Japanese Journal of Administrative ScienceVolume 15, No. 2, 2001, 109 - 130.m^rfmn^mibmrn 2 *%, 2001, 109 -130.

Strategic Transfer of HRM Practices for Competitive Advantage:Implications for Sequential Transfer of Japanese HRM to China and Taiwan

Norihiko TAKEUCHI(Research Fellow of the Japan Society for the Promotion of Science, Nagoya University),

and CHEN Ziguang(City University of Hong Kong, Hong Kong)

This paper explores how performance of Japanese affiliates in China andTaiwan can be affected by HRM practices transferred from Japanese parentfirms. The following four sets of HRM practices were found to constitute criticalresources transferred from the Japanese parent firms: educational investment(EDUC), in-company welfare (WELF), long-term commitment incentives(COMM), and on-the-job problem solving (S0LV). Results of regressionanalyses based on samples of Japanese affiliates in China (n = 229) and Taiwan(n = 57) revealed that the transfer of the S0LV resource had a significant andpositive contribution to affiliate's financial performance. Moreover, the result ofa path analysis indicated that remaining three HRM resources were working forunderpinning the function of the problem solving resource. Then this set of HRMresources contributed to the formation of an integrated HRM system withinforeign affiliates, which conferred economic benefits to them. Results of thisstudy contributed to understand the mechanism of gaining competitivenessthrough transferring HRM resources strategically from Japanese parents tooverseas affiliates based on the sequential transfer model of HRM resources byshifting the contents of transfer from the basic to instrumental resources.

1. Introduction

Since Japanese firms started their overseas opera

tions in the 1960s, studies have been conducted to

examine how their foreign affiliates can remain

competitive in the global market by implementing

the home-made human resource management

(HRM) practices. Research efforts have been

made to explore to what extent the Japanese-style

production and management systems are applica

ble or acceptable for operations in both developed

countries (e.g., Abo, 1994) and developing coun

tries (e.g., Ichimura, 1998; Itagaki, 1997;

Yamashita, 1991). These past studies have its

merits in demonstrating that Japanese-style

production and management systems work rather

well within the transplants in given countries.

However, few studies were attempted regarding

how it was possible for Japanese firms to increase

profitability in their overseas operations by

transferring their home-made systems of HRM to

overseas affiliates.

Recently, literature on strategic international

human resource management (SIHRM) has at

tempted to develop a theoretical foundation for

explaining the link between HRM resource trans

fer and business performance by applying a

resource-based view of the firm (Rosenzweig &

Singh, 1991; Schuler, Dowling, & De Cieri, 1993;

Taylor, Beechler, & Napier, 1996). A basic as

sumption underlying the resource-based view of

the firm in the multinational business context is

that an overseas affiliate can sustain competitive

advantage through strategic transfer of firm-

specific resources (FSRs) that are derived from

the multinational parent company. Precisely,

performance of overseas affiliates of multina

tional corporations (MNCs) may be determined

by the extent to which parent firms in the home

country can accumulate FSRs and transfer

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mwrfmm^mi^m 2 -

bundles of these resources to their overseas busi

ness units combined with their business strategies.

However, not all aspects of these FSRs constitute

strategically relevant resources for the global

business operations. In other words, some of them

may remain neutral for value-creating strategies,

and therefore may not serve as rent-yielding

FSRs. For example, physical capital resources

like plants, equipment or the physical technology

alone seldom generate sustainable advantages,

because these resources are relatively easy to copy

or duplicate (Barney, 1991). On the other hand,

human and organizational capital resources are

more intangible, socially complex and difficult to

identify specifically, thus difficult to be duplicated

by competitors (Fladmoe-Lindquist and

Tallman, 1994; Grant, 1991). Accordingly, the

above stream of literature provides the notion that

the invisible assets of human and organizational

skills, including resources for effective human

resource management (hereafter referred to as

HRM resources), may remain as most likely

sources of truly sustainable advantage of the firm

(Barney, 1991; Fladmoe-Lindquist and Tallman,

1994; Grant, 1991). Thus, in the multinational

business context, whether or not overseas Japa

nese affiliates can achieve competitive edge over

others hinges on how strategically the home-

derived, firm-specific HRM resources are trans

ferred and become embedded in the overseas

affiliate organizations.

Based on the above-mentioned perspective, it is

of great value to investigate the link between

transfer of Japanese HRM resources and profit

ability of Japanese overseas affiliates. Unfortu

nately, however, few studies provide empirical

evidence on the effect of transfer of intangible

resources like HRM, and how they function to

boost affiliate's organizational performance.

Thus, the present study primarily focuses on how

transfer of Japanese HRM resources contributes

to corporate performance in Japanese affiliates

operating inphina and Taiwan. The reason why

Japanese affiliates in China and Taiwan were

selected as samples for this study is that the for

eign direct investment by Japanese firms in these

areas has a long history, and the volume of Japa

nese investment in these areas has been rapidly

increasing for the past decades. Moreover, it is

expected that business relationships between

Japan and these Chinese societies will become

much tighter in future (Wakabayashi, Chen &

Huang, 1999).

2. Conceptual Framework

The Nature of HRM Resources in Multirational

Contexts

Within the resource-based theoretical framework,

the firm is viewed as a nexus of resources and

capabilities (Barney, 1991; Corner, 1991; Lado and

Wilson, 1994; Wernerfelt, 1984). Firm resources

encompass all input factors, both tangible and

intangible, human and non-human, which are

owned and controlled by the firm, and enter into

the production of goods and services to fulfill

human wants (Lado & Wilson, 1994). Viewed

from a resource-based theory of the firm, HRM is

one of the strategically relevant resources which

may enable firms to outperform or potentially to

do so in overseas business operations. However,

for this to happen the global firm must possess the

valuable, rare and imperfectly imitatable, and

non-substitutable resources (Barney, 1991), and

successfully transfer them across national

boundaries. Thus, the primary concern for the

present paper is to explore which aspects of home-

derived HRM resources are transferred and how

strategically the HRM system can be recon

structed based on these transferred resources in

overseas Japanese affiliates.

Taylor, Beechler & Napier (1996) suggest that

international transfer of HRM resources can be

looked at from three levels: national, firm and

affiliate levels. First, the national-level resources

may constitute the potential competitive advan

tage for MNCs. These are "the parent company's

resources that originate from a particular con

figuration of economic, cultural, human, and

other resources in a given country" (Taylor et. al.,

1996, p.963). For the Japanese MNCs, this repre

sents the Japanese-style HRM resources rooted in

the unique historical and socio-economical

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Strategic Transfer of HRM Practices for Competitive Advantage

environment in Japan. They also asserted that the

national-level HRM resources cannot be differen

tiated from one firm to another greatly within the

domestic environment. Whereas, once these re

sources go beyond the national boundary, they

may confer Japanese MNCs an edge over competi

tors from other nations. Second, besides the

national-level resources, a multinational parent

firm controls certain unique resources that have

been developed and accumulated over the firm's

lifetime. As such, even within the same industry in

the same country, HRM would substantially differ

from firm to firm. Such uniqueness of HRM

resources in the firm may be attributed to the

firm's peculiar culture and history. The third

source of competitive advantage for MNC resides

at the affiliate level. This may occur because

affiliates alone have potentials for creating new

HRM resources which may lead to durable eco

nomic benefits by combining the parent HRM

transferred with indigenous human resource

practices found in the host nation.

Thus, HRM resources owned and controlled by

MNCs as a whole become differentiated depending

on the origin of resources: the national (Japa

nese), firm or affiliate origin. Within parent

firms, unique HRM resources will be accumulated

through extensive interaction between the first two

levels, namely between resources rooted in cul

tural specificity (the national level) and organiza

tional specificity (the firm level). Accordingly, in

this paper the home-derived HRM resources can be

defined as an outcome of a combination of na

tional and firm specific practices for managing

human resources that the multinational parent

company has built up over its lifetime.

