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Page 1: The impact of human resource management on export performance of Chinese manufacturing enterprises

T409

The Impact of Human ResourceManagement on ExportPerformance of ChineseManufacturing Enterprises

Jianshu Deng � Bulent Menguc � John Benson

Executive Summary

Export growth has been a major contributor to the economic development of China.Underpinning this growth was the development of special economic zones, the reformof SOEs, and the adoption of new models of human resource management. Few empir-ical studies, however, have been conducted to explore the effects of human resourcemanagement on the export performance of Chinese firms. This was the purpose of thisstudy. Based on a survey of 96 SOEs in four special economic zones, the research foundthat human resource management had a substantial impact on enterprise perfor-mance as measured by export growth and the percentage of export sales. The articleconcludes by suggesting avenues for future research. © 2003 Wiley Periodicals, Inc.

INTRODUCTION

he Chinese economy has undergone substantial reform over the past two decadesas a policy of gradual reform toward a market economy has gathered momentum.Engagement in international trade and the need for substantial foreign invest-ment has been the major impetus for this reform. The growing inefficiency anddebt of state-owned enterprises (SOEs) that has arisen under this reform has has-tened this process. A key element of the reform process has been the establish-ment of Special Economic Zones (SEZs). These zones were established toencourage foreign investment as well as providing an environment for SOEs todevelop a strong export focus (Zhu, 1995). The success of these zones can beseen in the contribution that exports have played in the economic development

Thunderbird International Business Review, Vol. 45(4) 409–429 • July–August 2003

© 2003 Wiley Periodicals, Inc. • Published online in Wiley InterScience (www.interscience.wiley.com).

DOI: 10.1002/tie.10088

Jianshu Deng is from the Commerce Division, Lincoln University, New Zealand. Bulent Menguc(Ph.D., Marmara University) is senior lecturer in marketing. John Benson (Ph.D., University ofMelbourne) is an associate professor and reader in the Department of Management, University ofMelbourne, Australia. From 1994 to 1997, he was professor of economics and management atHiroshima City University, Japan.

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in China in recent years (Liu, Song, & Romilly, 1997; Park & Prime,1997; Zhu, 1995).

The difficulties being experienced by SOEs have led to attempts tointroduce modern human resource management (HRM) practices inthese enterprises (Branine, 1997; Zhu & Dowling, 2000a). SOEs arenow required to become “modern enterprises” in terms of economicperformance and employment relations (Warner, 1997a, 1997b).SOEs have, however, shown some resistance to Western HRM prac-tices (Child, 1994; Warner, 1993). There remains some continuity ofthe traditional “iron rice bowl” practices and personnel management ina large number of SOEs (Goodall & Warner, 1997). This also appliesto many joint ventures (Lu & Bjorkman, 1997) and foreign firms oper-ating in China (Ding, Fields, & Akhtar, 1997). Even among the mostadvanced hi-tech enterprises, HRM has not yet replaced existing per-sonnel management due to organizational inertia and built-in culturalnorms (Warner, 1999). Nevertheless, a new model of HRM withChinese characteristics has emerged (Warner, 1997a, 1999).

Despite the claimed importance of HRM, few studies have analyzedthe effects of Chinese HRM practices for enterprise performance(Chow & Shenkar, 1989; Cyr & Frost, 1992). The diversity in HRMpractices and the export focus of enterprises in SEZs allows for the test-ing of this relationship. The purpose of this article is to develop and testthis proposition by investigating the relationship between HRM prac-tices and enterprise performance. In other words, has the adoption ofWestern HRM translated into improved export performance inChinese SOEs? The article commences by outlining the recent devel-opments in HRM in China. The next section presents the hypothesesand the explanatory model to be tested. The research methodology isoutlined in the following section. Section 5 presents the research find-ings and the results of the hypothesis testing. The article concludes bydiscussing the results and considering the implications of the research.

HUMAN RESOURCE MANAGEMENT IN CHINESE ENTERPRISES

The adoption of market economic principles has allowed for the devel-opment of HRM in Chinese firms (Zhao, 1994; Zhu, 1997).Enterprise management can now select and hire appropriate employ-ees, examination systems to chose employees have become widespread,and performance appraisal is used for the selection of managers(Warner, 1996). Employees whose performance is unsatisfactory can

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410 Thunderbird International Business Review • July–August 2003

Despite theclaimed impor-tance of HRM,few studieshave analyzedthe effects ofChinese HRMpractices forenterprise per-formance . . .

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The Impact of Human Resource Management on Export Performance of Chinese Manufacturing

411Thunderbird International Business Review • July–August 2003

now be dismissed. Prior to the reforms, lifetime employment was thenorm that not only represented a guarantee of a job for life but was alsotied to the provision of welfare services. Legislation that came intoforce in 1986 replaced lifetime employment with a system of labor con-tracts. All new employees now work under contracts. These reformshave created an external labor market (Nelson & Reeder, 1985) andprovided more freedom in the selection and dismissal of staff.

