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臺 灣 管 理 學 刊
第一卷第一期，民國九十年八月

pp. 1-18

Human Resource Management Systems and Organizational

Performance: An Empirical Study of Taiwanese Firms in China

Shyh-J er Chen
Professor, Institute of Human Resource Management,
National Sun Yat-sen University

ABSTRACT

Although empirical research has established a positive relationship between

consistent bundles of HRM practices and organizational performance, not all
bundles have an equal impact on a firm’s performance. This study, whose data was
collected from Taiwanese firms in China, assesses the determinants and associations
of HRM systems with organizational performance. Results show that Taiwanese
firms in China with performance-based payment, general training, and extensive
selection are more likely to enjoy a higher level of organizational performance. This
study also finds better performance in firms with union show-up.

Keywor ds: Human resource management practices; Organizational performance;

Competitive strategy; Managerial values

1. INTRODUCTION

In the past decade, a great deal of research has been done on the relationship
between human resource management (HRM) practices and organizational
performance. Theoretical description has suggested that strategic HRM used in the
design of a set of consistent internal practices (e.g., staffing, training, workplace
flexibility, compensation, employee influence, performance evaluation) helps
promote organizational performance (Schuler and Jackson, 1987; Hiltrop, 1996;
Guest, 1997; Pfeffer, 1994; Fey, Bjorkman, and Pavlovskaya, 2000). Such practices
are well-known to make up a ‘high-performance-work-system’ (HPWS) (Lawler,
Chen, Bae, 2000; Ramsay, 2000), and use of bundles of such HRM practices have
be shown to have a significant positive impact on a firm’s performance by a
developing body of empirical evidence (Arthur, 1992; 1994; Gutcher-Gershenfeld,
1991; Huselid, 1995; Huselid and Becker, 1996; MacDuffie, 1995; Delaney and
Huselid, 1996).
Although some studies have established positive associations between consistent
bundles of HRM practices and organizational performance, they have found that not
all bundles have an equal impact on a firm’s performance. The first purpose of this
paper is to examine whether certain bundles of HRM practices have a stronger
impact on organization performance than others.
The second purpose of the paper is to extend information and empirical methods
used in previous studies to evaluate the organizational performance of Taiwanese
firms in China. Such a study is generally important, as world business activities are
becoming more internationalized and an increasing number of companies invest
offshore by establishing subsidiaries in foreign countries. Such a study is more
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Human Resource Management Systems and Organizational Performance: An Empirical Study of
Taiwanese Firms in China

specifically important to the business relations between Mainland China and Taiwan,
since although they are both Chinese populations with much history between them,
they have been operating separately from each other for around fifty years. With the
opening of China’s borders to foreign direct investment and trade in 1978,
Taiwanese businessmen began initially to invest in China via third parties, most
often via Japan and Hong Kong. At that time such investment activity by Taiwanese
was piecemeal. However, since the Taiwanese government lifted its ban on visits to
China in 1987, a heated interest in investing in China has arisen among Taiwanese
businessmen. Unfortunately, a large number of researchers have studied the
performance of such Taiwanese firms in China and several have reported that more
than half of the Taiwanese investors have lost money there. Therefore, it is hoped
that this study can shed some light on what HRM practices contribute to the success
or failure of Taiwanese businesses in China.

