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This article was downloaded by: [141.214.17.222]On: 25 October 2014, At: 19:41Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House,37-41 Mortimer Street, London W1T 3JH, UK
The International Journal of Human ResourceManagementPublication details, including instructions for authors and subscription information:http://www.tandfonline.com/loi/rijh20
Human resource strategy and firm performance inPacific Rim countriesJohngseok Bae , Shyh-jer Chen , Tai Wai David Wan , John J. Lawler & Fred OchiengWalumbwaPublished online: 17 Feb 2007.
To cite this article: Johngseok Bae , Shyh-jer Chen , Tai Wai David Wan , John J. Lawler & Fred Ochieng Walumbwa (2003)Human resource strategy and firm performance in Pacific Rim countries, The International Journal of Human ResourceManagement, 14:8, 1308-1332, DOI: 10.1080/0958519032000145774
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Human resource strategy and firmperformance in Pacific Rim countries
Johngseok Bae, Shyh-jer Chen, Tai Wai David Wan, John J. Lawlerand Fred Ochieng Walumbwa
Abstract This paper examines the impact of high-performance work system (HPWS)techniques on organizational performance in four East and Southeast Asian economies thathave been at the forefront of Asia’s rapid development. All now face considerablecompetitive pressures from newer emerging markets (e.g. China, India, Vietnam, EasternEurope) and thus experience many of the same sources of uncertainty from globalizationas more economically developed countries, especially in the period following the 1997Asian financial crisis. Many companies in Korea, Taiwan, Singapore and Thailandare experimenting with features of American-style high-performance work systems.We collected data from nearly 700 companies in the region, both subsidiaries of MNCs(American, Japanese and European) and locally owned firms. Statistical techniques wereused to measure the effects of HPWS techniques on perceived financial performance.In general, the results indicated HPWSs worked effectively, even under tremendouslyvariable conditions. Most interesting is the finding that use of HPWS techniques in locallyowned firms apparently has at least a marginally greater impact on firm performance thanwhen used in MNC subsidiaries.
Keywords HR strategy; high performance; work system; firm performance; Asiancountries; multinational corporations; globalization.
The past decade has seen extensive research centring on the role ‘high-involvement’or ‘high-performance’ work systems may play in influencing organizationaleffectiveness. The high-performance work system (HPWS) is typically characterizedby significant delegation of authority to lower-level employees (‘empowerment’),extensive training and development of these employees, reliance on pay-for-performance(significant contingent or ‘at risk’ pay), broadly defined job responsibilities and employeeparticipation in non-work aspects of organizational decision making. Firms may varywith regard to the degree to which these approaches are utilized and the levelof HPWS penetration (i.e. the proportion of employees working under such systems),but the empirical evidence indicates increasing adoption of HPWS techniques byAmerican firms (Lawler et al., 1998). Extensive empirical work also suggests HPWSeffectiveness in influencing firm performance.
The International Journal of Human Resource Management
ISSN 0958-5192 print/ISSN 1466-4399 online q 2003 Taylor & Francis Ltd
http://www.tandf.co.uk/journals
DOI: 10.1080/0958519032000145774
Johngseok Bae, Korea University Business School, Seoul, Korea (e-mail: [email protected]).
Shyh-jer Chen, National Sun Yat-Sen University, Kaohsiung, Taiwan (e-mail:
[email protected]); Tai Wai David Wan, National University of Singapore, Singapore
(e-mail: [email protected]); John J. Lawler, University of Illinois at Urbana-Champaign,
Champaign, IL, USA (e-mail: [email protected]); Fred Ochieng Walumbwa, University of
Nebraska (e-mail: [email protected]).
Int. J. of Human Resource Management 14:8 December 2003 1308–1332
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Most of the empirical work assessing the relationship between HPWS utilizationand firm performance has taken place in firms operating in the US. Although rootedin management approaches developed in such diverse locations as Japan andScandinavia, HPWS types that have evolved in the US seemingly reflect theorganizational and cultural imperatives of American society (Appelbaum and Batt, 1993).This paper explores the transferability of the US-style HPWS to other cultural settings,specifically East and Southeast Asia. The specific countries studied here are Korea,Taiwan, Thailand and Singapore.
We believe our line of research is timely and important for several reasons. Therehas been limited research on HPWS impact in Asia. However, American firms haveinvested extensively in the region. These companies have transferred some HPWSpractices to Asian operations; European and Japanese multinational corporations(MNCs), as well as indigenous firms, have also adopted HPWS practices within Asia(Bae et al., 1998). So there is a need to assess the effectiveness of these techniques.Moreover, Asian cultures often differ in many fundamental ways from Americanculture, so it is not at all apparent that HPWS approaches will have the desiredimpact in Asian countries. Findings regarding the HPWS impact on firmeffectiveness have implications not only for management, but also for governmentsand economic planners in the region, as the human resource (HR) strategies pursuedby local and foreign companies operating in these companies may haveimportant implications for economic development. Finally, to the best of ourknowledge there have been no previous multi-country comparative studies of HPWSeffects. By applying similar methods across several different countries, we are in aposition to assess cross-national differences, if any, in the responsiveness of firmperformance to HR strategy.
This paper represents an analysis of the HR strategy–organizational effectivenessrelationship using the four countries in our dataset. Of particular concern isHPWS use among lower-level (i.e. non-managerial and non-professional) workers,where the HR practices linked to the HPWS diverge most prominently from thoseof traditional HR systems. Our work focuses on the following principal researchquestions:
. Given potential cultural incompatibilities, to what extent do HPWS practices in Eastand Southeast Asian economies improve organizational performance?
. Do similarities or differences in the HPWS impact on firm performance vary betweenthe case of indigenous firms and the case of subsidiaries of MNCs?
High performance work systems and firm performance: prior research
HPWS research, mostly contained within the strategic human resource management(SHRM) literature, is extensively reviewed in many places (e.g. Arthur, 1994;Bamberger and Meshoulam, 2000; Delery and Doty, 1996; Huselid, 1995). Given spacelimitations and the general familiarity most readers will have with this literature,we provide only a general overview.
One major issue in the SHRM field concerns whether HR practices independentlyaffect organizational outcomes or, alternatively, need to be embedded in a broaderand internally consistent configuration of such practices (Delery and Doty, 1996).Research by several authors seems to demonstrate that ‘internal fit’ or consistencyamong HR practices is necessary to achieve the optimal impact of such practices
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on organizational outcomes such as firm performance (Arthur, 1992; Huselid, 1995;Ichniowski et al., 1997; MacDuffie, 1995). Although not all studies find support forthe configurational or ‘bundles’ perspective (e.g. Delery and Doty, 1996), thepreponderance of evidence seems to favour this position.
A second major issue concerns whether HPWS practices are universally superior tomore traditional, bureaucratic practices or if, rather, the employment system should becontingent upon organizational strategy or other contextual conditions. The universalistperspective takes a ‘best practices’ perspective (Huselid, 1995), the central argumentbeing that the contemporary environment confronting most organizations is turbulentand uncertain, a consequence of factors such as a highly competitive, globalizedmarketplace and rapidly changing technologies that make the contributions of motivatedand empowered employees at all levels of the firm critical to its ability to cope withenvironmental hostility. Much empirical evidence has been assembled in support of thisviewpoint, demonstrating that firms that utilize HPWS approaches have higher levels oforganizational effectiveness than those that do not (Arthur, 1994; Delaney and Huselid,1996; Huselid, 1995; MacDuffie, 1995).