The low efficiency and productivity of Chinese enterprises, togetherwith the relatively poor educational background of employees andthe mismatch of employees’ skill and job requirements created a needfor training and development. Since 1984, China has implemented anational program of vocational training in all state-owned and collec-tive enterprises (Zhu & Dowling, 1994). Education and vocationalqualification certificates have become the main criteria for employees’entry and retention, and are increasingly being used to determineemployee compensation (Zhu, 1997). This trend encourages youngpeople to increase their prework education, and forces employees toundertake on-the-job training. Management training has also beenimplemented, with various programs being conducted in China andoverseas (Zhu, 1997; Benson & Zhu, 2002).

Prior to the introduction of market reforms, wages were primarily linkedto employee seniority and grade, and bonuses to the achievement ofgovernment set targets. In more recent years, SOE management has hadmore flexibility in developing reward systems, and is increasingly linkingwages and bonuses to enterprise profitability (Warner, 1996; Zhu &Dowling, 2000b). At present, the most common individual perfor-mance device in Chinese firms is payment by piece rates, while bonusesdepend on overall organizational performance.

The reforms over the past two decades have made the SOEs’ economicposition dependent upon their performance. Enterprise managementnow has the authority to make decisions concerning human resources(Selmer et al., 1999). As with privately owned firms, managers in SOEsrisk losing their position if the enterprise makes a loss. In these circum-stances, smaller SOEs may be declared bankrupt and be forced to close.On the other hand, if the enterprise makes a profit, they are allowed toretain after-tax profits to reinvest and to reward productive employees.Monetary rewards are also given to employees who offer suggestions orinventions that can lead to improved profitability (Benson & Zhu,1999). These changes to the reward system have brought SOEs morein line with the compensation systems of privately owned enterprises,joint ventures, and wholly foreign-owned enterprises.

The reforms overthe past two

decades havemade the SOEs’economic posi-tion dependentupon their per-

formance.

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Performance appraisals have now become widely used in Chinesefirms (Wang, 1993). Such systems break the “iron rice bowl” by link-ing individual performance to compensation or other HRM practices,such as job selection and training (Zhu & Dowling, 1994, 2000b).Chow (1994) found that Chinese managers perceived performanceappraisal as a necessary tool for the proper management of personnel.Moreover, he pointed out that Chinese managers used performanceappraisals to provide feedback to subordinates to help improve per-formance, to allocate rewards, to obtain information for higher levelmanagement, to plan goals, and to monitor and control work.

In short, the introduction of HRM into Chinese enterprises hasinvolved a number of strategies to ensure appropriate people areemployed, that adequate training is provided, that rewards are based onan objective appraisal of performance, and that rights are established andrelationships maintained (Delaney & Huselid, 1996; Huang, 1998;Huselid, Jackson, & Schuler, 1997). Notwithstanding these develop-ments, the HRM practices in China are different from those in the Westeven though they are, in many cases, adaptations of Western practices.As Saha (1993) argued, the national environment and culture, and orga-nizational characteristics shape HRM practices in a country. In particu-lar, Chinese economic plans, modernization programs, politicalleadership, cultural values, and labor unions have influenced the adop-tion of Western HRM practices. Therefore, although Western forms ofHRM have been introduced in Chinese firms, they tend to result inHRM with “Chinese characteristics” (Warner, 1997b). This hybridmodel includes some Western style HRM practices with elements con-sistent with Chinese socialist ideology. In practice, this means that enter-prise selection of employees, contract employment, individual-basedpay, and recognition for skill acquisition operate alongside equality ofpay for males and females, limited hierarchical pay differentials and theprovision of housing and other benefits (Ding et al., 1997).

HYPOTHESES AND EXPLANATORY MODEL

Although differences in Chinese and Western HRM have emerged,Chinese enterprises are increasingly placing importance on HRMpractices in an attempt to improve their competitive position. Thissection develops a number of hypotheses relating individual HRMpractices to export performance. An overall effect of HRM is alsohypothesized. Following the specification of the hypotheses, anexplanatory model (HRM and control variables) is developed toallow the hypothesized relationships to be tested.

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. . . the nationalenvironment andculture, andorganizationalcharacteristicsshape HRM prac-tices in a country.

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HRM and Export PerformanceEmployee SelectionExporting is considerably more complicated than domestic selling(Christensen, Rocha, & Gertner, 1987). For example, foreign lan-guage ability is a weakness for many export firms (Seringhaus, 1988).Moreover, successful exporters depend on detailed market researchprior to export (Aaby & Slater, 1988). Effective research, however,requires employees with special skills who can analyze foreign mar-kets and management personnel that can initiate and make appropri-ate decisions (Cavusgil & Naor, 1987). Many researchers have, forthese reasons, identified export experience/knowledge as an impor-tant determinant of export success (Seringhaus, 1988). This experi-ence is important when firms are exploring export opportunities,trying to understand foreign market environments, and attemptingto react quickly to unexpected opportunities and change. It is there-fore hypothesized that there will be a positive relationship between theimportance placed on employee selection and export performance inChinese enterprises (H1).

