communication was mostly top-down; rewards were based on fixed guidelines; and there waslittle employee involvement. HR practices were standardized and reactive. In contrast, high-involvement, commitment-based culture utilized cross-functional teams and employeeinvolvement. Bae and Lawlers (2000) involvement--enhancing HR incentives include highlyselective staffing, extensive training, empowerment, performance-based pay and broad jobdesign. Other HR initiatives included information sharing and provision of communicationchannels, lifelong learning, extensive benefits, formal dispute resolution procedures, training andretraining instead of redundancies during the period of economic crisis. Such trend signifies ashift away from employee control and toward emphasis on employee commitment. The last two decades have witnessed considerable experimentation and research oninnovative work practices, such as high-involvement workplace, cross-training and flexible jobassignments, and self-directed work teams (Gerard &amp; Varma, 1998). Existing literature hasdemonstrated that the presence or absence of high performance work systems (HPWS) and othertypes of high investment HRM systems can have a significant effect on employee attitudes,behavior, and firm performance (Guthrie, 2001; Huselid, 1995). The underlying premise ofHPWS is to create an environment that fosters commitment toward the long-term well-being anddevelopment of the organisations employees. Huselid, Jackson and Schuler (1997) defined high performance work systems as "aninternally consistent set of policies and practices that ensure that a firms human capitalcontributes to the achievement of business objectives" (p.171). The underlying principles thatsupport high-performance work systems are: employees shared timely and accurate informationabout business performance, plans and strategies in a rapidly changing environment. The nature 6. 5of competition continues to change, employees knowledge and skills must also change. Theyneed to learn continuously to support the organisations needs. Performance-reward linkagealigns employees intention and behaviors with the needs of the firm helps them engage inactivities that are mutually benefits to themselves and the organisation. Employees will becomemore involved in their work, organisational performance is improved while the quality of worklife is simultaneously increased. The guiding principle of these studies is creating a workingenvironment that supports internal and external alignment leading to higher firm performance. There is increasing evidence that HRM practices, in the form of HPWS, are associated withpositive performance outcomes, and higher financial success (Appelbaum et al, 2000; Kravetz,1988; MacMiffie 1995). Ichniowski et al, (1997) and Berg (1999) studied high performancework systems in the steel industry and found the presence of more innovative systems wasassociated with significantly higher productivity. In manufacturing firms, Appelbaum, et al,(2000) found the use of HPWS was associated with substantially higher stock market value andlabour productivity. Similar results were found in assessing the effectiveness of HPWS initiativein the service sector (Varma et al, 1999). Huselid (1995) found that HPWS resulted in decreasedturnover rate, increasing productivity and improved corporate financial performance usingpublicly held organizations from various industries. Levering &amp; Moskowitz (1993) surveyed 100best companies to work for in America and Lawler et al (1995) surveyed Fortune 1000companies found making use of employee involvement and TQM practices reported significantlyhigher financial success. These effects are most pronounced when such work practices areimplemented together as a system. It pays off to combine the appropriate HRM policies andpractices into an internally coherent system that is directly aligned with business initiative tocreate value. 7. 6 Despite the growing evidence that HR practices affect firm performance, the existingliterature is far from being conclusive about what explains the existence of high performancework systems. Cappelli and Neumark (2001) found statistically weak evidence that thesepractices enhance productivity. The adoption of HPWS had little effect on overall labourefficiency (output per dollar spent on labour). The discrepancy may lie in what constitute the bestHR practices in HPWS. After an extensive review of existing literature in this area, notable differences existacross studies on what constitutes best practices because the studies used different measures.Not only did the different empirical studies use different measures of best practices, but they alsoshowed inconsistent effects from individual practices included in the set. Even though there isno universal agreement about which practices or combination of relevant practices constitute ahigh performance workplace, some common principles were mentioned in many of the studies.The typical features of HPWS include selective staffing procedures, extensive training toenhance workforce skills, generous pay and benefits to attract better qualified workers, togetherwith greater use of employee participation.HR Practices Alignment and Organizational Performance Organisations can adopt various HRM practices to enhance productivity. Currently thereis a growing acceptance of the idea that a bundle of appropriate HRM practices is needed torealize the synergistic effects--that HR practices need to be applied as a set of complementarypractices aligned with the firms goals and strategies before they are effective. This systemsperspective is based on the notion that HR practices often complement each other, so that theadoption of a particular practice is only effective when it is adopted in combination with other 8. 7supporting practices. Bundles of interrelated and internally consistent HR practices, rather thanindividual practices, create a synergistic package, mutually reinforcing conditions that supportemployee motivation and skill acquisition. Based on existing literature, the effects of differentHR practices are additive. The strengths and weaknesses of using an additive approach whencreating a HPWS unitary index see Becker and Huselid (1998) and Delery (1998). A systems perspective supports coherent and integrated bundles of HRM leads toincreased organisational performance (MacDuffie, 1995; Ichniowski et al, 1997).. Selectiverecruitment and staffing procedures together with rigorous training enhance workforce skills,while higher base pay and benefits attract better-qualified workers. Performance-based pay, jobsecurity, and information sharing are expected to enhance employee motivation. Recognizingthe contribution that employees make, as well as soliciting employee input and encouragingemployees to participate in decision, are expected to enhance employee involvement. Specificpractices such as training, performance-based pay systems, and employee involvement arecorrelated with higher productivity (Youndt, et al., 1996). Individual HRM practices will notyield their full benefits unless they are combined together with the appropriate complementarypractices, in coherent packages. It is necessary to bundle together the appropriate combinationsof HRM practices to realize the synergistic effects. It follows that HPWS framework promotesvertical (external fit with business strategy and attainment of organisational goals) and horizontal(internal fit of HR practices) linkage (alignment). Thus, the internal HR practices alignment isproposed to enhance organisational performance. DATA AND METHODResearch setting 9. 8China was chosen as an appropriate research setting for its high growth rate in the retail sector.China has experienced a rapid economic growth. During the last two decades, its GNP increasedmore than six-fold. Even facing with the Asian financial crisis, it was able to sustain animpressive growth rate of over 7%. Service sector accounted for 32.9% of GDP in 1999 in China,arising from merely 21.4% a decade ago. Guangzhou has a population of 6.7 million, having thehighest income consumers in China. Consumption expenditure in urban cities increased 4 timesfrom 1992 to 2000. Shopping habits of the Chinese consumers are changing. They prefer toshop in chain stores, supermarkets and convenience stores. There were 50 chains (37 in retailingand 13 in catering) and 1134 outlets employing 39068 persons and total sale revenues of 10931million yuan in 2002. A total of 133 supermarket outlets and 522 specialty stores were operatingin Guangdong by the end of 2002. Number of outlets per 10,000 persons was 225 (GuangzhouStatistical Year book 2003, p.546). Chain stores are gaining popular for the purpose of achievingthe advantage of economy of scales in terms of distribution, warehousing, training andmanagement. The present study examines the human resource practices in this fast growingsector in southern China. This research employs a triangulation method of inquiry. In-depth face-to-face interviewsprovide richer and deeper insights, and fuller contextual information. These interviews offer...</p>