In contrast, the contingency perspective argues that it is important that there be anappropriate fit between HR strategy and the external environment in which theorganization operates. The absence of external fit would lead, in the contingencyperspective, to sub-optimal performance. Thus the HPWS is typically seen as morecompatible with organizational strategies that emphasize quality and productdifferentiation, while more traditional HR strategies based on centralized control areseen to be as or more compatible with organizational strategies that emphasize costcontrol and competition based primarily on price (Youndt et al., 1996). Youndt et al.(1996) provide empirical support for the contingency perspective. However, severalother studies have not found empirical support for such a relationship (e.g. Deleryand Doty, 1996). Wright and Snell (1998) have proposed a theoretical argumentsuggesting that these two points of view are not necessarily contradictory and that firmscan design systems that promote flexibility and simultaneously attain some level ofHR strategy–organizational strategy fit.
Although most of the research concerning the HR strategy–organizationaleffectiveness relationship has taken place in the US, there is a growing body of literatureexamining this relationship in other parts of the world. Lahteenmaki et al. (1998) study thestrategy–performance link in a large sample of companies in Finland. They come down onthe side of the contingency perspective, arguing that fit between HR strategy and economicconditions are critical in determining organizational effectiveness. As we describebelow, there are several potential cultural barriers to HPWS implementation in manyAsian countries. Yet at least some research indicates that American-style HPWSemployment practices can, in fact, be quite effective in firms operating in Korea (Bae andLawler, 2000; Lee and Johnson, 1998), India (Sivasubramaniam and Venkata Ratnam,1998), Japan (Morishima, 1998), and Taiwan (Uen, 1997). Our purpose is to extend thiswork on Asia through a multi-country study.
Strategic human resource management in the Asian context
The four Asian countries included in this study have enjoyed substantial economicgrowth over much of the past twenty or more years. Korea, Taiwan and Singapore areall categorized as ‘newly industrialized economies’ (NIEs), with levels ofeconomic development approaching or equalling many Western European countries.Thailand, which began its economic take-off more recently, enjoyed one of the highest
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economic growth rates in the world in the early 1990s, though suffered significantly(along with Korea) during the 1997 Asian financial crisis.
Environmental conditions
The economies we study all shared certain common characteristics at the point ofeconomic take-off. Each had a literate and disciplined labour force, relatively lowwages, reasonable political stability, openness to foreign investment and agovernment that vigorously pursued export-oriented economic policies. While suchconditions may have been the formula for success initially, the long term was anothermatter. The pressures of globalization have impacted on each, just as in the case ofJapan and the industrialized countries of Europe and North America. The competitivepressures engendered by globalization promote turbulence and uncertainty and newlyemerging economies offer lower wages and present significant and rapidly changingcompetitive challenges. There is a need to increase productivity and enter into newer,generally more sophisticated and technologically advanced markets, as competing inthe product markets that brought initial success is no longer viable. In particular, allfour countries in this study now experience significant competitive pressures fromChina, which has evolved into the dominant economy in the region in terms of itsability to attract foreign investment, as well as emerging regional economies such asVietnam.
Prior to the 1997 Asian financial crisis, much of the thinking in Asia revolved aroundthe role ‘Asian values’ could play in sustaining continual economic growth and theavoidance of recession and the vacillations of the business cycle (much as proponents ofthe ‘new economy’ thought high technology had similarly altered the Americaneconomy). Asian values embody the predominant characteristics of collectivist cultures(Triandis, 1995), including the subordination of self-interest to the interests of the group,pervasive reliance on social networks, harmonious relationships, respect for authorityand the avoidance of dishonourable behaviour or incompetent action leading tohumiliation and loss of face. These values, of course, are rooted in Confucianism, whichhas been a pervasive force in the region. The governments of Korea, Taiwan andSingapore all promote Confucianism as a national philosophy and Confucian principlespermeate their educational systems. Thailand is officially Buddhist and the majority ofThais are not ethnically Chinese. Thus Confucianism is not per se an element of itsnational philosophy. However, Thai values closely parallel those of Confucian societies.Moreover, most major Thai companies are owned or controlled by Thai-Chinese families(as is the case throughout Southeast Asia), so Confucian values nonetheless influencebusiness practices in Thailand.
The view, then, frequently espoused by Asian business and political leaders was thatan unremitting pursuit of self-interest at the expense of the group and broader society,seen to be characteristic of Western cultures, created distrust and instability in businessrelationships and the economy. In contrast, Asian organizations, hierarchical butpaternalistic and interlinked through networks of reciprocal obligations and personalloyalties (guanxi in Chinese) (Hamilton, 1996), could sustain high levels of economicperformance over very long periods.
This perspective was shaken, however, by the events that began to unfold in thesummer of 1997. The Thai economy was devastated through a rapid devaluation of itscurrency after central bankers, working feverishly to forestall speculative attacks on theThai baht, nearly exhausted the country’s foreign exchange reserves. Much of this wasbrought on by numerous poorly conceived investment projects, excessive foreign debt,
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the rapid exodus of foreign capital and the outright theft of funds from banks andfinancial institutions by officers and influential investors. Korea also experienced asevere downturn and, like Thailand, required IMF loans. Taiwan and Singapore, withmuch less external debt and large foreign exchange reserves, were impacted upon, butnot so severely, by the 1997 crisis.
The 1997 events generated reproach from many Western critics of Asian businesspractices and the behaviours associated with ‘Asian values’ (Krugman, 1994).The ‘bamboo network’ of interlinked business interests came to be disparaged as‘crony capitalism’ and guanxi as just another form of bribery and extortion. The financialcrisis was viewed as an inevitable day of reckoning. That the financial crisis did notlead to a full ‘meltdown’ of the Asian economy was attributed primarily to the strengthof the American economy, firmly and wisely guided under the watchful eye of AlanGreenspan.
Although there are certainly elements of truth here, the critics of the Asian valuesperspective are seemingly as extreme and, in the end, largely as wrong-headed as its moststrident proponents. Although most of the region recovered much more rapidly thananticipated from the 1997 financial crisis, the recovery was viewed with caution in muchof Asia, where there was considerable fear of a ‘second shock’. Indeed, that occurred in2001 with the weakening global economy, particularly after the September 11 bombings.But there are structural, as well as cyclical, factors influencing long-term economicperformance in these Pacific Rim countries, most notably the emergence of China as adominant economic force in the region. Much of the export business and foreigninvestment that once went to Korea, Taiwan, Singapore and the emerging SoutheastAsian economies now flows to China. In the long term, these economies mustdevise new sources of competitive advantage, as they will not be able to compete withemerging economies on the basis of labour costs. More innovative firms marketinghigher value-added products and services will be critical to long-term economicsuccess in the region. Thus, traditional business practices and management systemsneed to change in the face of these new competitive challenges confrontingthe Pacific Rim countries. One area in which this will be especially significant willbe HRM.
Organizational characteristics
Many of the changes under way in Asia involve restructuring national political andeconomic systems. At the more micro-level, the process of management is also underscrutiny and considerable change appears to be taking place, at least in some quarters.Long before 1997, there had been considerable movement towards professionalization ofmanagement throughout Asia, including the HRM field. The increased presence ofMNCs, particularly Western-based companies, has promoted the diffusion of Westernmanagement techniques, including HRM practices, to indigenous firm. The threatsto national competitiveness brought about by globalization have further led to arealization that conventional Asian management techniques are no longer fully adequate,especially in firms heavily involved in international trade. The 1997 financial crisisonly exacerbated such concerns within the region. Aside from Japanese approaches,Asian management systems are traditionally based on limited delegation of decisionmaking, so that organizations often tend to lack the flexibility to respond rapidly tounforeseen environmental change. It is in this way, of course, that HPWS techniques arepotentially useful in Asia.