Employee TrainingEmployees encounter a range of problems in foreign customercommunication during exporting (Aaby & Slater, 1988). Many ofthese problems are caused by differences in language and culture.Training can improve exporters’ language skills and update theirknowledge of other cultures. For example, Barkema, Bell, andPennings (1996) identified a number of cultural barriers in export-ing, and argued that training is a good way to overcome these bar-riers. Successful exporters emphasize the gaining of marketknowledge through formal information seeking and relevantresearch (Aaby & Slater, 1988). These research skills can, at least inpart, be achieved through training.

Training can take a variety of forms. Attending trade fairs in foreigncountries, as part of a training program, provide opportunities foremployees to gain experience (Christensen et al., 1987). Exporterswith overseas work experience are in a position to be aware of oppor-tunities and so enhance export sales (Axinn, 1988). Exporters alsogain knowledge of dealing with foreign clients through trainingcourses. This helps reduce the problems in communication with over-seas buyers or sellers. As personal visits are also important for exportsuccess (Cavusgil & Naor, 1987), the right communication skills arecritical for exporters. Serignhaus (1988) argued that training is agood way to gain the necessary knowledge and improves the qualityof decisions.

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Training canimprove

exporters’ lan-guage skills and

update theirknowledge of

other cultures.

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Xiao (1996) found empirical support for the proposition that train-ing is significantly related to improved job performance, and thatemployees perceive training as important in the Chinese enterprise.Moreover, Zhu and Dowling (1994) noted that a major problemfaced by all Chinese enterprises was a lack of suitably trained profes-sional employees. Training is seen as the primary vehicle for increas-ing productivity in Chinese enterprises (Bjorkman & Lu, 1999). It isthus hypothesized that there will be a positive relationship between theimportance placed on training and export performance in Chineseenterprises (H2).

Performance AppraisalPerformance appraisals provide data on employees’ performance andtheir work effort. This data helps management to reward high-per-forming employees as well as providing information to managementconcerning the assistance needed by employees to improve their workperformance. Successful exporting enterprises have been found torely on formal control systems for monitoring performance in theexport markets and also formal measurement systems for monitoringindividual performance (Aaby & Slater, 1988). Performanceappraisals can also be of value to the employee as a means of improv-ing communications and raising the level of trust between workersand their supervisors (Stone, 1998). As trust improves, so does coop-erative behavior and individual performance (Grzelak, 1988).

Performance appraisals are widely practiced in Chinese enterprises asa way of linking individual performance to valued rewards (Zhu &Dowling, 1994). These appraisals also provide feedback to manage-ment about current policies, and what special training is needed byemployees. This reduces the problems caused by general skill short-ages and inadequate experience in Chinese export enterprises. It istherefore hypothesized that there will be a positive relationship betweenthe use of performance appraisals and export performance in Chineseenterprises (H3)

Performance-Based RewardsRewards are used to provide adequate compensation and also tochange attitudes and motivate employees (Stone, 1998). Yau andBrown (1993) found that a positive attitude among employeesimproved the success of export activities. These attitudes can bringabout higher export intensity and growth. More positive and moti-vated employees should lead to improved organizational performance(Louter, Ouwerkerk, & Bakker, 1991). Rewards linked to perfor-mance can stimulate employees to work harder or perform more

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As trustimproves, sodoes cooperativebehavior andindividual performance . . .

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effectively. As Christensen et al. (1987) found, inadequate financialrewards are an obstacle to export success. Higher rewards will attractand help to retain skilled employees (Saha, 1993). In short, higherrewards confirm employees’ success and encourage employees tocommit to the firm.

Equal pay for employees, regardless of quantity and quality of work,was the rule in Chinese export enterprises before 1980. More recent-ly, new reward systems have been introduced that allow the level ofcompensation to vary depending upon individual or group produc-tivity. These include floating wages, time and piece rates, and bonus-es for superior performance (Saha, 1993). In many Chinese exportenterprises, bonuses and floating wages are tied to export sales. Theseperformance components have been shown to increase productivity(Zhu & Dowling, 1994). It is thus hypothesized there will be a posi-tive relationship between performance-based rewards and export per-formance in Chinese enterprises (H4).