HRM Resources Transfered to Japanese Aff i Iiates

Next, a brief review on what constitutes home-

derived (Japanese) HRM practices is necessary

for building hypotheses. The previous studies on

Japanese-style human resource management in

both domestic and foreign countries suggest that

there are, at least, four categories of home-derived

HRM practices that the most Japanese firms can

utilize for their international operations (e.g.,

Cole, 1994; Nikkeiren, 1995; Takeuchi &

Wakabayashi, 1999; Wakabayashi, 1987;

Wakabayashi & Graen, 1991; Yoshihara, Hayashi

& Yasumuro, 1988). These practices are consid

ered to be critical "resources" for the successful

production and service activities in foreign affili

ates, when properly transferred and implemented.

They can be summarized as follows. (1) Re

sources for in-company welfare are typically seen

as means to promote employees' work motivation

and commitment to the organization by providing

them with the relatively tangible things, which

normally include provisions of housing (dormi

tory, company apartment, etc.), resort lodgings,

medi-care services, allowances (for housing

loans, transportation, lunch, etc.), employee

cafeteria and so forth. (2) Resources for inducing

long-term commitment may also work to facili

tate the employees' organizational commitment

by providing employees with employment secu

rity and wage increases based on years of service.

Incentives used for this purpose may include

long-term employment and seniority-based per

sonnel practices, retirement allowances, bonus

systems, and so forth. (3) Resources for educa

tional investment can be categorized as a variety

of learning opportunities within the workplace

that the firm can give employees to help them

learn knowledge and skills for doing their jobs.

They may consist of introductory training, task-

specific training, supervisory and managerial

training, on-the-job training (0JT) and so forth.

(4) Resources for on-the-job problem solving can

be viewed as knowledge and skills that are avail

able within the firm for solving problems associ

ated with production and service provision:

namely, shop-level skills for enhancing quality

and efficiency. These resources consist of special

ized knowledge and know-how for generating the

best practice solutions to production and quality

management problems, including small group

(QCC) activities, improvement and suggestion

(Kaizen) systems, off-the-job training (Off-JT),

MBO practices, and so forth.

Ill

sc m ®Mnm$wmi^w,2-

Competitive Advantage in Overseas Operations

This paper presumes that the dynamic competi

tiveness created and promoted by people is the

truly sustainable source of competitive advantage

of the firm (e.g., Barney, 1991; Lado &Wilson,

1994). Effective management of local human

capital through successful transfer of core HRM

resources may be the ultimate determinant of

organizational performance and survival for

overseas affiliates. This will be more true to HRM

resources than physical capital.

The indicators of competitiveness for overseas

Japanese affiliates should include the two aspects

of corporate performance: financial performance

(e.g., Boliko, 1996, 1997; Yoshihara, 1996;

Kimbara, 1991; Pucik, 1999; Snell & Youndt, 1995)

and behavioral consequences of the firm (e.g.,

Kimbara, 1991; Ohtsu, Kumura & Nishida, 1997).

To measure financial performance of overseas

operations, both objective (the ratio of profit to

sales) and subjective (evaluation of corporate

performance) indicators were considered. It is

commonly accepted that the profit rate is used as

an indicator for assessing financial performance

of overseas affiliates (e.g., Kimbara, 1991;

Yoshihara, 1996). Additionally, prior studies that

examined financial performance by the question

naire survey method warned that the objective

criteria (profit, sales, etc.) alone can not necessar

ily capture the firm's actual state of performance,

because asking to report exact objective figures

may cause the sentiment of intrusion among

respondents, and thus causing a large number of

missing values or false reports in the question

naire (Boliko,1996, 1997; Yoshihara, 1996). There

fore, for this study two different measures, rating

of the profit-rate range and subjective evaluation

of corporate performance, were employed as

indicators of corporate financial performance.

Although a profit rate is considered objective, it

may still remain subjective, since the rating is

based on the self-reported profit rate ranges. Dess

and Robinson (1984) suggested that, in the absence

of objective data, self-report measures constitute

an acceptable substitute, and are equally reliable.

Prior research also found that organizational

performance rated by self-report measures was

positively correlated with the objective perform

ance indicators (Dollinger & Golden, 1992;

Powell, 1992).

In addition, how successfully affiliates are

practicing HRM was assessed by two measures:

employee turnover and absenteeism (e.g.,

Kimbara, 1991; Ohtsu et al., 1997). Namely, it is

assumed that if affiliate's HRM practices fit the

needs of employees, involving those of economic,

job security and development, these practices will

function to enhance employee job satisfaction,

organizational commitment and motivation to

work, and thus to reduce the employee turnover

and absenteeism (Takeuchi and Wakabayashi,

1999). In addition, successful socialization of

employees by the work organization may discour

age their intentions to leave (Takahashi &

Watanabe, 1995). Thus, employee turnover and

absenteeism rates can be viewed as meaningful

indicators for assessing the degree of fit between

the firm's HRM practices and the needs of employ

ees. Therefore, these two measures are regarded

as behavioral consequences to be created by effec

tive HRM practices of the firm.

3. Hypotheses

The present study presumes that the four HRM

resources presented earlier may serve as rent-

yielding resources which directly contribute to

firm's profitability. In addition, the present study

assumes that to make this contribution happen,

home-derived HRM resources need to be trans

ferred to the overseas affiliates systematically,

starting from the basic to more instrumental

resources in an incremental manner. Specifically,

on-the-job problem solving resource is expected to

be a central and most instrumental one that needs

to be acquired through organizational learning by

overseas affiliates. The problem solving resource,

in particular, serves a vital role in converting the

individual knowledge into organizational one.

For instance, the quality control circle (QCC)

activity is the one that facilitates such knowledge

conversion (e.g., Cole, 1994, 1999). First, the

improvement of the on-going operation process

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Strategic Transfer of HRM Practices for Competitive Advantage

for high quality production may originate from

employee's ideas at the shop floor regarding the

way he/she solves operational problems effec- .

tively, and eliminate 3Ms in his/her worksite,

i.e., Muri (overwork), Mura (unevenness), and

Muda (waste). Next, promising individual ideas

are discussed and analyzed with QCC members,

and the feasibility of formal implementation is

assessed based on the rigorous quantitative analy

ses. Finally, selected methods are rapidly diffused

to the whole organization through QC presenta

tion, and applied to the company-wide practice

(e.g., Cole, 1994; DENSO's internal document;

Ishikawa, 1990). As such, an individual knowledge

can be converted into the collective knowledge

(through small group activities), and eventually

into the organizational property (through QC

presentations).

Eventually, the problem solving resource would

generate rent (profit) for the firm in the form of

competitive edge in the market (Cole, 1994; 1999).

In other words, the instrumental resource is most

likely to yield rent, for it may directly contribute

to upgrading the product quality and reducing the

cost. On the other hand, other three HRM re

sources including the in-company welfare, long-

term commitment and educational investment

may serve underpinning functions for the on-the-

job problem solving activities. In essence, an

acquisition of competitive advantage by foreign

affiliates can be best facilitated through transfer

ring the problem solving resource in proper com

bination with other HRM resources unique to the

parent firms. This view implies that to achieve

competitive advantage in their overseas opera

tions, Japanese parent firms may need to follow

the strategy of sequential HRM transfer by mobi

lizing their home-derived HRM resources step by

step from the basic practices to instrumental ones

to the foreign affiliates. Thus, the following three

hypotheses can be developed regarding the strate

gic role of HRM resources for enhancing overseas

affiliate's performance.

Hypothesis 1: Transfer of the resources for nurturing

in-company welfare and long-term commitment will

impact on affiliate's behavioral consequences

positively, and thus function to reduce the

laborforce turnover rate and absenteeism.

Hypothesis 2: Of the four HRM resources, transfer of

on-the-job problem solving resource will have a

direct positive influence on affiliate's financial

performance

Hypothesis 3: The effect of on-the-job problem solving

resource on firm's performance will be reinforced

by functions of more fundamental HRM resources,

consisting of educational investment, in-company

welfare and long-term commitment incentives in

overseas affiliates.