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Unfortunately, there are also significant potential cultural conflicts between theAmerican-style HPWS and traditional Asian values. As an example, Kirkmanand Shapiro (1997) discussed cultural factors that might impact on the effectiveness ofself-managed teams, often a central HPWS feature. Applying Kirkman and Shapiro’sframework, the collectivist nature of Asian cultures would certainly increasethe receptivity of workers in the region to the team aspect of the HPWS. However, theself-management aspect is another issue. The hierarchical nature of Asian cultures, inwhich those of lower status often tend naturally to defer to those of higher status, andin which higher-status individuals expect such deference, would seem to militate againstthe effectiveness of these types of systems. Managers are apt to be disinclined to sharepower and subordinates may be disinclined to accept it.
Harmonious relationships are another cornerstone of East and Southeast Asianculture. But the American-style HPWS requires a readiness for innovation and change,factors that might well promote significant degrees of short-term conflict at least.Thus workers might be quite uncomfortable with systems that require team members toraise questions about the wisdom of each other’s proposals for solving a problem, whichcreates the possibility of loss of face for someone. Although group problem solving haslong been a part of Japanese employment systems, Morishima (1998) notes importantdifferences between Japanese participative systems, which he argues are best suited tocreating ‘incremental knowledge’, and the American-style HPWSs, which he arguesare designed to promote ‘innovative knowledge’. In addition, reaching consensus,fundamental in the Japanese system, is not central to the American-style HPWS.
Finally, Kirkman and Shapiro (1997) argue that those from cultures with a strongsense of external versus internal control will have greater difficulty in accepting andworking within a self-management system. External control implies the belief that one’sactions have little impact on the environment, that nature controls man, not the other wayaround. Traditional Asian societies are often highly fatalistic, as reflected in thesignificant role played in everyday life by practices such as fortune telling, astrology,face reading,1 fung-shui,2 numerology and related techniques in these cultures. This thenprovides another reason we might doubt, on theoretical grounds at any rate, the viabilityof the American-style HPWS in Asia.
Country contexts
Before we can develop hypotheses about the workability of the American-style HPWSacross these four economies, we need to examine, in each case, current market forces,typical HRM practices and changes in management style that may be under way.In addition, we need to recognize the general statements regarding Asian culture madeabove ignore within-country cultural variability. Thus, as Cavusgil and Das (1997) pointout, societies are not monolithic: an understanding of national culture requires anappreciation of sources of cultural diversity within the country, especially here as thesemight affect openness or resistance to HPWS implementation. We shall thereforealso discuss sources of cultural diversity as relevant to this issue for each of thesesocieties.
Korea The dominant form of business organization in Korea is the chaebol, generallya family-controlled conglomerate of interlinked firms often held together through atrading company (Chen, 1995). Even before the 1997 Asian financial crisis, the Koreangovernment, worried about waning national competitiveness in the face of globalization,began pressing for industrial reorganization and reform in the chaebols, as well as for
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a means of enhancing the competitiveness of small and medium-sized enterprises(SMEs). In fact, segyewha, the Korean word for globalization, came to be used todesignate the government’s reform policies (Ungson et al., 1997). The 1997 financialcrisis devastated the economy. GDP growth rates fell, respectively, from 8.9 per cent, 6.8per cent and 5 per cent during 1995–7 to 26.7 per cent in 1998. Real wage increase ratesduring the same period fell respectively from 6.4 per cent, 6.6 per cent and 2.5 per cent to29.3 per cent. Unemployment rates, which had remained under 3 per cent from 1990 to1997, jumped to 6.8 per cent in 1998. Given these economic conditions, the governmenttook even bolder steps to restructure the chaebols by forcing divestiture of unproductiveoperations and moving these companies in the direction of more streamlined, efficientand flexible organizations. Various labour law reforms were also introduced, allowingfirms greater latitude in lay-offs for economic reasons. The changes have not always beenappreciated by labour unions, generating numerous, sometimes violent, confrontations.The economy has improved in recent years, though there is continuing concern anduncertainty regarding Korea’s competitiveness in the global economy. Hence, despiteresistance in many quarters, the government continues to press for reforms in corporatemanagement and governance.
Chaebols have typically been managed in a paternal fashion and centrally controlledby the founder or his heirs. In contrast to Japanese keiretsu, chaebols have tended to bequite bureaucratic and heavily rooted in the traditions of Korea’s strongly Confucianculture (Bae, 1997); the more participative management style typical in Japanesecompanies is generally lacking. Chaebols also have traditionally employed extensive andsophisticated recruitment and screening techniques in the case of white-collar workers,but often use only personal referrals to recruit blue-collar workers (Koch et al., 1995).Training is strongly emphasized and compensation has normally been linked primarily toseniority. Though lay-offs and terminations occurred, firms often sought to avoid these,as least for male employees of prime age.
While the traditional bureaucratic management and employment systems of thechaebols promoted Korean competitiveness initially, it was apparent even before the 1997crisis that globalization necessitated more flexible and responsive organizations.Complementing these societal and organization-wide changes were shifts in internalemployment practices by many companies to encourage higher levels of employeeperformance and employment flexibility. Therefore, two radically changed, fundamentaldimensions of Korean HRM systems are: 1) evaluation and remuneration, which havemoved from seniority-based to performance and competence-based; and 2) employmentflexibility, which has changed from long-term attachment and high job security towardsnumerical flexibility (Bae and Rowley, 2001). What Koreans call the ‘new humanresource management’ (NHRM) approaches involve greater reliance on teams, employeeempowerment, linking staffing decisions more directly to an employee’s ability andpotential (rather than personal connections) and performance-based evaluation and pay,and staffing (Bae, 1997), thus incorporating many features of HPWSs.
Korea is ethnically the most homogeneous of the four countries studied here, withover 99 per cent of the population being ethnic Koreans. There is considerable diversitywith regard to religion, with the country roughly split between Buddhists and Christians,though Christianity is dominant in urban areas and among the more educated. However,religion does not seem to be a divisive force within Korean society, as Confucianprinciples, promoted by through governmental policies, have been a dominant influenceon values regardless of religion. Of the four countries studied, Korea would have thelowest proportion of women in the labour force, so gender diversity in the workplaceis also relatively limited. There would, however, seem to be a growing generation gap.
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As the Korean economy has advanced, elements of individualism increasinglyintermingle with traditional Confucian values, especially among younger workers(Bae, 1997). However, this change would tend to favour many of the elements integral tothe HPWS. Another diversity issue, with perhaps the opposite impact, is linked to class.Korea has one of the strongest, and certainly most militant, labour movements in Asia.As noted above, the unions have often vigorously opposed changes associatedwith NHRM and related managerial initiatives and changes in Korean law that allowedlay-offs for economic reasons resulted in heated confrontation.
Taiwan In contrast to Korea, Taiwanese companies tend to be SMEs, as is very typicalof privately owned Chinese firms throughout the region (Chen, 1995). Taiwan wasaffected by the 1997 financial crisis, but not nearly as severely as many other parts of Eastand Southeast Asia. In fact, in the period immediately following the financial crisis,Taiwan became something of a model for other economies in the region as to how toavoid the consequences of such an event. Taiwan’s ability to withstand the forcesunleashed in 1997 has often been attributed to several factors, including huge foreigncurrency reserves, relatively strong commercial law (e.g. much tougher bankruptcy lawsthan in many neighbouring countries, thus forcing poorly performing companies out ofbusiness) and the flexibility of SMEs to respond quickly to challenging economicconditions.
Despite the hostility that exists politically between Taiwan and mainlandChina, economic relations are much better. Taiwanese firms have been able to investin China since the 1980s. There has been a huge movement of labour-intensiveoperations to the mainland to take advantage of low wages and a ready supply of lessskilled labour, coupled with the familiarity of Chinese culture. Although relativelyunaffected by the 1997 crisis and enjoying significant growth in the late 1990s, Taiwan’seconomy has been stagnating in recent years, as reflected in lower growth rates andrelatively high unemployment. This is partly because of the global recession and partlybecause of the competitive pressures generated by China (Chen et al., 2003). Otherfactors might include capital flight (particularly as Taiwanese firms have shiftedoperations to, and invested heavily in, China) and the relocation of many of Taiwan’smost able workers to China (where career opportunities are often much better). ThusTaiwan confronts problems similar to Korea: its initial success as an export-orientedeconomy is now challenged by emerging economies. Future growth and success willdepend on enhanced competitiveness, particularly in higher value-added and morecapital-intensive industries.