HRM BundlesThe four hypotheses presented above test the relationship betweenthe individual components of HRM and export performance. If theseindividual components are “interrelated and internally consistent”(MacDuffie, 1995, p. 198), then it is likely that as a bundle the indi-vidual HRM practices will have a combined, additional effect. Thatis, HRM is more than simply the sum of the individual components.Previous research, however, has rarely explained how much HRM, asa whole, has influenced enterprise performance. Becker and Gerhart(1996) suggested that future research should include all relevant fac-tors so as to observe the overall HRM-performance link. Given theclear relationships between selection, training, appraisals, and rewards(Stone, 1998) it is hypothesized that there will be a significant rela-tionship between the bundle of HRM practices and export performancein Chinese enterprises (H5).

Control VariablesTo test the five hypotheses concerning HRM and export perfor-mance, a single explanatory model was developed. As all enterprisesin the study were SOEs operating in SEZs, their external, industrial,and political environments were similar. As such, control variables inthe model will be limited to internal enterprise factors. Moreover, asAmine and Cavusgil (1986) suggested, research focusing on compa-ny-specific factors in relation to export performance can explain thedifference in both company and country export performance. Threegroups of internal determinants were considered. These were enter-

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In short, higherrewards confirmemployees’ suc-

cess andencourage

employees tocommit to the

firm.

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prise characteristics, export experience, and marketing strategies, andmotivation for exporting. By controlling for these variables, theexplanatory power of HRM practices on export performance, aboveand beyond these factors, can be ascertained.

Enterprise CharacteristicsLarge firms have advantages that enable them to more effectively

engage in exporting (Aaby & Slater, 1988). Moreover, size affects afirm’s marketing capabilities, attitudes, needs, problems, and prac-tices (Nakos, Brouthers, & Brouthers, 1998). A firm’s years in busi-ness may also be a positive factor in export success. The cumulativeexperience of operating in domestic markets, and the experience ofdomestic selling (Cavusgil & Naor, 1987), can provide useful experi-ence for future export activity. Previous research has shown that firmsize, as measured by number of employees (Cavusgil & Naor, 1987;Dean, Menguc, & Myers, 2000; Nakos et al., 1998), and the num-ber of years in business (Dean et al., 2000) are positively related toexport performance.

Export Experience and Marketing StrategiesA firm’s export experience has been found to contribute to high lev-els of export performance through the enhanced ability to solveexport problems and exploit export opportunities (Dominguez &Sequeira, 1993; Seringhaus, 1988). More specifically, the years ofexport experience discriminate clearly between high and low exportperformers (Dean et al., 2000). Export marketing strategies helpexporters exploit international opportunities and sustain market share(Louter et al., 1991). Nevertheless, the value of diversifying or con-centrating markets remains unclear in the literature. A number ofresearchers have argued that concentration in markets results in effec-tive use of resources (Dominguez & Sequeira, 1993). Otherresearchers have provided support for market diversification as thisreduces the risks involved in exporting (Amine & Cavusgil, 1986).Notwithstanding the contradictory findings of previous research, theimpact of market strategy on export performance is significant (Deanet al., 2000).

Export MotivationMotivation for exporting, as measured by the proactiveness versus reac-tiveness dichotomy, is a key factor in export performance (Axinn, 1988;Christensen et al., 1987). Johnston and Czinkota (1982) reported thatproactive exporters tend to have larger sales volume, follow more cohe-sive export marketing strategies and place more emphasis upon cus-tomer service. Proactive and reactive firms can be differentiated by

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Export marketingstrategies helpexporters exploitinternationalopportunitiesand sustain mar-ket share . . .

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ascertaining why and how they initiated exporting (Dean et al., 2000).Motivation for exporting was measured by the proactiveness/reactive-ness dichotomy (Dean et al., 2000; Dominguez & Sequeira, 1993).

RESEARCH METHODOLOGY

Research Setting and Data CollectionSOEs from four Chinese SEZs, Shenzhen, Zhuhai, Shantou, andXiamen, were chosen for this study. These SEZs were first opened tothe world after the implementation of the “open door policy” in1979. Many major strategies, including encouraging the manufactureof competitive products and the adoption of Western managerial prac-tices, were first introduced in these zones to spur economic growth(Xiao, 1996). Thus, these regions have been subjected to foreign tech-nology and management practices longer than most other areas ofChina. As Saha (1993) claimed, the SEZs created by the Chineseauthorities to enter into joint ventures with overseas enterprises werea significant environmental force for HRM change in China. The sam-pling frame for this study were state-owned exporting firms in thesefour zones listed in the Spring 1999 publication of the GuangzhouTrade Fair. Only enterprises engaging in exporting are included in thepublication and were in attendance at the fair. For these enterprises thekey measure of success is their export performance. Although thesefirms are not typical of all Chinese enterprises, we contend that theyprovide a good indication of future developments elsewhere in China.