Background variables associated with overseas

affiliates were treated as control variables for

testing the above hypotheses. According to the

prior studies on international business (e.g.,

Schuler, Dowling, & De Cieri, 1993; Yoshihara,

1996), affiliate's organizational variables were

chosen from both exogenous (e.g., regional char

acteristics, industry, size, etc.) and endogenous

factors (e.g., business history, the percentage of

expatriate managers, etc.) Particularly, previous

studies (Bartlett and Yoshihara, 1988, Pucik, 1999;

Yoshihara, 1996) asserted that the delegation of

management authorities from the parent country

national (PCN) to host country national (HCN)

or third country national (TCN) plays a signifi

cant role in explaining affiliate performance. This

delegation effect may be particularly true in the

Japanese affiliates in the Chinese society (Gam

ble, 2000). Based on the ethnocentric (Heenan &

Perlmutter, 1979) or exportive (Taylor et. al.,

1996) approach, Japanese multinational corpora

tions in China tended to adopt staffing policies by

which the parent management control is highly

exercised over affiliate business units by allocat

ing the large number of PCN managers to the key

positions in affiliate organizations. But, some

Japanese MNCs have changed its HRM strategies

in China and Taiwan since 1980's.

Theoretically, staffing policies of MNCs may

shift from the ethnocentric (exportive) to the

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s m H^ai4l4^^15#^2J

polycentric (adaptive), and ultimately to the

geocentric (integrative) approach where the or

ganization ignores nationality in favor of ability,

pursuing moderate local responsiveness and high

global integration of fur-flung operations of

MNCs in a global economic arena (e.g., Dowling

& Schular, 1990; Taylor et. al., 1996). This stream

of literature indicates that as overseas affiliate

firms accumulate their organizational experi

ences and establish their business operations by

shifting from the ethnocentric approach to the

polycentric and geocentric ones, they become to

develop absorptive capabilities for introducing

more instrumental HRM systems, and then estab

lish the competitive strength (Botti, 1996;

Wakabayashi & Graen, 1991). Thus, based on the

findings and insights drawn from the literature

review, the fourth and fifth hypotheses can be

stated as follows.

Hypothesis 4: The presence of non-Japanese (HCN or

TCN) managers in the overseas affiliate organiza

tion will have a positive effect on affiliate's finan

cial performance.

Hypothesis 5: Accumulation of organizational experi

ences (in terms of organizational age) by the

overseas affiliate firm will have a positive effect on

affiliate's financial performance.

4. Method

Sampling and Data Collection

For the purpose of testing the above hypotheses, a

questionnaire survey was carried out with the

sample of Japanese affiliates operating in main

land China (1,418) and Taiwan (378) in Septem

ber, 1998. For this study, manufacturing and

related industries with more than 30 employees

were sampled. The names and addresses of these

sample firms were derived from the corporate

data listed in Profile of Overseas Japanese Firms, 1998

(Toyokeizai, 1998). For facilitating responses,

two sets of questionnaires were prepared: Chinese

(Mandarin) and Japanese version questionnaires.

They were mailed to the sample firms in China

and Taiwan, asking either a Taiwanese, Chinese

or Japanese CEO to make a response in each firm.

Respondents were asked to check appropriate

numbers in the answer sheet, and to return it

through facsimile to the author's address in Ja

pan. In total, 294 out of 1796 sample affiliates sent

back the answer sheets. Finally, 286 responses

were found available for the present analyses: 229

from China and 57 from Taiwan. Thus, the usable

response rate for the Chinese^ and Taiwanese

sample was 16.1 and 15.1 percent, respectively

(15.9 percent in total). The relatively low response

rate may partially be attributable to using facsim

ile for data collection. This is considered to be a

methodological limitation of this research. How

ever, the size of the data collected is still large

enough to yield the reliable statistical outcomes

when applying a multivariate analytical method

for testing a set of hypotheses presented for this

study.

Instruments

Transfer of Home-derived (Japanese) HRM Re

sources

A group of items concerning Japanese-style man

agement involving human resources were identi

fied by reviewing prior studies (Abo, 1994;

Ichimura, 1998; Sawaki, 1996; Suzuki, 1994a; 1994b,

Yamashita, 1991). For this study, 30 items pro

posed by Sawaki (1996) were partially revised and

employed for the present questionnaire survey,

covering the four critical dimensions concerning

the Japanese HRM resources; namely, on-the-job

problem solving, educational investment, in-

company welfare and incentives for long-term

commitment. The questionnaire was designed to

ask the Japanese overseas affiliates how they

practice each of 30 HRM items in Japan and

overseas by using the following four response

alternatives: (1) not implemented in either Japa

nese parent or foreign affiliate, (2) implemented

in the Japanese parent, but not in the foreign

affiliate, (3) implemented in the foreign affiliate,

but not in the Japanese parent, and (4) imple

mented in both Japanese parent and foreign affili

ate.

For the present analysis, the lowest score ( = 1)

was assigned when respondents chose the second

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Strategic Transfer of HRM Practices for Competitive Advantage

alternative (implemented in the Japanese parent

but not in the affiliate), while the highest score

( = 3) was given when they chose the fourth alter

native (implemented in both Japanese parent and

foreign affiliate) in responding each HRM item

listed in the questionnaire. All remaining an

swers, choosing either the first or the third alter

native, both of which indicate "not implemented in

the Japanese parent company" were assigned the

middle value ( = 2). Accordingly, transformed

values were understood to mean that the higher the

score, the more the HRM resources originating in

the Japanese parent firm get transferred to foreign

affiliates. On the other hand, when HRM items

were found not implemented in the parent, the

transformed score ( = 2) indicated that the affiliate

remained neutral regarding the transfer.

Affiliate's Performance

As mentioned earlier, both financial and behav

ioral aspects of affiliate's performance are consid

ered in the present study. Financial performance

includes the. following two self-report variables: a

profit rate (PROFIT) as an objective indicator and

an evaluation of corporate performance

(EVALUAT) as a subjective one. The PROFIT

was asked as a ratio of profit to total sales in the

affiliate with a 5-point scale, ranging from u5 %

or more" ( = 5) to "less than 5 %" ( = 4), "0%"

( = 3), "0% to -5%" ( = 2), and "-5% or less"

( = 1). The EVALUAT was tapped by a 6-point

scale in which respondents were asked how they

perceived performance in terms of profitability

and growth, ranging from "rapidly growing"

( = 6) to "growing" ( = 5), "omewhat growing"

( = 4), "in the state of plateau" ( = 3), "declining"

( = 2), and "totally declining" ( = 1).

Behavioral consequences of the affiliate organi

zation included two aspects of the HRM outcomes:

employee's turnover (TURNOVER) and absentee

ism (ABSENT). The TURNOVER was measured

in terms of an annual average percentage of volun

tary quits to total number of employees. The

ABSENT was evaluated as an annual average

percentage of a number of absentees to total

employees in the affiliated firm.

Affiliate's Organizational Characteristics

The eight variables corresponding to the affiliate's

organizational characteristics were introduced as

control variables for this study. These are Region

of affiliate's operation (REGION: China =1 and

Taiwan =0), Size of affiliates (SIZE: 300 or more

= 3, 100 to 299 =2, and 99 or less =1), Industry type

as a high-tech level (IND: electric, auto, machinery

and related industries =3, chemical, metalwork-

ing and related industries = 2, and other light

industries involving textile and food processing

= 1), Ownership by Japanese Capital Investment Ratio

(OWNERSHIP: over 50% by Japanese =1 and 50%

or less =0, Organizational Age (AGE: 10 years or

more =3, 5 to 9 years =2, and less than 5 years

= 1), Ratio of Japanese expatriate managers (%JEX:

more than 2.30% =3, 1.00 to 2.29% = 2 and less than

1.00% =1. Cutting points for the %JEX variable

were adjusted to make roughly equal three

groups), Nationality ofgeneral managers (GM NAT:

Japanese = 1 and others =0), and Nationality of

personnel managers (PM NAT: Japanese =1 and

others =0).

Statistical Procedures

Initially, a factor analysis with 30 items on the

HRM resource transfer was carried out to explore

basic dimensions associated with the transfer of

Japanese HRM resources. Secondly, a correlation

analysis was attempted to explore the pattern of

relationships among all variables used for the

study. Thirdly, multiple regression analyses were

conducted for testing the hypotheses of this study.