Taiwanese firms are generally family-owned enterprises with managerial systems that,as with Korea, are rooted in Confucian values (Chen, 1995). SMEs make up the majorityof businesses in Taiwan, with more than 60 per cent of Taiwanese workers in the privatesector employed by companies having fewer than thirty employees. Less than 10 per centof Taiwanese workers are employed by companies with more than 500 employees.Management systems are less formal and bureaucratic than in the traditional Korean case.The sample of firms used in this study (see below) illustrates this difference. There aresome large firms in our Taiwanese sample and, since both the Korean and Taiwanesesamples were randomly drawn from the set of better-known companies, the samplesare skewed toward larger firms. However, while the average number of employees perfirm in indigenously owned Taiwanese companies in our sample was 782, the averagenumber of employees per firm in the indigenous Korean firms in the sample was nearly5200. The largest indigenous Korean firm in our sample had 46,000 employees, while thelargest indigenous Taiwanese firm had only 9200 employees.
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A paternalistic entrepreneur, supported by an entourage of relatives and trustedfriends, has traditionally been at the centre of Taiwanese companies. The entrepreneurexercises extensive control over the day-to-day operations of the firm. In addition, thefinancial structure of the SME is usually rather simple and its owners are reluctant toaccept outside capital because they fear the dilution of ownership and loss of personaldecision-making power. The responsiveness and flexibility of these firms derive from thedirect control of the company head and his or her intimate knowledge of all aspects ofthe firm’s operations, which is made feasible by smaller organizational size. However,Taiwanese SMEs often have a much shorter lifespan than Korean companies and seemto have significant difficulty surviving the transition of control from the foundingentrepreneur to his or her heirs.
Indigenous Taiwanese firms, especially smaller ones, often rely on relatively informalapproaches to HRM (Chen, 1997). Hiring and other aspects of the staffing process aregenerally influenced by interpersonal connections (guanxi). In these types of familyenterprises, owners and managers may put less emphasis on ability than on anemployee’s potential loyalty and attitude towards the company. Evaluation is also linkedto attitudes and personal qualities not necessarily directly related to work performance(but the preservation of intra-organizational harmony and interpersonal relationships areimportant). Training is apt to be limited and viewed as an expense rather than a long-terminvestment. Compensation systems are complex, in part because of labour laws, but payis not normally closely linked to performance, depending instead on the seniority of theemployee’s connections to the owner or other important person.
As a result of the economic and political pressures noted above, Taiwanese industry isshifting more towards high-technology products that local firms can sell competitivelyinternationally. The government has established a high-technology-oriented industrialpark in Hsinchu (near Taipei) and another such project is under way in southern Taiwan.Yet high-technology companies are not so conducive to traditional, Confucian-influenced management techniques. For example, deference to age is an important aspectof Confucianism, but such an approach becomes problematic in organizations in whichcritical technical skills are often concentrated in the hands of some of the very youngestemployees. Uen (1997) demonstrated extensive experimentation with HPWSs inTaiwanese high-tech firms operating in the Hsinchu National Scientific Park near Taipei,where most of Taiwan’s leading high-technology firms have their operations. Huang(2001) has noted a more broadly based trend towards larger organizations and increasingadoption by those firms of strategic HRM systems, though more so in subsidiaries ofWestern MNCs than in locally owned firms or subsidiaries of Japanese MNCs. This hasinvolved adoption of many HPWS techniques, including increased training and pay forperformance.
Taiwan is somewhat more ethnically diverse than Korea. Most Taiwanese areethnically Chinese, though there is often a distinction made between those who have theirorigins in the mainland (and have come to Taiwan since the 1949 communist revolution)and those whose families have lived long in Taiwan. This distinction is very important inthe political arena, but probably has little impact on workplace relations. There is asignificant aboriginal community (i.e. Pacific Islanders) in Taiwan, though this group iseconomically disadvantaged and most aboriginal people live in more rural areas and arenot extensively employed in major industries. However, efforts to integrate theaboriginal community and improve its economic opportunity may generate culturaldiversity issues in the future. As a more traditional and less educated people, one wouldspeculate aboriginals would be less accepting of HPWS techniques. The same would holdfor the significant numbers of guest workers, mainly from Southeast Asia, who work on
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contract in Taiwan (Chen et al., 2003). These workers are a more important source ofdiversity in the workplace than the aboriginals and also often hold more traditionalvalues. The presence of the guest workers has become more of a source of tension inrecent years, particularly with the recession, as native Taiwanese see the guest workers ascompetitors for their jobs. So implementation of a HPWS in a setting with significantnumbers of foreign guest workers might be quite difficult. There is a higher proportion ofwomen in the Taiwanese labour force than in Korea, although there has beenconsiderable overt discrimination against women, particularly with regard to managerialand other higher-level jobs. Taiwan has recently passed a law prohibiting sexdiscrimination in employment, so employment opportunities for women are apt toexpand. This might result in workplace tensions in some industries that couldinhibit HPWS implementation. Finally, many of the same cultural changes noted inKorea are occurring in Taiwan, particularly the emergence of a younger generation whoare more individualistic, less deferential to authority, and generally less devoted totraditional values than their parents. Moreover, a very large proportion of Taiwan’seducated elite has studied overseas, mostly in the US. Many have also worked there.This has had a significant impact on the mindset of professional managers that, asHuang (2001) noted, makes many companies more open to SHRM efforts and HPWStechniques.
Singapore Singapore has a long history of government involvement in economicplanning. This has expressed itself in efforts to increase the population’s educationalattainment and encourage investment in high value-added and more capital-intensivebusiness activities. National industrial policy has long been co-ordinated by Singapore’sEconomic Development Board, which has sought in many ways to emulate Japan’sMinistry of International Trade and Industry (MITI). This has clearly influenced HRM,both by the types of foreign companies encouraged to invest in Singapore(thus facilitating diffusion of management techniques) and by the development pathsthat economic planners have encouraged for local firms.
Although Singapore did not suffer as greatly from the effects of the 1997 financialcrisis as many of its much larger neighbours (especially Indonesia, Malaysia andThailand), the crisis did create concern for the island’s vulnerability should the regionexperience economic collapse. The resulting economic plan put even greater emphasison upgrading workforce skills and moving Singapore in the direction of high-technologyactivity. However, despite such initiatives, Singapore has faced greater economicdifficulties in the post-2000 period, including an ongoing recession linked to declines inthe American economy and the same global competitive pressures affecting Taiwanand Korea.
Locally owned firms are typically Chinese-owned SMEs that are similar in manyrespects to Taiwanese firms. As such, the management systems of these enterpriseshave traditionally been dominated by strong entrepreneurs who made most of thedecisions and expected the others to follow. This is also reflective of the emphasisSingapore’s political leaders have placed on Confucianism as a national ideology.However, the more developed and larger-sized family enterprises tend to employmore professional staff. With many MNCs operating in the country, it is notuncommon to find local companies importing Western management conceptsand practices to a certain degree, again especially among the larger local firms.Also, the rapid growth of the private sector since the early 1990s witnessed morelocal firms becoming public companies and listed on the Singapore Stock Exchange.This has led to greater managerial professionalism in response to shareholder
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demands for performance and accountability. Interestingly, Singapore requires by lawthat virtually all undergraduates, regardless of major field, take at least one course inhuman resource management. This has led to broad awareness of newer and moresophisticated HRM policies and strategies.