2. LABOR MARKET DEVELOPMENT AND HUMAN RESOURCE

MANAGEMENT SYSTEMS IN CHINA

Labor Mar ket Development

China is characterized as having a economic planning system with policies
centrally established by the government. Under this system, the Chinese government
sets the rules that regulate all economic activities of the enterprises there. Before
1978 economic reforms, most enterprises were state-owned, producing almost 80
percent of total gross value of industrial output. In addition, since most of the work
force was employed by these state-owned enterprises, they enjoyed a “cradle to the
grave” welfare system, better known as the “iron-rice bowl” (Warner, 1996). Other
types of enterprises included urban collectives, town and village industries, and
individual enterprises.
The opening of China’s doors to outside investment in 1978 was the beginning of
a significant transformation for economic development in China. Since that time the
ratio of total value produced by the state-owned enterprises has rapidly reduced
because, since that time, foreign investment has increased. The total value of output
produced by joint ventures, wholly foreign-owned companies, and individual private
companies has now surpassed that of state-owned enterprises.
In addition, because of their decreasing economic efficiency, state-owned
enterprises are now viewed by the Chinese government and others as presenting a
major obstacle to economic development. There have been continuous reports of
heavy loss and low productivity in the state-owned enterprises, one-third of which
being reported to be losing money in 1992 (Zhu and Dowling 1995). Therefore,
reform in economic policies and management practices used in such companies
have become important to the Chinese government.
Labor Law
The main goals of the Labor Law of the People’s Republic of China, promulgated
in 1995, were to establish a new legal framework for workers and employers. That
law covered such aspects of labor law as labor and collective contracts, working
hours, wages, labor safety, vocational training, social welfare, and dispute
resolution.
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Several points in this labor law are worthy of mention. First, the law establishes
minimum wage rules. Employing units shall autonomously decide their own wage
distribution and wage-level, according to the law, production level, management
characteristics and the economic efficiency of the unit (Article 47). The State shall
institute a system of minimum and guaranteed wages. Standards of minimum wages
shall be regulated by the provincial, autonomous regional and municipal
governments and reported to the State Council for the record (Article 48). The
minimum wages in China vary from province to province and region to region,
based on the average cost of living and economic conditions in each locality.
Second, Labor Law requires that a labor contract be made in written form and
cover such items as length of employment, work duties, labor protection, labor
remuneration, labor discipline, and so forth (Article 19). Oral labor contracts are not
considered valid. In addition, collective contracts can be negotiated between the
enterprise and its workers to cover such items as labor compensation, working hours,
rest and break periods, safety and hygiene, and so forth. Such collective contracts
are signed between the union representatives and the enterprise; where the union is
absent, the contract can be signed between representatives elected by the workers
and the enterprise (Article 33). Once the collective contract is signed, it shall be sent
to the Labor Administration Department (Article 34), which, therefore, has the right
to oversee the collective contract between workers and employers.
Third, labor disputes between employing units and employees shall be resolved
through conciliation, arbitration and litigation (Article 77). Labor disputes can be
resolved by the Labor Disputes Conciliation Committee and Labor Disputes
Arbitration Committee, which are established in the employing units. The
committees will be comprised of employee representatives, employer represen-
tatives and trade union representatives, with the chairperson role assigned to the
trade union representatives (Article 80). When dissatisfied with the arbitration, the
labor dispute can be litigated in the People’s Court (Article 79).
Compensation
Since the 1950s, the Chinese government has believed that China should pursue a
low wage policy, “feeding five people with the food of three people” so to speak.
Under this policy, China government has tried to keep wages as low as possible. For
example, the average nominal wage increased by only 1.04 percent and the average
wage increased by only 0.3 percent annually between 1953 and 1978. From 1956 to
1976, the Chinese government raised workers’ wages three times (Jackson and
Littler, 1991) and could, therefore, be considered stagnant before 1978. This wage
system in China is often criticized as one of the major reasons for low worker
productivity there.
In China, wages and benefits are planned by the central government and
characterized by absolute egalitarianism (Zhu and Dowling, 1995). Since 1956,
three state industrial wage systems have been initiated. The first wage system was
the 8-grade wage system, which covers most production workers, the second was
the occupational wage system, which covers several selected industries, such as
textiles, chemicals, and steel and the last wage system was the cadre wage system,
which covers white-collar workers and staff (Jackson and Littler, 1991). All workers
are paid according to one of these three wage systems. Workers assigned to the same
position are supposed to get the same pay regardless of their performance, making it
an “iron wage system.” The “iron wage system,” the “iron rice bowl” and the “iron
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Human Resource Management Systems and Organizational Performance: An Empirical Study of
Taiwanese Firms in China