Finally, a path analysis based on a series of

regression analyses was attempted to test if the

hypothesized pattern of effects is at work among

four HRM resources upon financial performance

in overseas Japanese affiliates.

5. Results

Factor Analysis

For the purpose of identifying basic dimensions of

transferable HRM resources to the overseas Japa

nese affiliates in China and Taiwan, a factor

analysis was conducted on the thirty-item HRM

transfer instrument. As shown in Table 1, the

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m m gSff»»5**l5«*2^

factor analysis done by using a principle compo

nent technique with an Equiamax rotation pro

duced six factors. Previous statistical research

(e.g., Nunnally, 1978)asserted that when using the

Cronbach's alpha coefficient as an index for

assessing internal reliability of the scale, the

lower acceptable limit would range from .50 to

.60. In Table 1, the alpha coefficients for the fifth

and sixth factors with alpha .47 and .40, respec

tively, failed to reach this criterion level. Thus, the

7 items corresponding to these two factors Were

excluded from the scale construction. Conse

quently, the following four dimensions were used

for constructing HRM transfer scales.

According to Table 1, the first factor named the

educational investment resource consists of four

items with sufficiently high internal consistency

(a =.67,), involving: training for entry level

employees, on-the-job training (OJT), task-based

training and hierarchical education. These items

are closely associated with the training and devel

opment programs which are emphasized in al

most all Japanese corporations as kyouiku-

kunren (education and training) for employees.

These education-related resources may imply

common and basic training rather than the spe

cialized one in the firm's training system. The

second factor named on-the-job problem solving

resource includes the following four items: man

agement by objectives (MBO), the suggestion

system, QC circle activities and off-the-job train

ing (Off-JT). These items are concerned with

aspects of TQM (total quality management)

typically seen in Japanese manufacturing corpo

rations. These items should constitute key HRM

resources, since they can provide tools for solving

production and quality management problems,

through employees participation in cost saving

and quality improvement activities at the shop

floor level (Cole, 1994). The reliability coefficient

of this scale was found to be a = .63. The third

factor named the in-company welfare resource

comprises of the eight items including; installa

tion of company housing or dormitory, cultural

and athletic activities, and so forth. These are

HRM assets that Japanese firms traditionally

maintained for employees to strengthen social

relations with their work organization and among

themselves. The reliability coefficient for this

factor showed a =.60. The fourth factor named

long-term commitment incentives contains the

seven items, including long-term employment,

seniority-based promotion and wage increases,

retirement allowance systems and so forth. These

items can be regarded as incentives most Japanese

firms have long utilized for facilitating the em

ployees' long-term commitment and contribution

to the firm. A reliability coefficient for this factor

was found a =.50.

In summary, based on the factor analysis the

four basic dimensions associated with the transfer

of home-derived HRM resources from Japan to

overseas were identified as resources for: educa

tional investment (EDUC), on-the-job problem

solving (SOLV), in-company welfare (WELF)

and long-term commitment (COMM). An aggre

gate of item scores comprising each factor was

utilized as a scale for the further analyses. Means

of EDUC, SOLV, WELF and COMM for all sam

ples were found to be 2.37, 2.18, 1.70 and 2.23,

respectively, indicating that the educational in

vestment resource tends to be more transferred

from the Japanese parent to the foreign affiliate,

while the in-company welfare resource less trans

ferred. Additionally, when comparing means

between Taiwan and China, resources involving

on-the-job problem solving (2.43 vs. 2.12, t=3.51,

p<C001) and long-term commitment (2.55 vs. 2.15,

t = 6.68, p<.001) were found more transferred to

Japanese affiliates in Taiwan than those in China.

The higher level of HRM resource transfer to

Taiwan than to China may reflect the longer

history of Japanese business presence in the for

mer.

116-

Table 1.

Strategic Transfer of HRM Practices for Competitive Advantage

Result of a factor analysis conducted over 30 items of the HRM resource transfer basedon the Chinese and Taiwanese samples (N = 286)

Fl F2 F3 F4 F5 F6 h2

F1: Educational Investmdnt a = .6

Introductory training .63 .07 .07 -.17 .03 .19 .47

OJT .56 .39 -.08 -.08 -.05 .23 .53

Task-based training .55 .27 .04 .02 .33 -.10 .50

Supervisory Training .50 .25 .17 .21 .40 -.12 .56

F 2 : Problem Solving a = .63

MBO .00 .69 .10 .10 .08 .20 .53

Suggestion system .11 .64 .17 -.03 .09 .00 .46

QC circle activities .18 .53 .32 .02 .22 -.07 .47

Off-JT .36 .52 -.09 .12 .06 .07 .43

F 3 : In-company Welfare a =.60

In-company housing or dormitory .10 -.23 .53 -.08 .06 .27 .43

Employee stock holding system -.11 .03 .52 .29 .07 -.19 .41

Annual recruitment practice .11 .15 .51 -.30 .24 .28 .53

In-house newsletters .10 .22 .47 -.01 .13 .03 .30

In-house cultural activities .31 .18 .47 .05 .12 -.21 .41

In-house athletic meet .37 .09 .45 .15 -.01 .11 .38

Housing loan -.01 .11 .44 .14 -.22 -.03 .28

Morning meeting .05 -.01 .37 -.19 .18 -.10 .22

F4 '.Long-term Commitment Incentives a =.50

Long-term employment -.10 .17 -.07 .62 .12 -.07 .45

Seniority-based practice .12 .01 .09 .50 .28 .13 .37

Recreational trip .04 -.18 -.10 .47 .14 -.01 .28

Season's recreational party .12 .08 .10 .44 .04 .23 .28

Seasonal vacation -.22 .24 .28 .42 -.17 .02 .40

Retirement allowance system .13 .32 -.14 .40 .03 ' -.38 .45

Symbolic egalitarianism .55 -.10 .17 .40 -.20 .13 .55

F5 a =.43

Annual salary system -.23 .08 .01 .09 .60 .02 .43

Promotion practice .38 .04 .10 .06 .50 .09 .42

Job rotation .11 .09 .16 .22 .46 .02 .31

Personnel assessment system .07 .33 -.16 .07 .34 .19 .29

F6 a =.41

Bonus system -.02 .20 -.22 .15 .19 .59 .50

Open room office design .14 .17 .03 .02 -.26 .59 .46

Uniform supply .08 -.04 .03 .03 .12 .56 .34

Variance Explained 2.67 2.34 2.28 2.16 1.80 1.73 9.46

-117-

bc m e»?T»*4¥*15*»2 -*?

Correlational Analysis

Before conducting hypothesis testing, correla

tional patterns among all variables used for the

study as shown in Table 2 need to be explored.

Findings from Table 2 can be summarized as

follows. First, it should be noted that the four sets

of HRM resources, namely EDUC, SOLV, WELF

and COMM, are all correlated with each other

significantly and positively. This clearly indicates

that there are interdependent relations taking

place among four HRM resources in the process of

transfer from Japanese parents to overseas affili

ates. Four resources are mutually interrelated

within the firm, but should be seen as relatively

independent each other, since the level of inter-

correlations is low: mostly less than r=.33. An

implication of this finding is that these home-

derived HRM resources may not work quite inde

pendently, but should function as elements within

the integrated affiliate's HRM system. The exact

relationships among four HRM resources should

be explored by using regression and path analyses

designed for examining the effect of HRM resource

transfer on business performance in the overseas

affiliates.

Secondly, Table 2 shows that the four HRM

resources tend to show negative associations with

the ratio of Japanese expatriate managers

(%JEX), and nationality of the general (GM

NAT) and personnel (PM NAT) managers.

Namely, the affiliates led by PCN (Japanese)

managers are less likely to transfer and imple

ment the Japanese origin HRM resources. This

finding suggests that localization of managers is

one of the important determinants for facilitating

transfer of home-derived HRM resources among

Japanese firms in China and Taiwan. This raises

a concern that an ethnocentric staffing policy that

permits a large number of PCN managers to be

allocated to the managerial positions in overseas

affiliates may actually delay the process of trans

ferring strategically important HRM resources

from Japanese parents to overseas affiliate firms.