A questionnaire was developed that included scales and open-endedquestions covering the enterprises’ basic characteristics, export experi-ence, marketing strategy, export performance, and HRM practices. Asthere was little literature on the management and organization of pro-duction in China, the questionnaire was designed on the basis of litera-ture from a non-Chinese context. Based on her experience, Zhu (1997)suggested using a translated questionnaire with local idioms and a sim-plified set of characters. This suggestion was adopted, as it would mini-mize problems concerning the validity of questionnaires designed in theWest for non-Western societies such as China. The questionnaire wastranslated into Chinese and back-translated into English. Two nativeChinese speakers, with considerable experience in Chinese exportingenterprises and bilingual ability, checked all the translations.

The questionnaire and a cover letter addressed to the most seniormanager were distributed to a random selection of 180 export enter-prises attending the fair. The letter explained the purpose of the

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. . . the SEZs cre-ated by the

Chinese authori-ties to enter into

joint ventureswith overseas

enterprises werea significant

environmentalforce for HRM

change in China.

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research, the importance of their enterprise’s participation, and thereason for selecting that enterprise. Zhu (1997, p. 31) found that“the most typical concern of Chinese respondents was that of disclo-sure of their views” due to past political purges. To reduce this con-cern and increase the response rate, the questionnaires werepersonally distributed to the selected enterprises. Respondents whopreferred returning the questionnaire by mail were provided with astamped addressed envelope. The questionnaires were distributedand collected within 8 weeks. A total of 97 useable questionnaireswere returned, representing a response rate of 53.9%.

The respondent enterprises all engaged in manufacturing with 43.3%employing more than 50 employees. Slightly over 60% had beenoperating for longer than 10 years, with 53% of enterprises beinginvolved in exporting for a similar period. Nearly all enterprisesexported to multiple countries and had multiple customers. Almostthree-quarters of the enterprises had in excess of 100 export transac-tions per year and a similar percentage of enterprises had export salesexceeding 6 million RMB. Details are provided in Table 1.

MeasuresDependent VariablesExport performance was measured by two objective criteria: exportgrowth and export intensity. Export growth was defined as the aver-age export sales growth over 3 years, from 1996 to 1998. Exportintensity was measured as the percentage of export sales to totalenterprise sales.

HRM VariablesFour HRM practices were considered in this study: employee selec-tion, training, performance appraisal, and performance-basedrewards. Employee selection was operationalized to include the criteriafor selection and the intensity of selection (Gomez-Mejia, 1988;Shaw, Delery, Jenkins, & Gupta, 1998; Youndt, Dean, & Lepak,1996). Criteria for selection was measured by four items presented asa 5-point Likert scale. The items included selectivity, manual andphysical skills, technical skills, and problem solving. Intensity of selec-tion was measured by the number of methods used to select newemployees. Respondents were asked to choose the most commonselection methods used in their enterprise from a list of eight meth-ods (Youndt et al., 1996).

Training was measured by four items, presented as a five-point Likertscale, that was adopted from Youndt et al. (1996). The items related

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. . . “the mosttypical concern ofChinese respon-dents was that ofdisclosure of theirviews” . . .

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419Thunderbird International Business Review • July–August 2003

Table 1. Enterprise Characteristics (n = 97)

Characteristic %Firm size (Number of full-time employees)1–20 14.421–50 42.351–100 24.7101–500 15.5500+ 3.1

Number of years in businessLess than 5 years 4.15–10 years 3311–20 years 3321–40 years 19.641–50 years 9.3

Export experience (Number of tears in exporting)Less than 4 years 3.14–10 years 44.311–20 years 35.121–40 years 12.341–50 years 5.2

Number of countries exported toLess than 5 1.15–25 36.126–45 20.646–65 27.8Over 65 11.3Missing 3.1

Number of customers in main export marketsLess than 20 6.220–50 48.551–100 17.5100–500 17.5Over 500 4.1Missing 6.2

Number of export transactions (per year)Less than 50 7.250–100 19.6101–200 27.8201–1,000 25.8Over 1,000 14.4Missing 5.2

Annual export sales Less than 1.5 million 4.11.5–5 million 27.96–10 million 31.911–100 million 26.8Over 100 million 9.3

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to the importance of training programs, including comprehensive-ness, policy and procedural training, technical skills, and problem-solving skills. Performance appraisal was measured by the importanceplaced on a developmental focus as the underpinnings of the appraisalsystem (Youndt et al., 1996). This variable was measured by a singleitem presented as a 5-point Likert scale. Performance-based rewardswas measured by the existence of an individual or group-based per-formance-based reward system.

Control Variables Enterprise CharacteristicsTwo characteristics of the enterprise were included. These werefirm size, as measured by the total number of employees, and num-ber of years the enterprise had been in business. As all enterpriseswere in the manufacturing industry and most produced textiles andsimilar products, it was not necessary to control for potentialsubindustry differences.

Export Experience and Marketing StrategiesExport experience was measured by the number of years the enter-prise has been engaged in export activities. Marketing strategies, orthe diversification/concentration dichotomy, was operationalizedusing three criteria: the number of foreign countries exported to, thenumber of customers in the enterprise’s main export markets, and theaverage number of annual export transactions completed.