position” have collectively been criticized as being the major reason that worker
productivity has been low in China.
In order to increase worker productivity, the Chinese government began to launch
wage reforms in 1978, at which time they tried to break down the “iron wage” and
link wages with “performance” and create a “structural wage system.” Under this
system, a worker’s pay is made up of base wage, responsibility/position wage,
seniority wage, and bonus. The structural wage has tended to encourage workers to
work more productively compared to traditional wage system.
In 1980 a “floating wage system” was implemented in one of the county
enterprises. The reason for implementing the floating wage system was the same as
structural wage system--to reform the fixed wage system and base part of a worker’s
pay on his performance. According to this system, a floating wage could make up as
much as 40 percent of the total wage. The structural wage and floating wage were
expected to reduce the influence of egalitarianism and seniority in former wage
systems. Although the wage reforms have been launched and bonuses have been
increased, most enterprises still hold to their own older wage systems.
China has practiced a “low wage, high bonus” policy for some time. In this policy,
fringe benefits make up a significant part of a worker’s compensation and may
include such items as labor insurance, health insurance, housing, children education,
transportation, retirement, and so forth. The kinds of benefits and paid amounts vary
from province to province. Walder (1986) pointed out that total fringe benefits and
bonus could make up to 82 percent of a workers’ average wage in China.
How the wage systems have been used by joint ventures and foreign companies
operating in China since the open door policy was implemented in 1978 is
interesting. The Chinese government gives joint ventures and foreign companies
much more autonomy in deciding their own wage systems. Workers employed in
joint ventures or foreign companies and state-owned enterprises may apply to
different wage systems. According to the Rules for Business Labor Management of
Joint Ventures, workers’ wages in joint ventures or foreign companies should be 20
to 50 percent higher than those in state-owned enterprises of the same areas and
industries. While this seems strange at first, this higher wage level might be because
workers employed by these companies are not entitled to the “iron-rice bowl” and
because they face higher risk of unemployment (Chen, 1998)
Recr uitment and Dismissal
In general, there are four types of employment categories in China: fixed labor
employment, contractual employment, temporary employment, and personnel
system (cadres, technicians, and engineers) (Child, 1994). Employees in fixed labor
and personnel systems, most often college graduates, enjoy permanent employment
status and welfare benefits set by the state. In contrast, employees in the contractual
and temporary employment systems have less job security and their wages and
welfare benefits are set by the individual enterprises.
Recruitment decisions for state-owned enterprises are negotiated by the enterprise
and local labor bureau, with personal relationship being a common major factor in
determining who will be hired. The Chinese believe that employees introduced
through personal relations tend to be more loyal and reliable and perhaps better able
to contribute to future management (Child, 1994).
Dismissal is very complex matter in China because workers employed by
state-owned enterprises enjoy iron-rice bowl benefits. A state-owned enterprise
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includes both an employee’s workplace and his living space. The workers are said to
live and work in “danwei,” meaning in the same location in which they were born,
grew up, married, raised their families and died (Chen, Bae, Zhou, and Taira, 1995).
Dismissal means not only loss of salary but all loss of “danwei,” including seniority
and medical and health insurance, and so forth. In fact, due to these perceived
almost life-threatening consequences, dismissal rarely happens.
The problem of enterprise inefficiency, especially state-owned enterprise
inefficiency, has been raised during China’s economic reforms. The three “irons,”
iron wage, iron-rice bowl, and iron position, have faced serious challenges. Because
some of the economic reforms aim to make the state-owned enterprises more
profitable, laying employees off has become one inevitable means of increasing that
profitability. Therefore, in the past several years, layoff by state-owned enterprises
has become commonplace, and in order to reduce the impact of job loss on a
worker’s life, state-owned enterprises continue to provide subsidies for those they
have dismissed.