The 1997 financial crisis prompted a typical flurry of activity within governmentalquarters to insulate Singapore from the competitive threats posed by changing economicpressures. In the HRM area, the Manpower 21 Steering committee was tasked in 1998 toco-ordinate and develop a blueprint for national human resource planning that came to becalled ‘Manpower 21’. The Manpower 21 vision is for the country to be a ‘TalentCapital’, a centre of ideas, innovation, knowledge and exchange. Six core strategies wereformulated to address critical aspects of the ‘manpower value chain’. They coveredintegrated human resource planning, lifelong learning for lifelong employability,augmenting the country’s talent pool, transforming the work environment, developing avibrant manpower industry and redefining partnerships among the key players andinstitutions (Singapore Ministry of Manpower, 1999).
Although by far the smallest country in our sample, Singapore is also clearly the mostethnically diverse, evident in the fact that Singapore has four official languages. EthnicChinese constitute 77 per cent of the population and Chinese culture thus permeates mostaspects of Singaporean life. As with Korea and Taiwan, the government promotesConfucianism as a national ideology. Yet 14 per cent of the population is Malay, withsignificant numbers of Indians and Europeans as well. Thus there are distinct culturalinfluences that might inhibit the effectiveness of efforts at HPWS implementation. Ethnicdiversity also gives rise to religious diversity, with Buddhism, Islam and Hinduism beingthe most common forms. As these religions are quite distinct, this serves to reinforcecultural diversity. Women participate extensively in the Singaporean economy andseemingly enjoy considerable employment opportunity at all levels.
Despite the country’s conservative reputation, Singaporean culture has seeminglybeen undergoing significant changes not unlike those in Korea and Taiwan. Hofstede(1980) found that the national culture of Singapore was high on power distance, low onuncertainty avoidance, collectivist and displayed neither prominent masculine norfeminine features. However, in a much more recent survey of Singaporean workers usingHofstede’s items, Chew (2000) found Singaporeans were now much lower in powerdistance, but higher in uncertainty avoidance. The former change would, according to theKirkman and Shapiro (1997) framework, increase the receptivity of these workers toHPWS techniques. However, greater uncertainty avoidance would lead to greater riskavoidance, which is not necessarily a desirable attribute for an employee working underan HPWS. These cultural changes linked to economic growth might also moderate theimpact of some of the other sources of cultural diversity in Singapore.
Thailand Thailand is the least economically developed of the four economies in thisstudy. There are huge differences in the level of development between the Bangkokmetropolitan area and most of the rest of Thailand. Bangkok enjoys a level ofdevelopment comparable to Singapore, yet Thailand as a whole is a surplus laboureconomy with extensive poverty in many parts of the country. Although Thailand has hada succession of ‘five-year plans’ to address economic development needs and a Board ofInvestment to help direct the process, much of the very substantial growth that has takenplace has been fairly chaotic and not well integrated. Over-investment, particularly inreal estate, led in large part to the economic crash of 1997. The country’s ability torespond to the demands of globalization is also limited by a poorly developed humanresource base. Although Thailand enjoys a high literacy rate and most people have some
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level of formal education, a significant majority of Thais have completed at most only
elementary school. Even today, only 40 per cent of those in the secondary school age
range actually attend school. Thai educational attainment is much lower than that of even
some significantly less developed economies in the region (e.g. Vietnam, Indonesia).
Though devastated by the 1997 financial crisis–which had its origins in Thailand–
Thailand has been experiencing a slow but steady economic recovery beginning in 2001.
Nonetheless, there is still considerable unemployment and continuing economic distress
(Lawler and Atmiyanandana, 2003).Most private-sector Thai-owned companies are controlled by families of Chinese
ancestry. Thus, the traditional Chinese family enterprise model seen in Taiwan and
Singapore is common. However, larger companies, especially those with significant
external investors (e.g. companies traded on the Stock Exchange of Thailand) have
adopted more in the way of Western-style management and HRM policies (Lawler et al.,
1997; Lawler and Atmiyanandana, 2003). However, many of the larger, more successful
organizations tend to be patterned in ways similar to the Korean chaebols and are thus a
complex of interrelated companies.The less educated Thai labour force has meant that the strategies Korea, Taiwan and
Singapore have employed in response to globalization (i.e. movement towards less
labour-intensive and more sophisticated technologies) are not so readily available
to Thailand. An HPWS generally requires both the delegation of meaningful authority to
lower-level employees and the equipping of those employees with necessary skills to act
autonomously (Liden and Tewskbury, 1995). So efforts to increase flexibility in Thai
organizations through HPWS implementation could be expected to be thwarted by
educational deficiencies and the prevalence of traditional Asian cultural values, such as
high-power distance, fatalism and a strong preference for harmonious social
relationships. In fact, much of Thailand’s post-1997 recovery has been driven by
a depreciated currency that has lowered the prices of Thai products on the world
market and not by increased productivity. Yet there are clear examples of situations
in which companies have successfully implemented HPWS-like employment
practices, even in the case of lower-level workers with limited education (Lawler and
Atmiyanandana, 2000).Although Thai culture has certainly been influenced by the rapid growth experienced
in the 1980s and 1990s, Thailand remains a reservoir of more traditional values,
especially among the rural people that are often drawn into the industrial workforce.
Thailand is not fundamentally a Confucian culture (though Confucian values have
influence through the Chinese business community), as the dominant religion
is Theravada Buddhism, an older and more traditional form of Buddhism
than the Mahayana Buddhism of Taiwan, Korea and Singapore. Connections
to Indian culture mean that Hindu beliefs still have an influence within Thailand. Thus
class distinctions are often quite pronounced and rooted in ascriptive criteria. This is not
to say Thailand has anything like a caste system, but more of an English-style class
system (supported by the continuing existence of a monarchy and royal titles). Class lines
can be crossed, but not without difficulty. The society, then, is collectivist
and hierarchical, characteristics very much reflected in Thai approaches to management.
The quintessential Thai manager is paternalistic, combining both authoritarian
and more benevolent styles of leadership (Atmiyanandana and Lawler, 2001).
Authority relationships are very important in Thai society, including those in
the workplace.
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Hypotheses
The preceding discussion suggests several hypotheses. The pressures of globalizationcreate significant levels of environmental turbulence for firms in all four countries, soorganizational flexibility and adaptability are desirable states. Traditional Asian culturalcharacteristics would presumably militate against effective HPWS implementation.However, cultural change in the direction of more individualist and less hierarchicalvalues and some economic environmental changes demanding learning andorganizational capabilities mean these societies are potentially more receptive toHPWS techniques, as also indicated in the empirical work cited above. Therefore,we posit:
Hypothesis 1: The degree to which a firm utilizes HPWS techniques will bepositively related to organizational performance across all thecountries in our sample.
The country contexts we have identified above suggest that HPWS receptivity mightvary across these countries. Our discussion of the characteristics of Korea, Singapore andTaiwan suggest that HPWS techniques are apt to have generally similar effects onorganizational performance in each country. All three have rather advanced economicsystems and sophisticated and educated work forces; cultural change in the directionof greater individualism is also evident in all three places. Governments have beenactively promoting change, especially in Korea and Singapore. So the environmentsof these three economies should be similarly conducive to the effective HPWSimplementation.
Hypothesis 2: The degree to which a firm utilizes HPWS techniques will besimilarly related to organizational performance in Taiwan, Singaporeand Korea.
In contrast to Korea, Singapore and Taiwan, we have identified several aspects of theThai national context that might well limit HPWS effectiveness. This is not to say thatHPWS techniques will not have a positive effect in Thailand, only that the effect is notexpected to be as strong as in the other three locations. Thus, we posit:
Hypothesis 3: The degree to which a firm utilizes HPWS techniques will be lesspositively related to organizational performance in Thailand than inTaiwan, Singapore and Korea.