Export MotivationMotivation for exporting was measured by the proactiveness versusreactiveness dichotomy (Dean et al., 2000; Dominguez & Sequeira,1993). This measure was based on a single question asking respon-dents to list the major reason for exporting. Respondents were givena choice of five alternatives: the company’s aim since inception, toincrease production capacity, to improve profits, to counteractfalling domestic demand, and to earn foreign currency to purchasesupplies and equipment. The first three items are classified as proac-tive strategies, while the last two as reactive strategies. Details of allvariables, including means, standard deviations, and correlationswith other variables, are presented in Table 2.

Scale DevelopmentTwo of the individual HRM practices were measured by scalesmade up of a number of items. These were criteria for selection(four items) and training (four items). Principal component factoranalysis was undertaken to enable this information to be condensed

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Respondentswere given achoice of fivealternatives . . .

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into two single measures. To ensure a minimal loss of informationthe procedure suggested by Gerbing and Anderson (1988) wasadopted. First, the Kaiser-Meyer-Olkin (KMO) measures of sam-pling adequacy and Bartlett tests of sphericity were used to deter-mine whether factor analysis was an appropriate technique for theChinese data set. For these two practices, selection and training, theKMO were .64 and .66, and the Bartlett tests were 70.68 (p <.0000) and 119.36 (p < .0000), respectively. These findings indi-cated that the data set with respect to selection and training hadadequate features for factor analysis. Second, item-to-total correla-tions were computed. Items with less than .30 were deleted fromthe item sets (Nunnally, 1978). All items relating to selection andtraining met the minimal criteria.

Principal components factor analyses with varimax rotation were per-formed on the two scales. One major factor with eigenvalues greaterthan one was extracted from each of the item sets. The major factorconcerning selection accounted for 52.4% of the total variancebetween the three items. Similarly, the major factor for trainingaccounted for 59.4%. Finally, an alpha coefficient was calculated totest the scales for their internal consistency. The reliability of theselection and training scales were found to be adequate, being .70and .77, respectively. Full details are provided in Table 3.

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Table 2. Means, Standard Deviations and Correlations

Variables 1 2 3 4 5 6 7 8 9 10 11 12 13 141. Criteria for selection —2. Intensity of selection .21 —3. Training .18 .19 —4. Perform appraisal .15 .16 .43 —5. Rewards .09 .17 -.05 -.15 —6. Firm size (log) .19 .07 .07 -.07 —7. Years in business .06 .21 .10 .00 -.03 .47 —8. Export experience .09 .04 .21 .07 -.12 .53 .90-9. Number of countries .03 .11 -.15 -.28 .22 .41 .53 .57 —

(log)10. Number of transactions .03 .01 .01 -.01 -.00 .62 .26 .33 .44 —

(log)11. Number of customers .06 .05 -.04 -.20 .10 .52 .22 .33 .55 .80 —

(log)12. Export motivation .11 .04 .47 .17 -.12 .01 .07 .04 -.20 -.07 -.10 —13. Export growth .25 .31 -.21 .20 .33 .21 .53 -.35 .11 .15 -.28 -.22 —14. % of export sales .34 -.21 .17 .26 -.26 -.19 -.41 .42 .14 .17 -.31 .22 .36 —

Mean 2.46 2.55 2.51 2.59 .58 4.02 17.67 15.12 3.44 5.55 4.18 2.11 .57 .88Standard deviation 1.01 1.27 1.02 1.09 .41 .99 11.86 11.12 .78 1.38 1.09 .92 .41 .19

Note: Correlations above .09 are statistically significant.

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Model EstimationThe two measures of export performance (export growth and per-centage of export sales) are composed of interval scale data, so themost appropriate estimation method is the ordinary least squares(OLS) regression technique. Two types of OLS regression modelswere used in this study—standard regression and hierarchical regres-sion—to explore the effects of HRM practices on export perfor-mance in Chinese enterprises. This is consistent with previousstudies (Aaby & Slater, 1988).

Possible multicollinearity was tested by calculating the variance infla-tion (VIF) for all independent variables and the two measures ofexport performance. Ten was adopted as the cutoff criterion (Neter,Wasserman, & Kutner, 1985). Across the two export performancemeasures, none of the VIF values for HRM practices were higherthan 2. Compared to those for HRM practices, the VIF values for thecontrol variables were slightly higher. However, the highest VIFvalue was 2.8, still well below the cutoff point. These findings sug-gested that collinearity was not a likely threat to the substantive con-clusions drawn from the parameter estimates. Only a few cases ofmissing data existed, and those cases that had missing data weredeleted listwise in the regression analyses.

RESULTS

Hypotheses 1 to 4 predicted that the four individual HRM practiceswould be positively related to the export performance. Results are pre-sented in Table 4 (Model B) for the two measures of performance.