Thirdly, as shown in Table 2, out of the four

HRM resources, problem solving (SOLV) was

found to have most significant and positive

Table 2. Correlation Matrix among HRM Resources, Affiliate's Characteristics and Affiliate'sPerformance

1

Transfer of HRM Resources

1 EDUC

2 SOLV .50"* -

3 WELF .32*** .33 "*

4 COMM .20" .29 "* .15*

Affiliate's Charcterisatics

5 REGION -.03 -.21** .11

6 SIZE .23*** .21- .33"*

7 INDUSTRY .18" .12* .13*

8 OWNERSHIP -.06 -.06 -.10

9 AGE -.07 .11 -.18"

10%JEX -.10 -.17" -.37*"

11 GM NAT -.05* -.20" -.14*

12 PM NAT -.10 -.12* -.16"

Affiliate's Performance

13 PROFIT .08 .27*" .07

14 EVALUAT .06 .17" .18"

15 TURNOVER .02 .05 -.02

16 ABSENT .10 .10 -.10

*p<.05, "p<.01, "*p<.001

10 11 12 13 14

.37"*

.10 .09

.04 -.02 .14*

.18" .06 .00 -.03

.29**-.58"* -.03 -.06 -.05

.01 -.06 -.52"'-.04 .16" .08

.20" .17" .05 -.05 .31"* -.11 .20"

.26*" .11 -.04 -.10 .31"* -.09 .31"* .28"*

.19" -.11 .05 .08 -.10 23"* -.20" -.22"*-.13*

.01 -.02 .12* -.03 -.09 -.01 -.27"*-.15* -.16" .57*"

.10 -..07 .05 -.09 .05 .01 .05 .09 .05 - .05 - .06

.09 -.22*" .11 -.04 .04 .14* -.07 .14* .00 -.07 -.12

118-

15

.21*

Strategic Transfer of HRM Practices for Competitive Advantage

correlations with both objective (PROFIT) and

subjective (EVALUAT) measures of affiliate's

profitability. Namely, the problem solving re

source that contains practices of MBO, QC circle

activities, suggestion and improvement (Kaizen)

systems, and Off-JT is likely to be a key HRM

input to generate higher financial performance for

the affiliates in China and Taiwan. Moreover, two

profitability measures (PROFIT and EVALUAT)

were found to have significant and negative asso

ciations with the ratio of Japanese expatriate

managers (%JEX), nationality of the general

(GM NAT) and personnel (PM NAT) managers.

In other words, highly localized Japanese affili

ates that also implement SOLV practices in China

and Taiwan tend to have superior business per

formance. These results suggest that affiliate's

business performance correlates with the degree of

transfer of Japanese-style problem solving re

sources essential for the quality production and

services, combined with the localization of man

agement functions. The other aspects of affiliate's

performance including TURNOVER and AB

SENT, however, failed to show statistically sig

nificant associations with the four HRM transfer

measures.

Regression Analysis

Determinants of Behavioral Consequences

Hypothesis 1 states that the transfer of resources

for in-company welfare and long-term commit

ment will enhance behavioral consequences in

foreign affiliates, and thus have positive effects on

reducing laborforce turnover and absenteeism.

The first column in Table 3 shows that TURN

OVER is significantly and negatively affected by

COMM (£ = -.15, p<.05), indicating that the

more the long-term commitment resource being

transferred to the overseas affiliates, the lower the

turnover rate. Although this finding is congruent

with Hypothesis 1, the overall regression failed to

reach the statistically significant level with ad

justed R23 = .010 (p>.05). This result indicates

that the turnover rate among Japanese affiliates

sampled for the present study must be explained

by considering other more influential variables

like conditions in local labor market and wage

levels in addition to those used for the present

analysis.

Secondly, as shown in the second column in

Table 3, employee absenteeism (ABSENT) was

found significantly and negatively affected by

transfer of the welfare resource (WELF: fi = —.18,

p<.05) with producing a significant incremental

effect (ARh-2) =.022, p<.05). In other words,

transferring the in-company welfare resource

uniquely contributed to the reduction of employee

absenteeism in overseas affiliates in China and

Taiwan. This finding is consistent with Hypothe

sis 1. Moreover, ABSENT was found significantly

influenced by other variables, negatively by RE

GION (£ = -.23, p<.01) and positively by GM

NAT (0 = -.20, p<.01), indicating that affiliates

in "China" with "non-Japanese" (Chinese) gen

eral managers tend to have lower employee absen

teeism. Overall, 12 independent variables all

combined could account for 9.7% of total variation

in absenteeism (R23 =.097, p<.001). Obviously,

inclusion of more relevant variables (job atti

tudes, personal characteristics, and so forth) is

desired to better explain employee absenteeism in

Japanese overseas affiliates.

In summary, the turnover rate as one of behav

ioral performance indicators was found not ex

plained significantly by the transfer of home-

derived HRM resources, although one HRM vari

able (COMM) showed the predicted effect. The

other aspect of behavioral outcomes, employee

absenteeism was found reduced by the transfer of

in-company welfare resource from the Japanese

parent. These findings partially support Hypothe

sis 1 predicting the positive contribution of trans

fer of in-company welfare to turnover and absen

teeism reductions (behavioral outcomes). How

ever, the weak explanatory power of the predictor

variables in Table 3 in terms of R squares may

indicate that employee's turnover and absentee

ism must be explained by introducing other fac

tors which are more relevant to these phenomena.

For example, local economic conditions, struc

ture of labor market, wage levels, employees'

work attitudes, personal characteristics, and so

119-

I

too

Table3.Resultsofthehierarchicalregressionanalysesonaffiliate'sperformanceandthetransferofHRMresources

StepJ:

-REGION

-SIZE

-INDUSTRY

-AGE

-%JEX

-GMNAT

-PMNAT

R2,

Step2:

-WELF

-COMM

-EDUC

Ai?V*>

Step3:

-SOLV

R\

ARa-3)

BehavioralConsequences

TURNOVER

0(SE)T

.15(1.63)t

.07(.80)

.11(.58)t

.00(1.30)

.04(.78)

.08(.80)

.08(1.51)

.02(1.23)

.004

ABSENT

0(SE)T

.23(.47)**

.08(.23)

.06(.17)

.01(.37)

.00(.22)

.13(.23)t

.20(.43)***

.01(.35)

.076

FinancialPerformance

PROFIT

0(SE)T

.14(.26)

.09(.13)

.08(.09)

.00(.20)

.26(.12)***

.22(.13)**

.12(.24)*

.03(.19)

.112

EVALUAT

0(SE)T

-.03(.26)

-.02(.13)

-.07(.09)

-.02(.20)

.00(.12)

-.20(.13)**

-.06(.24)

-.07(.19)

.061

.01(1.50)-.18(.43)*-.05(.24).08(.23)

.15(1.41)*.05(.40).08(.22)-.08(.22)

.02(1.05).13(.30)t-.05(.14)-.04(.16)

.009

.005

.08(1.02)

.010

.001

.099

.024

.05(.29)

.097

-.002

.115

.003

.061

.000

.24(.16)***.14(.16)*

.151

.036

.071

.010

WELF

(SE)T

.01(.07)

.21(.03)**

.08(.02)

.02(.06)

.16(.03)*

.20(.03)**

.10(.06)t

.06(.05)

.185

TransferofHRMResources

COMM

0(SE)T

-.27(.07)***

.08(.03)

.03(.03)

.08(.06)

.11(.03)

.01(.04)

.06(.07)

.18(.06)**

.190

EDUC

0(SE)T

-.04(.10)

.24(.05)***

.10(.04)t

.02(.08)

-.12(.05)t

.14(.05)*

-.12(.09)*

-.02(.08)

.089

SOLV

0(SE)T

.14(.10)*

.08(.05)

.01(.03)

.04(.08)

.06(.05)

.03(.05)

.08(.09)

.02(.07)

.136

.22(.09)***.17(.09)**

.18(.09)**.12(.08)*

.39(.06)***

.163***.325***

.074***.189***

Note:R\R%,andR23denotetheadjustedRsquaregeneratedbythefirst-,second-,andthird-stepregressions,respectively.AjR{i-2)—R2—R1.Ai?(2-3)=R3~~R2.VC10,p<.05,"p<.01,~p<.001.