As a final issue, we should like to speculate as to HPWS impact as a function ofnational origin. Unfortunately, our country sub-samples are not large enough to dowithin-country analyses broken down by the firm’s country-of-origin. To do this,we need to utilize the pooled sample of cases. The high performance work system, asdefined here, is essentially an American development (though certainly rooted inJapanese practices). The experience of American firms in applying HPWS techniquessuggests these companies will most be effective in HPWS implementation. Indigenouscompanies in all four countries are increasingly experimenting with HPWS techniques,but have less experience than American companies. However, indigenous firms are morelikely to understand the cultural idiosyncrasies of workers and thus may be better able toadapt these practices to local conditions. Thus, we posit:
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Hypothesis 4: The degree to which a firm utilizes HPWS techniques will bemore positively related to organizational effectiveness in affiliatesof American MNCs and locally owned firms than in affiliates ofEuropean and Japanese MNCs.
Research methods
The questionnaire developed for this survey assessed the various components of afirm’s HR system, firm size, organizational strategy, firm performance and otherorganizational characteristics (e.g. characteristics of the HRM sub-unit and the firm’sgeographical location). The questions focused on HRM practices with respect only tonon-managerial employees. The questionnaires were administered to individualswith principal responsibility for HRM in a random sample of firms in South Korea,Thailand, Taiwan and Singapore. The sampling frames in each country consisted ofleading business directories, so the companies tended to be larger organizations or atleast organizations with substantial involvement in the global market (throughimport or export activities). The questionnaire was administered in English inSingapore and was translated into Korean, Chinese and Thai for administration in theother locations in the sample. We were able to obtain usable data from a total ofabout 680 firms in all four locations. These were randomly selected fromleading business directories in each country and consisted of both indigenous andforeign-owned companies. Indigenous firms are defined as those wholly ownedby host-country nationals or joint ventures with foreign firms that are controlled byhost-country nationals.
Scales
The dependent variable used in this study is the firm’s perceived financialperformance. We employ a subjective measure of performance derived from a scaledeveloped by Khandwalla (1977). Likert-type items measured perceived financialstrength, profitability, growth rate and market share. The reliability (coefficient alpha)for the scale, composed of four items, is .77. Although objective measures ofperformance, such as return on investment based on accounting data, would seem amore appropriate measure, their use would be problematic here. First, the studyinvolves companies in four different countries with distinct accounting standards, sothere are comparability problems. Second, many companies in Asia are reluctant todisclose financial data, so the necessary information is often not available. Thiscreates a limitation in the analysis, as compared to many American-based studies thatrely on rich archival sources of objective organizational performance data. However,we feel this approach is adequate given the more exploratory nature of this study.Moreover, some leading studies of the HR system-organizational performancerelationship have also relied on perceptual measures of performance (e.g. Delaney andHuselid, 1996).
The principal independent variable in our study is the firm’s HR system. This wasinitially based on four distinct sub-scales (HR flow, work system, reward system andemployee upward influence) as described by Bae et al. (1998). Various Likert-style itemswere used to measure HRM practices argued to reflect these underlying dimensions.In some instances, questions developed by other researchers were used, while other itemswere developed by the authors. Firms that are high on the HR flow subscale utilizeextensive selection and training procedures and have relatively high job security.
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The scale is composed of six items with a reliability (alpha coefficient) of .71. The worksystems subscale covers job design and control types. Firms at the upper end of this scaletend to use broadly defined jobs with enriched designs, team-based work organizationand employee autonomy. Narrowly defined jobs and a greater presence of rules andformal controls characterize firms at the lower end of the scale (four items and alphaof .68). The reward system subscale reflects the degree of the linkage of performanceand pay level and the presence of employee ownership programmes. Firms at thehigh end of the scale emphasize pay for performance, gain sharing and/or profit sharing(six items and alpha of .70). The employee influence subscale measures the extent towhich employees, as stakeholders, are involved in decision making in job-related andorganizational issues. High values represent high employee involvement and autonomy(four items and alpha of .71). High values on all of these scales are consistent withHPWS methods, while low values are consistent with more traditional, bureaucraticemployment systems. Since organizations are likely to design HR systems in order toachieve internal fit or coherence among various employment practices, it is not surprisingthat the scales are highly intercorrelated and may well reduce to a single dimension, ashas been the case in many US-based HPWS studies.
Another important independent variable in the study is the firm’s organizationalstrategy. Likert-type items are used to measure the extent to which the firm pursues abusiness strategy of differentiation (Porter, 1980). The scale consists of eight items with acoefficient alpha of .88 (Bae and Lawler, 2000). We would generally expect a strategy ofdifferentiation to be more closely linked to organizational flexibility and thus positivelyrelated to organizational performance.
Cross-cultural equivalence of scales
Despite acceptable reliability levels for all of the scales mentioned above in the pooled(i.e. four-country) sample, it is necessary to establish that the items measure similarconstructs in Taiwan, Thailand, Korea and Singapore. In order to establish itemequivalence, we performed confirmatory factor analysis (CFA) on each individualscale. For each item in each scale, we tested the hypothesis that its factor loadingswere equivalent across all four locations (Byrne, 2001). This involved first allowingall factor loadings for a given construct to vary across countries, then comparing theseresults to a contrasting model in which the focal item was constrained acrosslocations. If, in applying conventional CFA fit measures (Byrne, 2001), it wasdiscerned that the fully unconstrained model exhibited significantly better fit than themodel with the focal item factor loading constrained, we inferred that focal item wasnot equivalent in meaning across the four locations. If so, it was deleted from thescale.
The CFA analysis indicated that most of the items in the scales used here hadequivalent factor loadings across locations. The one exception was the work systemssubscale. Only one of the four items in this scale had equivalent factor loadings across thefour locations. Thus, we could not reasonably assume these items were interpreted in anequivalent manner in each setting. The entire subscale was deleted from the analysis.Some other individual items were also deleted from other scales, but those scales stillappeared content valid (i.e. the remaining items with constant factor loadings addressedissues that adequately assessed the domains of the scales).
After deleting the items from the set of HR system scales with variable factor loadingsacross locations (and thus excluding completely the work systems subscale), weevaluated the overall of fit of the remaining items for the HR flow, reward system and
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employee influence subscales. Fit statistics for the model were within generally acceptedlimits. The value of the x2 statistic divided by degrees of freedom was 1.82 (values lessthan 3.00 are considered consistent with good fit in confirmatory factor analysis), thegoodness of fit index (GFI) was .92 (values higher than .91 are considered acceptable)and the root means squared error of approximation (RMSEA) was .03 (with values of lessthan .10 considered acceptable). The overall fit statistics differed little for this fullyconstrained model from the overall fit statistics for the unconstrained model (in which allfactor loading were allowed to vary across locations). Given the expected generally highcorrelations among the subscales (ranging from .7 to .9), these three subscales weresummed to construct a single HR system scale for the regression analysis (with HPWScharacteristics increasing the higher the scale value). Coefficient alpha for this compositeHR system scale was .73.
Similar CFA analysis was performed for the perceived financial performance andorganizational strategy scales. All three of the items in the perceived performancescale demonstrated consistent factor loadings across locations and fit statistics werewell within the acceptable range for the scale (x2 to degrees of freedom ratio of 1.83, GFIof .99 and RMSEA of .03). It was necessary to drop some items from the strategy scale,but the resulting scale also had acceptable fit measures (x2 to degrees of freedom ratioof 1.27, GFI of .99 and RMSEA of .02). The revised strategy scale had a reliabilitycoefficient of .73 (the perceived performance scale was not altered).