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Table 3. Factor Solutions for Criteria for Selection and Training

Dimension/Item Factor % of Variance Cronbach Loading Explained Alpha

Criteria for selection• Selectivity .553 52.4 .70• Selection for manual and physical skills .440• Selection for technical skills .467• Selection for problem-solving skills .460

Training 59.4 .77• Comprehensiveness .473• Policy and procedure training .623• Technical training .663• Training for skills .527

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Hypothesis 1: Employee Selection

Criteria for selection was significantly and positively related to exportgrowth (β = .23, p < .01) and percentage of export sales to total sales (β= .31, p < .001). Intensity of selection was also positively related to exportgrowth (β = .28, p < .01), but was negatively related to percentage ofexport sales to total sales (β = (–.26, p < .01). As a negative significant rela-tionship between intensity of selection and percentage of export sales tototal sales was found then Hypothesis 1 was only partially supported.

Hypothesis 2: Training

Training was significantly but negatively related to export growth (β= (–.40, p < .001) and positively, although not significantly, to thepercentage of export sales to total sales (β = .04, ns). Thus,Hypothesis 2 was not supported.

Hypothesis 3: Performance Appraisal

The existence of a developmental focused performance appraisalscheme was positively and significantly related to export growth (β =

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Table 4. Explanatory Power of HRM Practices and Control Variableson Export Performance

Independent Variables Export Growth % of Export Sales Model A Model B Model A Model B

β β β βControl variablesFirm size (log) .27** .28** .15* .18*Years in business (log) .67*** .66*** -.51*** -.50***Export experience .44*** .40*** .35*** .36***Countries exported (log) .32*** .26*** .09 .08No. of customers (log) .04 .05 .13* .14*Export transactions (log) .19* .18* .10 .09Export motivation .21** .22** .22** .20*HRM practicesCriteria for selection - .23** - .31***Intensity of selection - .28** - -.26**Training - -.40*** - .04Performance appraisal - .21** - .24**Performance-based rewards - .33*** - .26**Cumulative R2 .18 .47 .16 .37F-model 1.96* 5.27*** 1.80* 3.09***Incremental R2 - .29 - .21Inc. F- Model - 6.16*** - 4.01***

*p < .10, **p < .05, ***p < .01, ****p < .001.

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.21, p < .01) and to percentage of export sales to total sales (β = .24,p < .01). As Hypothesis 3 predicted a positive relationship betweenperformance appraisal and export performance, then Hypothesis 3was supported.

Hypothesis 4: Performance-Based Rewards

Performance-based rewards were significantly and positively relatedto export growth (β = .33, p < .001) and to the percentage of exportsales (β = .26, p < .01). Thus, Hypothesis 4 was supported.

Hypothesis 5: Human Resource Management

To test Hypothesis 5, a two-model hierarchical regression analysiswas performed on each of the two measures of export performance.The first model (Table 4, Model A) included only the main effects ofthe control variables, while the second model (Table 4, Model B)included the main effects of both the control variables and the fourHRM practices. Differences in R-square and F-model statistics willthus indicate the extent to which the bundle of HRM practices con-tributed to the variance in the two measures of export performance.

After controlling for enterprise characteristics, export experience andmarketing strategies, and marketing motivation the four HRM vari-ables, as measured by the five dimensions, substantially increased thelevel of explained variance (R2) on the two measures of export per-formance. For export growth the incremental R2 value (.29) and theincremental F (6.16), based on a comparison of models A and B,were significant at p < .001. This suggests that the explanatory powerof the bundle of HRM practices in the export growth model was sig-nificant beyond that of the control variables. Similarly, for percentageof export sales, both the incremental R2 value (.21) and the incre-mental F (4.01), based on a comparison of models A and B, were sig-nificant at p < .001. Overall, the results provided strong support forHypothesis 5.

DISCUSSION

This study tested five hypotheses concerning the relationshipbetween HRM practices and two measures of export performance. Anumber of variables covering enterprise characteristics, export experi-ence and marketing strategies, and export motivation were includedin the explanatory model as control variables, so the analysis allowed

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This study testedfive hypothesesconcerning therelationshipbetween HRMpractices andtwo measures ofexport perfor-mance.

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for a conservative test of the hypothesized relationships. HRM prac-tices, individually and collectively, were able to explain significant lev-els of variance in export growth and the percentage of export sales.Overall, these findings are generally consistent with research inWestern enterprises, and suggests that Western HRM practices can beimplemented in Chinese SOEs and improve enterprise performance.

Negative relationships between intensity of selection, training, andyears in business, and one of the dependent variables were found inthis study. These findings are not consistent with the HRM and themarketing literature. Special social and cultural factors in China couldexplain those findings. Whether these findings are unique to this sam-ple is a question for future research. Nevertheless, it is important toplace these findings in the overall context of the present state ofdevelopment in Chinese SOEs.