Strategic Transfer of HRM Practices for Competitive Advantage

forth are expected to account for the turnover

behavior more effectively. Therefore, even if effec

tive HRM systems were successfully transferred to

the overseas affiliate, the macro- as well as micro-

level variables as discussed above might ulti

mately come to determine the turnover and absen

teeism behaviors. Moreover, prior research re

ported that the young Chinese are mobile, and

voluntary quitting behavior is currently very

common among them, thus making the turnover

rate different among firms depending on the

average age of employees in the firm (NIRA,

1997). In conclusion, transfer of HRM resources,

although it is meaningful, may not solve behav

ioral outcome problems sufficiently by itself in the

overseas Japanese affiliates in China and Taiwan.

Determinants of Financial Performance

The third and fourth columns in Table 3 display

results of regression analyses conducted for pre

dicting the profit rate (PROFIT) and subjective

evaluation of affiliate's performance

(EVALUAT), respectively. Findings from these

analyses can be summarized as follows. First, as

predicted by Hypothesis 2, transfer of on-the-job

problem solving resource (SOLV) showed signifi

cant and positive impacts upon both the objective

measure (PROFIT: 0 =.24, p<.001) and the sub

jective rating (EVALUAT: 0 =.14, p<.05) of

affiliate's financial performance. These results

indicate that out of four HRM resources, transfer

of the problem solving resource has most signifi

cant positive effects on affiliate financial out

comes. In addition, the increment made by SOLV

in terms of an adjusted R square reached Ai?2(2-5)

=.036 (p<001) for PROFIT and AR\2-3) =.010

(p<.05) for EVALUAT, indicating that transfer

of the SOLV resource had an independent and

significant effects upon both objective and subjec

tive measures of the affiliate's financial perform

ance beyond the effect of all other variables com

bined in the regression. This finding gives a strong

support to Hypothesis 2 of the present study.

Second, it was found that as predicted by Hy

pothesis 4, the ratio of Japanese managers in

overseas affiliates (%JEX) and occupancy of

general manager positions (GM NAT) showed

significant and negative influences on PROFIT,

with the beta coefficients being —.22 (p<.01) and —.

12 (p<.05), respectively. The variable, %JEX,

also showed a similar pattern of effects on

EVALUAT on the fourth column regression (0 =

- .20, p<.01). In other words, these results suggest

that the localized affiliates in terms of the ratio

and the presence of "national" managers are

likely to enjoy superior financial performance.

This is consistent with Hypothesis 4 that predicts a

positive association between the presence of non-

Japanese (HCN or TCN) managers and affiliate's

financial performance.

Furthermore, as predicted by Hypothesis 5,

organizational age (AGE) affected PROFIT sig

nificantly and positively, as shown in the third

column regression (y5=.26, p<C001). These re

sults may suggest that as the overseas operational

experiences got accumulated in one geographical

area, stock of qualified local managers would

develop and become to fill up to top management

positions in foreign affiliates. Under these circum

stances, management authorities will' be dele

gated from Japanese parent firms, making local

managers easier to manage local business and

human resources for high performance.

The overall contribution of all independent

variables combined reached adjusted R22 = .151

(p<.001) for PROFIT and R2z = .071 (p<.001) for

EVALUAT. These findings indicate that consis

tent with Hypothesis 2, 4, and 5 for the present

study, transfer of on-the-job problem solving

resource, managerial localization in terms of

nationality of local managers, and the accumula

tion of organizational experiences, respectively,

plays an important role in explaining the affili

ate's financial performance. Moreover, the pre

sent findings suggest that the problem solving

resource which has a direct relevance to the cost-

saving and quality production processes in the

firm constitutes a core aspect in an affiliate's

HRM resource system for facilitating firm's

performance in overseas operations at least in

China and Taiwan.

However, what is left unexplored is the

121

m «s?fmn^mi^m 2 ^

mechanism by which a set of HRM resources are

combined into an effective human resource system

that confers a competitive strength to the firm. In

other words, a research question still remains

regarding how the four HRM resources can be

combined systematically to be capable of generat

ing positive financial outcomes in overseas opera

tions. Theoretically speaking, the mere transfer of

the on-the-job problem solving resource, when

isolated from other bundles of HRM resources,

may not yield high profitability (Cole, 1994). To

answer this question, a series of two-way ANOVA

tests were conducted to examine the pattern of

effects between problem solving and other re

source factors upon affiliate business perform

ance.

Figure 1 shows the result derived from a two-

way ANOVA test conducted by crossing the SOLV

factor (high vs. low) with COMM (high vs. low)

for testing effects of these factors on PROFIT. The

ANOVA test produced statistically significant F

ratios for main effects of SOLV and COMM: F

= 3.40 OC05) andF=7.42 (p<.01), respectively.

The result also indicates that the highest profit

ability score is benchmarked in a combination of

high-SOLV and high-COMM (mean = 4.44), while

the lowest is in the low-SOLV and low-COMM

combined (mean = 3.44) with a trend of an interac

tion term CF=2.62, £<.10) being created between

them. In this case, it appears that transferring the

problem solving resource to the affiliates with

enough resources for long-term commitment may

result in the superior financial performance. The

similar additive pattern of effects was found

between SOLV (F=4.47, £=.05) and EDUC (F

= 2.33, /><.10) resources, indicating that the prob

lem solving resource, when combined with the

educational investment resource, tends to produce

superior performance consequences in overseas

manufacturing activities. No significant interac

tion effect was found between them (F = 2.84, n.s.).

These results clearly suggest that the fundamental

HRM resources, particularly COMM and EDUC,

need to be matched with the SOLV resource for

generating higher profit.

Based on the above results, it is interesting to

4.50 \

4.25

H 4.00 -

o

£ 3.75

3.50 -

3.25

Transfer of

COMM

L

Transfer of SOLVH

Two-way ANOVA result:For the whole model, F = 486.82, p<.001,Effect of SOLV, F = 3.40, p<.05,Effrct of COMM, F = 7.42, p<.01, andInteraction effect, F = 2.62, p<.10.

Note: H and L represent the high and low groups for eachfactor, respectively.

Figure 1. Effects of problem solving (SOLV) andlong-term commitment (COMM) resourcesupon the profit rate (PROFIT) of Japaneseaffiliates in China and Taiwan.

note that major functions in overseas affiliates

may not be in reducing turnover and absenteeism

rate, but in facilitating the SOLV resource to

produce a stronger instrumental effect on finan

cial performance. Then, the next question is to

explore how high performing Japanese affiliates

in China and Taiwan manage to combine the

problem solving resource with other resource

bundles for assuring high financial performance

of the firm.

HRM Path to Affiliate's Performance

Results of regression analyses on affiliate's per

formance demonstrated that out of four HRM

resources, the transfer of on-the-job problem

solving resource including MBO, QC circle activi

ties, Kaizen systems and off-the-job training (Off-

JT) had direct effects on affiliate's performance,

especially on financial performance (PROFIT and

EVALUAT). However, results of ANOVA shown

in Figure 1 suggested that on-the-job problem

solving resource is not the only source of produc

ing high business performance in overseas

122-

Strategic Transfer of HRM Practices for Competitive Advantage

Japanese affiliates. As predicted in Hypothesis 3,

the effect of on-the-job problem solving resource

on affiliate's performance will be strengthened by

the effects of other HRM resources. In other

words, affiliate firms would not be able to gener

ate maximum performance outcomes, unless

whole sets of HRM resources were transferred

systematically and reorganized to reinforce each

other within an integrated system. These insights

necessitate the further exploration on the mecha

nism of performance functions of the HRM re

source system and its strategic transfer to over

seas affiliates.