Model estimation
To test our hypotheses, we regress perceived financial performance against the compositeHR system scale, the organizational strategy (differentiation) scale, dummy variablesrepresenting both host country (Korea served as the reference group, so that dummyvariables representing Singapore, Thailand and Taiwan appear in the regression analysis)and the firm’s country of origin (the US served as the reference group, so that dummyvariables Singapore, Korea, Thailand, Taiwan, Japan and Europe appear in the regressionanalysis), the years of operation of the firm in the host country, the natural log of firm size(number of employees), union status (coded 1 for unionized firms, 0 otherwise) andindustrial sector (coded 1 if manufacturer, 0 otherwise). Finally, in order to control forthe effects of the Asian financial crisis, we included a dummy variable measured code as1 for those cases in which data were collected after 1997 and 0 otherwise (data werecollected in 1996, 1998 and 1999). Descriptive statistics and the correlation matrix forthe variables used here are reported in Table 1.
Given the cross-sectional nature of the data, we were concerned that applying ordinaryleast squares (OLS) would generate biased estimates of the impact of the HPWS measureon perceived performance. The causal order of HR system and perceived performance isambiguous. Firms that implement HPWS techniques might well experience higher levelsof perceived performance, as hypothesized, but the converse can occur. That is,organizations that achieve higher levels of performance are better able to affordimplementation of often costlier HPWS techniques (that involve more training, moreselective search processes and perhaps higher pay). Bae and Lawler (2000) note that oneway of handling the possible dual causation problem here is to use two-stage leastsquares (2SLS) with instrumental variables. Although this problem can be handledwithin a structural equation framework (e.g. LISREL), the large number of dichotomousindependent variables prevented us from using this approach. All the independentvariables mentioned above, except the HR systems composite scale, served asinstrumental variables in this analysis. In addition, a scale measuring management
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Ta
ble
1C
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(HP
WS
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.03
13
Host
countr
y:
Thai
land
.14
.35
2.3
1.2
6.1
8.0
52
.51
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15
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0.0
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2.0
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.06
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.14
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2.1
32
.53
2.5
82
.72
16
Man
ufa
cturi
ng
firm
.56
.49
2.0
42
.02
2.0
92
.06
.01
.11
.05
2.0
22
.07
2.0
7.0
5.0
1.1
5.1
22
.08
17
Org
aniz
atio
nal
per
form
ance
4.3
3.8
8.3
3.4
0.0
6.0
32
.13
2.0
5.0
4.0
32
.08
.15
.00
.02
2.1
2.0
02
.07
.07
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perceptions of the value of HR resources (Bae and Lawler, 2000) served as an instrumentin place of HR systems. The HR values variable is presumed to be an exogenousprecursor of HR system. CFA was also used on this scale to assurecommon interpretation of the scale items across locations. There were three items inthis scale, all of which appeared to have constant factor loading across settingsand acceptable fit statistics (x2 to degrees of freedom ratio of 1.22, GFI of .99 andRMSEA of .02).
Results
2SLS regression results for the pooled sample are reported in Table 2. The overallregression was statistically significant at the .01 level and explained 25 per cent of thevariance in perceived performance across all cases. The HR system coefficient waspositive in sign and statistically significant at the .01 level, thus supporting hypothesis1 that we would find that HPWS level exerted a generally positive impact onperceived performance within this region. Other independent variables in the analysisimpacted on organizational performance in ways we might expect. Firms that utilizeddifferentiation, rather than cost minimization, as their dominant business strategyreported higher levels of organization effectiveness and unionized firmsreported somewhat lower levels of organizational performance than non-unionizedfirms. Larger firms reported higher levels of performance, but the age of the firm(i.e. years in the host country) does not seem to matter. Although firms did reportlower levels of performance in the post-1997 period, this was not statisticallysignificant (but see the discussion below).
The dummy variables controlling for country of origin had little impact onperformance, though there were variations across host country. In general, companiesoperating in Thailand and Taiwan had substantially lower levels of reported performancethan those in Korea (the reference group), while firms operating in Singapore hadslightly, though insignificantly, lower levels of perceived performance. This pattern isconsistent with the manner in which the data were collected. The Korean data werecollected in 1996, prior to the Asian financial crisis. The Thai, Singaporean and most ofthe Taiwanese data were collected in the post-crisis era. Thus, the post-1997 dummyvariable was confounded to some extent with the host-country dummy variables.This may explain the relatively weak impact of the post-1997 indicator in that most of theadverse economic effects associated with the crisis were picked up by the host-countryvariables. These results, taken as a whole, are consistent with the pattern we would haveexpected regarding perceived performance: generally substantially lower levels in thepost-1997 period. The only surprising outcome would be the high negative impact forTaiwan, which seemed to have escaped the brunt of the 1997 crisis (though certainly feltsome impact).
Hypothesis 2 argued that, in the three more economically advanced economies in thesample, HPWS level would have similar effects on perceived performance. 2SLSregression results for each host country are also reported in Table 2. As these analyses areconducted within individual host countries, host-country dummy variables were not usedand some of the county-of-origin dummy variables were also dropped where appropriate.Also, the post-1997 dummy variable was not required. All host-country regressions werestatistically significant at the .01 level and explained between 20 per cent and 30 per centof the variance in perceived performance. However, although the HR system variable ispositive and statistically significant in the Taiwanese, Korean and Singaporean samples,it is also apparent that the magnitudes of these coefficients differ, with the effect highest
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Ta
ble
2T
wo
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.
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in Taiwan and lowest in Korea. Thus, hypothesis 2 is not supported. Although thedifferences in effects between Korea and Singapore, and between Singapore and Taiwan,are not statistically significant, the difference between Korea and Taiwan is significant atthe .01 level.
Why might hypothesis 2 not be supported? One explanation would be that theHR system variables could be of restricted range in some of the host countries.For example, suppose that a large number of Korean firms had adopted HPWStechniques, while only limited numbers of Taiwanese firms had done so. The HR systemvariable would have limited variance in the Korean sub-sample, thus renderingthe parameter estimate downwardly biased. However, the means and variances for the HRsystem scale for these three locations were approximately equivalent. Thus the restrictionof range explanation would not seem appropriate. There are various structuralpossibilities. The generally more militant unions in Korea, which have certainly opposedchanges in the direction of introducing greater labour flexibility into the Koreanenvironment, could perhaps be a factor in limiting the effective implementation ofHPWS techniques there. It fact, it is only in the case of the Korean sub-sample that unioneffects on perceived performance are statistically significant and negative, suggestive ofthe impact of the Korean unions. Unions in Taiwan, especially in the private sector, aremuch less militant than Korean unions (Chen et al., 2003), and the same holds inSingapore. Another factor in Korea may be the large size of the chaebols, which mightmake implementation of such policies problematic compared to Taiwan and Singapore.Finally, as the Korean data precede the 1997 financial crisis and most of the Taiwaneseand Singaporean data follow it, there could be an effect related to that specific event.That is, the post-1997 era might have engendered changes in worker behaviourthat might create more effect implementation of HPWS methods, if, for example,workers felt insecure and more motivated to co-operate with management in the interestof preserving their jobs.
Hypothesis 3 posited that HPWS techniques would function less effectively inThailand than in Korea, Taiwan or Singapore, given the greater level of educationalattainment and human resource formation in those three locations relative to Thailand,as well as the prevalence of more traditional values in Thailand, which is muchless developed and more agrarian than Taiwan, Korea and Singapore. But the results(Table 2) clearly indicate that Thailand ranks second only to Taiwan in terms of theapparent ability of employers to implement HPWS techniques effectively(i.e. the Thai HR systems coefficient is positive, significant and relatively high). Wechecked for restriction of range problems, but this did not seem to be a possibleexplanation. It appears that, when handled properly, workers in Thailand, even relativelylow-level workers, could respond well to HPWS techniques. A case study by Lawler andAtmiyanandana (2000) demonstrates that workers in Thailand with only three or fouryears of formal education, under the right circumstances, can work quite effectively incircumstances characterized by greater worker ‘empowerment’ and contingent financialincentives. Sivasubramaniam and Venkata Ratnam (1998) observed that HPWStechniques could be effective in the case of Indian workers similarly limited in terms ofeducational attainment.