The intensity of selection, although positively related to export growth,was negatively related to percentage of export sales. Foreign tradingcompanies were established by the Chinese government to developinternational markets. Even though these SOEs had a high ratio ofexport sales to total sales, they often have low levels of autonomy instaffing. Quotas from the government, guanxi (personal relationships,especially with central or local governments), and egalitarianism stillexist (Bjorkman & Lu, 1999; Saha, 1993). Moreover, because the gov-ernment removed subsidies for exporting in the mid-1990s, exportingenterprises have become responsible for their profits and losses.Accordingly, some enterprises that were formed for exporting haveattempted to increase their domestic selling, where there is less compe-tition, so as to improve their financial performance. In these cases addi-tional selection criteria may have been employed such as guanxi, whichare important factors in domestic selling. As a consequence, theseChinese SOEs that have engaged in this practice may have used moreselection methods than enterprises serving solely the export market.

Contrary to that hypothesized training was significantly and nega-tively related to export growth. Modern HRM is new to Chineseenterprises. Only a narrow range of HRM practices has been intro-duced and adopted by Chinese enterprises (Benson & Zhu, 1999;Sergeant & Frenkel, 1998). Although the emphasis on training hasincreased, training will not, however, achieve progress if introducedin isolation to other HRM practices (C. Zhu, 1997). As a result,training could be a less effective tool to improve overall organiza-tional performances in Chinese export enterprises. Training programsadopted directly from Western countries could also be used in

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Even thoughthese SOEs had

a high ratio ofexport sales to

total sales, theyoften have low

levels of autono-my in staffing.

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Chinese export enterprises (Sergeant & Frenkel, 1998). However,these training programs may not improve performance due to the dif-ferent educational and cultural backgrounds in China. In addition,some middle-aged employees without secondary or university educa-tion lack the basic verbal and quantitative skills required by occupa-tional training (Bjorkman & Lu, 1999).

Only one of the control variables had a relationship with either of thedependent variables different from that expected. Years in businesswas significantly and negatively related to the percentage of exportsales. This finding is different from that of recent studies (Dean et al.,2000; Kaynak & Kuan, 1993). As stated earlier in this section, someexport enterprises have attempted to improve their overall perfor-mance by increasing their domestic sales. In China, the domesticmarket is expanding rapidly, so while companies can register exportgrowth their actual percentage of export sales may be declining.Older firms, with their well-established export markets but underde-veloped domestic markets may find a local market strategy a quickway to improve their overall performance. Alternatively, more expe-rienced firms may be finding their established markets subject tohigher levels of competition while domestic demand for their prod-ucts increases due to their superior product quality.

A number of limitations to the generalizability of these findings exists.These limitations do, however, point to areas for future research. Thisstudy focused on a single time period to investigate the relationshipbetween HRM and export performance. Because there are long-termeffects of HRM practices on organizational performance, a longitudi-nal study is needed to provide a better understanding of the interna-tionalization process and the dynamics of how HRM practices andother factors interact. The research did not include all potential relevantvariables that were identified in international marketing literature, suchas pricing, product adaptation, and technology. External determinantsof export performance should also be included in the future to explorethe impact of local context on export performance. Four HRM prac-tices were utilized in this study. As more HRM practices are introducedand adopted by Chinese firms, future research should also test for theadditional contribution of these practices on export performance.

In China, SOEs in SEZs have more subsidies from central and localgovernments than other firms and firms in other cities. This also lim-its the study’s external validity and generalizability. Because theChinese economy is socialist in nature, the ownership of Chineseexport enterprises could be a critical factor in the adoption of some

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Older firms, withtheir well-estab-lished exportmarkets butunderdevelopeddomestic mar-kets may find alocal marketstrategy a quickway to improvetheir overall per-formance.

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individual HRM practices. Management processes and practices aredifferent in the different enterprises. Thus, future research will needto take account of the various ownership types in exploring the rela-tionship between HRM and export performance.

Finally, this study assumed a linear relationship between HRM prac-tices and export performance. HRM practices have effects on organi-zational strategies and policies that, in turn, influence organizationalperformance (Huselid, 1995). Nevertheless, it is possible that theHRM-export performance relationship is nonlinear. This possibilitywas therefore tested. The findings of this “post hoc” analysis support-ed our initial assumption concerning linearity. Nevertheless, we rec-ognize the need for future research to explore the precise nature of theHRM-performance relationship. This study only involved manufac-turing enterprises. Future research could focus on other industries aswell as explore the effects of the various subclassifications of manufac-turing to identify best HRM practices or strategies for different groupof enterprises. This study adopted two objective measures for exportperformance. Future studies could use other measurements of exportperformance, especially subjective ones, to discover the effects of per-ceptions on export performance in Chinese enterprises.

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