Based on the regression results in Table 3, a

path analytical diagram was designed. Initially,

all possible paths to PROFIT were identified by

interpreting statistically significant 0 weights

presented in Table 3. Next, paths to transfer of the

problem solving resource (SOLV) were confirmed

by regressing SOLV to all other independent

variables. Thirdly, the remaining three HRM

resources (WELF, COMM, and EDUC) were

subject to explanation by regressing each one on

all background variables. Then, significant 0

coefficients atthe/><C05 level were interpreted as

linkages that comprise a path diagram of HRM

transfer as shown in Figure 2. Figure 2 highlights

the path diagram for explaining PROFIT. Similar

results were confirmed for the other measure of

financial performance, EVALUAT. Based on this

diagram, the following two findings can be dis

cussed in detail, regarding the pattern of interde

pendence among four HRM resources and its

effects upon affiliate's financial performance.

First, a path was found bridging the effect of

educational investment with that of the problem

solving resource to the performance variable.

Namely, transfer of the educational resource was

found to have a significant and positive contribu

tion to the function of on-the-job problem solving

resource (/3=.39, p<.001), which directly im

pacted on the profit rate ( 0 =.24, p<.001). As

such, transfer of the educational resource played a

vital role for the problem solving resource to exert

its positive impact on performance. It is, however,

important to note that the educational resource

alone can not become the direct source of profit-

making in overseas Japanese affiliates. Rather, it

serves as a catalyst HRM resource by which the

more instrumental problem solving resource can

get energized for achieving high performance. In

this respect, these two HRM practices may consti

tute core resources as a set for Japanese affiliates

to outperform competitors through HRM in over

seas operations.

Secondly, the significant paths which link the

in-company welfare (WELF) and commitment

(COMM) resources with the educational resource

were confirmed. These two fundamental HRM

resources were found to facilitate the function of

the educational resource (0 =.18, £<.01 and 0 =

.22, £<.001, respectively), and at the same time

reinforce that of the problem solving resource

significantly (£=.12, /K.05 and 0 =.17, /><.01

respectively). In other words, transfer of these two

basic HRM resources helped promote the function

of education and training systems which enabled

on-the-job problem solving practices to work

effectively in overseas affiliates.

Thus, all these findings combined give support

to Hypothesis 3 that states the transfer of basic

HRM resources, covering educational investment,

in-company welfare and long-term commitment

resources, works for underpinning on-the-job

problem solving activities. Again, this result

clearly indicates that the problem solving resource

alone would not fully function to yield rents,

unless other underpinning HRM resources were

simultaneously transferred and became embedded

in affiliate's organizational structure in a system

atic manner.

Contrary to the positive relationship found

between HRM resources and financial perform

ance, it was found in Figure 2 that variables

associated with the ethnocentric staffing policy

pursued by Japanese firms in overseas operations

produced negative effects on performance.

Namely, whether the nationality of managers is

Japanese or not (GM NAT and PM NAT) and how

large the ratio of Japanese expatriates to total

employees (%JEX) were found all negatively

affecting performance except for the effect of

123 -

J! «EifiB*¥*i5#s&2^

%JEX upon the educational resource. In particu

lar, GM NAT (general manager's nationality)

was found negatively affecting the educational

resource transfer (0 = —.12, £<.05) and the profit

rate ( 0 = - .12, p<.05) in overseas affiliates,

indicating that overseas affiliates with local

(non-Japanese) general managers are more likely

to transfer the educational resource from the

Japanese parent, and to achieve a higher profit

rate. The variable, %JEX, showed a similar

pattern of effects over in-company welfare ( # =

- .20, p<M) and the profit rate ( 0 = - .22, p

<.01). This result again shows that the absence of

Japanese expatriate's dominance may lead to

more transfer of HRM resource that produce

higher economic performance. The implication of

the above findings may be that the highly localized

Japanese affiliates in China and Taiwan are likely

to have more home-derived HRM resources and

enjoy higher performance relative to the less

localized ones in terms of nationality of managers

and percentage of Japanese expatriates. These

results do not merely provide evidence to the

criticism toward the ethnocentric staffing policy

by Japanese firms, but also more interestingly

Input Factors

Affiliate'sCharacteristics

AGE

SIZE

PMNAT

GMNAT

%JEX

FundamentalHRM Resources

Long-termCommitment

Incentives

provide evidence to the negative effect of Japanese

excessive management control upon affiliate's

financial performance.

6. Discussion

Figure 3 summarizes mechanisms for achieving

high business performance by overseas Japanese

affiliates through transfer of a set of home-derived

HRM resources. As shown in the diagram, the

HRM resource system in overseas Japanese affili

ates was found to have a hierarchical structure.

First, performance of overseas Japanese affiliates

becomes to be influenced by the three underpin

ning HRM resources, i.e., in-company welfare,

long-term commitment and educational resources

transferred from the parent firms. Second, these

HRM resources enable the overseas affiliate to

acquire capabilities to incorporate the more

instrumental HRM resource, namely on-the-job

problem solving resource, which will directly

contribute to the high-quality and cost-saving

production in overseas affiliates. Thus, it is im

portant for Japanese firms to make a strategic

decision for the systematic transfer of home-

derived HRM resources to their overseas business

Outcome

Instrumental

HRM Resource

Problem

Solving

.12 ^'

-.22

Affiliate's>( Performance

(Profit Rate)

->• Positive effect

-> Negative effect

Figure 2. The path analytical diagral for affiliate's performance (profit rate) and humanresource management in overseas Japanese affiliates

124-

Strategic Transfer of HRM Practices for Competitive Advantage

units, from the basic educational to more instru

mental resources. For this purpose, the present

study suggests the three-phased, sequential proc

ess of transferring home-derived HRM resources

to overseas affiliates for achieving high business

performance. Based on Figure 3, the strategic

transfer process of HRM resource to the overseas

affiliates by Japanese firms can be summarized as

follows.

Initial Phase: Enhancing Employee's Organiza

tional Commitment. The initial phase for trans

ferring HRM systems to overseas affiliates is to

shift resources for enhancing local employee

commitment to the affiliate organization by

providing employees with in-company welfare

and long-term commitment incentives. These two

may work as fundamental resources on which the

other more instrumental HRM resources can be

built for generating high business performance in

the overseas affiliates. The transfer of in-company

welfare which includes relatively tangible re

sources was also found to help reduce employee's

absenteeism as shown in Table 3. Additionally,

transferring the long-term commitment resource

typified by relatively intangible resources such as

lifetime employment, seniority-based personnel

practices and a retirement allowance system was

found to reduce employee turnover. These HRM

resources may function to enhance employee's

attitudes toward the job and organization, and

contribute to improve behavioral outcomes of the

firm. As pointed out by Cole (1994) based on the

theory of organizational learning, turnover is the

enemy of quality since it involves the loss of or

ganizational memory. There needs to be ample

time for employees to build networks for sharing

information and learning from one another.

However, the issue is not the length of service

itself, but the capability of building organiza

tional structure that sustains the organizational

learning process. In this context, transfer of these

two underpinning resources constitutes the foun

dation for introducing more instrumental HRM

resources, i.e., educational and on-the-job prob

lem solving ones. Moreover, Yoshihara et. al.

(1988) noted that these underpinning functions, so

called laborforce management functions, are

likely to be transferred and developed at the ear

lier stage in overseas operations lead by PCN

(Japanese) expatriate managers. Practically,

PCN managers responsible for constructing the

basis to develop laborforce management functions

at the initial stage of their overseas operations.

Second Phase: Strengthening Education and

Training Functions. The second phase for trans

ferring HRM practices to overseas affiliates is to

strengthen education and training functions by

introducing the HRM resources that promote

introductory training, OJT, supervisory training,

and so forth. Namely, as the laborforce manage

ment functions are strengthened through the

preceding phase, the focus of transfer shifts to

wards cultivating the local personnel to become

competent workers, supervisors and managers in

the affiliate organization. The clear difference

between the educational and problem solving

resources can be seen depending on the differential

degrees of the firm-specific nature of these re

sources. Namely, resources associated with the

educational function may include those for the

entry-level employee training, OJT, supervisory

training, and task-based training which are ori

ented toward providing knowledge or skills to

help employees do their routine tasks. On the other

hand, resources related to on-the-job problem

solving that include MBO, QC circle activities,

suggestion systems and off-the-job training, are

directed toward providing more specialized

knowledge or skills for solving problems on the

job for the purpose of quality improvement and

cost reduction. Unlike these instrumental re

sources which are more firm-specific in nature,

the educational resource is considered more gen

eral, and may not contribute to yielding rents

directly. However, educational resource enables

affiliate firms to build their absorptive capacities

of knowledge and information leading to an

incremental innovation and shop-floor problem

solving. In summary, the educational resource is

the latent source of competitive advantage in

overseas Japanese affiliates, while the problem

solving resource being a more salient one.