Our final hypothesis argued that locally owned firms and local affiliates of AmericanMNCs would be more effective at HPWS utilization than local affiliates of European orJapanese MNCs (hypothesis 4). Table 3 contains regression results for the sample brokendown into four groups: locally owned firms, affiliates of American MNCs, affiliates ofEuropean MNCs and affiliates of Japanese MNCs. All four of these regressions werestatistically significant at the .01 level. The HPWS impact on firm performance in locally
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owned firms (across all host countries) was, in fact, quite strong (.76) and statisticallysignificant at the .01 level. Estimated HPWS impact in locally owned firms was higherthan in any of the MNC affiliate sub-samples, though it was significantly only higher incomparison to affiliates of European MNCs. Estimated HPWS impact for affiliates ofAmerican MNCs was virtually identical to that for Japanese affiliates, and was higher,but not significantly so, than the effect for European affiliates. So although hypothesis4 was not supported per se, we did see effects somewhat consistent with its underlyingarguments. In general, locally owned firms had somewhat better success in HPWSimplementation than any affiliates of foreign MNCs. American affiliates did somewhatbetter than European affiliates, though Japanese affiliates were about as effective in thisregard as American affiliates.
Discussion
We have found that, in general, HPWSs tend to have a positive effect on perceivedorganizational performance, after controlling for other organizational characteristics, in asample of both locally owned and foreign firms operating in four significant East andSoutheast Asian economies. This is important, as there are many cultural barriers thatmight militate against effective HPWS implementation. That there are positive HPWSeffects also means that these techniques have the potential to assist companies operatingin these countries to respond to the increasing challenges of globalization and othersources of environmental turbulence, such as rapid technological changes and economicreforms, through greater organizational flexibility. We found the HPWS effects werenot constant across host countries, with the strongest impacts occurring in Thailandand Taiwan. That the effect was much stronger in Thailand than expected may have to dowith the very high levels of foreign direct investment there, relative to Taiwan and Korea,
Table 3 Two-stage least squares regression results for organizational performance for indigenous
firms and MNC subsidiaries (regression coefficients and standard errors)
Indigenous
firms
Affiliates of
American
MNCs
Affiliates of
European
firms
Affiliates of
Japanese
firms
HR system (HPWS) .76 (.14)a .49 (.22)b .30 (.22) .51 (.32)c
Differentiation strategy .11 (.06)c .27 (.10)a .28 (.09)a .22 (.11)b
Unionized firm .01 (.11) 2 .25 (.17) 2 .30 (.19) 2 .37 (.21)c
Log of number
of employees
.05 (.04) .11 (.08) .09 (.09) .18 (.07)b
Age of firm .002 (.002) .01 (.01) .00 (.01) .00 (.01)
Host country: Taiwan 2 .39 (.23)c 2 .18 (.24) 21.20 (.30)a 21.44 (.72)b
Host country: Thailand 2 .46 (.27)c 2 .59 (.45) 2 .83 (.53) 21.36 (.75)c
Host country:
Singapore
2 .02 (.27) .28 (.34) 2 .39 (.48) 2 .90 (.66)
Post-1997 data .08 (.11) 2 .14 (.17) 2 .14 (.17) .01 (.18)
Manufacturing firm 2 .09 (.19) 2 .28 (.29) .29 (.43) .23 (.58)
Constant .55 (.47) .66 (.86) 1.88 (.84)b 1.03 (.79)
N 371 105 98 108
Adjusted R2 .24 .17 .20 .23
F-ratio 12.92a 3.22a 3.46a 4.33a
Notesa Significant at .01 level; b significant at .05 level; c significant at .10 level.
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so that Thai firms had relatively great exposure to foreign employment practices andwere more culturally malleable (i.e. able or willing to learn for the practices of foreigncompanies). Indeed, Lawler and Atmiyanandana (forthcoming) found that, althoughThai indigenous firms showed a lower propensity to utilize HPWS techniques than MNCaffiliates in Thailand, they also showed a greater propensity to use these methods thanindigenous firms in the three other countries. Moreover, Thailand’s relatively lower levelof economic development might have meant that the return to implementing HPWStechniques was greater than in more developed economies.
That Korea ranked low relative to the other countries in the sample was surprisingin light of the strong interest in HPWS techniques as reflected in the NHRM initiatives.One factor may be that the Korean companies, particularly the indigenous ones, weregenerally much larger than the firms in the other three countries because of the structureof the chaebols. HPWS techniques may be more remotely linked to financial outcomes inlarger firms, as it is more difficult for individual employees or groups to see theconnection between their efforts and organizational outcomes. Of course, wecontrolled for firm size, but the size effect may be more complex than wouldbe captured in a linear relationship. And the chaebols, as very large companies,have often had close relationships with the government, the quality of which could bemuch more important in determining organizational effectiveness than internalactivities.
Our comparison of indigenous firms with MNC affiliates revealed that the locallyowned firms that do implement HPWS techniques have somewhat greater success atdoing this than affiliates of Japanese, European and, most surprisingly, especiallyAmerican MNCs. This is possibly related, at least in part, to their better understanding oflocal cultural and social nuances, which mean they can structure HPWS approaches thatconform better to these conditions. There are other possible explanations as well. Beforethe 1997 financial crisis, locally owned Asian firms had little labour market flexibilityand had high levels of loyalty and commitment. Therefore, HR managers in thesecompanies may have perceived that they could gain significant returns from humancapital investment. However, MNC affiliates had higher flexibility even before thefinancial crisis and would not have been so inclined to invest in training anddevelopment, leading to less effective HPWS implementations.
Our study is clearly exploratory. Thus, it helps in assessing general hypotheses, but theprecision of the measures is not sufficiently high to generate strong policy implications.In addition, the use of perceptions of organizational performance, as opposed to objectiveperformance, is a clear limitation. However, prior work comparing results obtained usingperceived and objective performance measures in models such as this have shown similarresults for the perceived and objective measures (Bae and Lawler, 2000). There are areasfor future research to address some of the omission and limitations of this paper.Of course, extending this line of analysis to other countries and regions would be useful.Future studies could benefit from measuring country-level variables in order toexplain cross-country differences more precisely (and thus not rely on categoricalvariables). Finally, the issue of the organizational strategy–HR strategy fit should also beexplored.
Acknowledgements
This project was funded in part by grants provided by the University of Illinois Centerfor East Asian and Pacific Studies and by the Campus Research Board.
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Notes
1 The practice of inferring character and personality from one’s facial features.In a newer variant, blood type is believed by some to indicate one’s personality.
2 Fung-shui (literally ‘wind and water’), also popular among ‘New Age’ adherents inthe West, is the belief that good fortune is determined by the orientation of physicalobjects (one’s house, the internal furnishings, etc.) in relation to topographicalfeatures. It is believed that this occurs through the harnessing of energy flows. Thus ahouse may be built at a particular angle to a river or a mountain to assure properenergy flows. In Thailand, for example, the real estate crash that preceded (and partlycaused) the 1997 crisis there was attributed by some to shifts in the course of theChao Phrya River, which runs through Bangkok. Many of the high-rise buildingssuffering low occupancy had been constructed according to fung-shui principles thatdictated a particular alignment with the river. Shifts in the river were seen to havenullified the effects and brought ill fortune to owners.
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