125-

is m gSff»»S**l5«JI£2-

Moreover, Yoshihara et. al. (1988) pointed out

that when the overseas operations are developed

beyond a certain degree, the size of production

becomes expanded, and thus the affiliate organ

izational system becomes more bureaucratic.

They said this is the point where the delegation of

management authorities may start, shifting from

the PCN managers who contributed to laying

down the organizational foundation to local

managers who have been nurtured to succeed their

managerial positions. Thus, cultivating the com

petent local personnel through transferring educa

tion and training resources to the overseas affili

ates becomes critical in this phase where the

affiliate firms start to expand their operational

and organizational capacities.

Third Phase: Introducing Problem Solving

Resource for Cost and Quality Management. The

last phase for achieving competitive edge in over

seas affiliates through HRM is to facilitate cost

and quality management functions by transfer

ring the HRM resource for on-the-job problem

solving that includes the MBO, QC circle activities,

suggestion and improvement (Kaizen) systems,

and Off-JT. As pointed out by Cole, this core HRM

resource constitutes the heart of organizational

learning and help yield the valuable return to the

firm. According to him, the above-mentioned

problem solving activities help develop organiza

tional capabilities for implementing rent-yielding

programs through the creation of best-practice

solutions to organizational problems and their

rapid diffusion within the firm. This mechanism

enhances organizational learning to evolve

through the rigorous individual learning and the

subsequent sharing of the learnt knowledge in the

group context. In other words, the transfer of

problem solving resource may help enlarge organ

izational adaptability and thus capability for

knowledge acquisition in the overseas affiliate.

Once this learning mechanism is successfully

transferred and organizationally embedded in the

foreign affiliate, it may function to boost perform

ance. Again, it should be noted that the successful

transfer of the three basic HRM resources must

precede in order to make this final phase transfer

[Outcome] Affiliate's Performance

[Throughput]

[Input Factors]

In-compamy Welfare

Provison of Corporate HousingEmployee Stock Holding Systems

Cultural/Athletic ActivitiesHousing Loan

[Tangible Resources]

Problem SolvingQC Circle ActivitiesSuggestion and Improvement System

Off-JT

MBO

Educational Investment

Introductory TrainingOJT

Supervisory TrainingTask-based Training

Japanese HRD Systems

[Core HRM Resources]

Long-term CommitmentIncentives

Lifetime EmploymentSeniority-based PromotionRetirement Allowance SystemSymbolic Egalitarianism

[Intangible Resources]

Figure 3. Transferring process of Japanese HRM practices for affiliate's performance amongJapanese firms in China and Taiwan

126-

take place successfully for achieving competitive

edge in overseas operations. Furthermore, the

present finding indicates that the delegation of

management authorities from the PCN to HCN/

TCN managers constitutes another aspect of

ensuring high business performance in overseas

affiliates. Perhaps, at the final stage of HRM

resource transfer where the superior performance

is sustained through the cost and quality manage

ment programs, transfer of other intangible

firm-specific resources including parent's corpo

rate philosophy and culture may be completed,

enabling the affiliate organization to be an inte

grated unit within the global business network. To

reach this stage,* the tacit organizational knowl

edge needs to be transferred to the affiliate organi

zation through development of local managers

and engineers (Botti, 1996). In other words, the

sequential transfer strategy of home-derived HRM

resources needs to be designed to facilitate the

localization of human resources and the infiltra

tion of managerial philosophy and culture.

(Wakabayashi & Graen, 1991).

Conclusion

Although a large number of studies have investi

gated the transferability of Japanese-style HRM

in China and Taiwan, most studies have used

qualitative data or survey data with relatively

small sample. Few studies have examined the

HRM effects on business success for Japanese

overseas operations in these areas based on the

study of the transfer process of HRM. The present

study is one of the few studies which examined the

links between the transfer of parent company's

human resources and performance consequences

of overseas affiliates by using the relatively large

sample data in particular. What this study clearly

demonstrated is that HRM resources will become

the source of competitive advantage for Japanese

affiliates in China and Taiwan, when they are

systematically transferred and become embedded

in the affiliate organization. It can be concluded

that to acquire global competitiveness, Japanese

firms may need to follow the sequential transfer

strategies of their home-derived HRM resources to

their transplants from the basic to instrumental

resources.

Finally, limitations of this research can be

summarized as follows. First, the present re

search employed the two financial performance

indicators, i.e., a profit rate and subjective evalua

tion of corporate performance, and two measures

of behavioral consequences, i.e., employee turn

over and absenteeism rates. These performance

indicators may capture relatively short-term

performance consequences of the firm. However,

human resource management can be regarded as

an asset that may constitute a source of the sus

tainable competitive advantage, and thus the

outcomes generated by HRM may not necessarily

be evaluated by the short-term performance meas

ures (Pfeffer, 1994). Recent research, therefore,

has attempted to introduce the time series finan

cial data (Snell & Youndt, 1995) or Tobin's q

which represents a future-oriented and risk-

adjusted capital market measure of performance

(Huselid, 1995; Huselid, Jackson, & Schuler, 1997)

when examining the HRM effects on firm perform

ance. However, due to the difficulty of conducting

international research in general and collecting

the objective data in particular, our study was

compelled to use self-reported measures of finan

cial performance. This may constitute a limita

tion for this research, but the self-reported meas

ure is still considered to be an acceptable substi

tute in the absence of objective measures (Dess &

Robinson, 1984).

Second, sample affiliates for the present study

are limited to those from China and Taiwan,

where the cultural similarity to Japan seems high

(Hofstead, 1980). To allow generalization of

findings of the present study, future research needs

to be done to examine strategic roles of four HRM

resources in Japanese firms operating in other

foreign countries like US, European and other

Asian countries. Moreover, the present study

attempted to propose the sequential transfer

model of home-derived HRM practices based on

the path analysis followed by the multiple regres

sion analyses. However, this analytical technique

is known to be an explorative approach (Toyoda,

127

m m mrrmm¥mibmm2-

2000), and the transfer model derived from our

study may be considered arbitrary rather than

factual. For our proposed model to be more

reliable and generalizable, a more rigorous em

pirical investigation needs to be done based on the

structural equation modeling (SEM) analysis by

which the model testing based on the confirmatory

approach is possible.

Finally, the present study focuses on the process

by which the affiliate firms in China and Taiwan

establish the superior business performance

through transferring HRM resources from Japa

nese parents. However, the question still remains

regarding how the home-derived (Japanese) HRM

resources are combined with host country's HRM

practices to produce better performance. This

research question is addressed to answering how

transferred HRM resources can be integrated with

local practices to get a benefit from the enhanced

local responsiveness (Bird, Taylor, & Beechler,

1999). This question involves research on the

"cross-cultural learning" process which must be

explored by conducting studies on HRM resource

transfer and local integration in the host country.

More empirical investigations are encouraged for

clarifying relationship between the integration of

HRM resources and affiliate's business perform

ance in diversified international business con

texts.

Acknowledgements

The research was partially supported by Young

Scholars Award for Overseas Research Activities

provided by Japanese Association of Industrial/

Organizational Psychology. The authors are

grateful to Professors Wang Zhong-Ming

(Zhejiang University) and Agola Nathaniel

(Kansai Gaidai University) for their helpful

comments and suggestions on the earlier versions

of this article. Also, authors appreciate the coop

eration provided by the Japanese firms in China

and Taiwan for making this study possible.

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Received August 15, 2001

Accepted September 15, 2001

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