3. THEORETICAL BACKGROUND AND HYPOTHESES

Categor ies of HRM Systems

Strategic HRM literature often views human resources as either internal
consistent bundles or a unified system of functions and practices (Dyer and Reeves,
1995; MacDuffie, 1995). Many researchers have tried to categorize HRM strategies.
Anthony, Perrewe, and Kacmar (1996), for example, propose four types of HRM
systems: HR acquisition, HR maintenance, maximization of HR productivity, and
turnover management. Dessler (1994) categorizes HRM systems according to five
activities: selection, training, compensation, labor relations, and employee security.
These typologies usually view HRM on a continua ranging from practices
characterized by high employee participation, extensive training, pay for
performance, and broad job design to those practices characterized by low employee
involvement, limited training, seniority payment, and specific job design. These two
approaches are usually termed high involvement strategies and traditional HRM
strategies, respectively (Bae and Lawler, 2000).
This study makes use of four broad HRM activities, as outlined by Bae, Chen,
and Lawler (1998): 1) HR flow (recruitment, selection, training and development), 2)
work systems (control, teamwork, job specificity), 3) reward systems (wages and
performance appraisal) and 4) employee influence (employee participation and
ownership). These HRM practices can be defined as a continuum of bundles. As
shown in Table 1, Bae (1997) has conceptualized them as ranging from a
“buy-bureaucratic” HRM system to a “make-organic” HRM system. The “buy-
bureaucratic” HRM system is similar to “cost-reduction” or “control” HRM systems,
while the “make-organic” HRM system is equivalent to high-performance-work
system (HPWS) (Arthur, 1992; 1994). The “buy-bureaucratic” HRM system can be
characterized as having such HRM practices as external hiring, limited training
investment, narrowly defined job assignments, little job autonomy, seniority-based
pay, and little employee participation in decision making. The “make-organic” HRM
system includes internal promotion, extensive training investment, broadly defined
jobs, high job autonomy, performance-based pay, and extensive employee
participation in decision-making.
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Human Resource Management Systems and Organizational Performance: An Empirical Study of
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The choice between “make-organic” and “buy-bureaucratic” HRM strategies is an

important issue for organizations. Lepak and Snell (1999) have pointed out that the
“make” strategy has a number of organizational advantages, including greater
stability, higher worker commitment, and better coordination. In one study, Pfeffer
(1994) outlined sixteen supposedly best HR practices, all of which were linked to
“make” strategies, to maintain organizational competitiveness. Although these
studies have shown the advantages of the “make” strategy, certain firms may choose
“buy-bureaucratic” strategy because of its emphasis on cost reduction (Pfeffer and
Baron, 1988).
As mentioned earlier, the choice on HRM strategies is even more important for
Taiwanese firms in China because workers there have long been living within
“danwei” and the “three iron” mindset has been rooted within them. While this
mindset might possibly restrict the use of “make” HRM strategies, some Taiwanese
firms might also use “make-organic” HRM strategies in China because they believe
they can gain competitiveness by doing so.

Table 1: A Typology of HRM Systems and HRM Pr actices

Broad HRM HRM Type I: HRM Type II:

HRM Practices “Buy-bureaucratic” ”Make-organic”
Areas (Cost Reduction or Control) (Commitment Maximizing)
Strategy Strategy
Recruitment Low selectivity; High selectivity;
and short-term needs; long-term potential;
Selection promotion from external promotion from within
HR Training and Limited training efforts More extensive and
Flow Development general skills training
Employment Little security High security
Security
Tasks and Clearly/narrowly defined Broadly defined jobs;
Assignment jobs; same tasks for long Cross-utilization
time
Work Teams and Job Little autonomy and High autonomy and
Systems Redesign responsibility responsibility
Control Rules and Regulation Values and Mission
Wage level Relatively low wages Relatively high wages
Reward Performance- Seniority-based pay; Ability / performance-
Systems and Ability- unfair pay practices based; more fair
based Pay practices
Performance Limited efforts; Extensive efforts;
Appraisal administrative purpose Developmental purpose
Employee Very little involvement High involvement
Participation
Employee Employee Little ownership practices High ownership
Influence Ownership practices
Culture Separating people from Symbolic
each other; low trust and egalitarianism; high
cooperation trust and cooperation
Source: Adapted from Bae, Chen, and Lawler (1998), p. 655.
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Hypothesis 1: HRM practices are significant differences across firms. The

variation can best be described as ranging from “buy
-bureaucratic” to “make- organic” HRM practices.
Competitive Str ategy, Manager ial Value, and HRM Systems
Many researchers have discussed the relationship between different types of
competitive strategies and HRM systems (Schendel and Hofer, 1979; Miles and
Snow, 1984; Porter, 1980). Schendel and Hofer (1979) characterized various types
of competitive strategies into three levels: corporate, business, and functional. Miles
and Snow’ (1984) and Porter’ (1980) typologies, however, are much better-known.
The typology developed by Porter, in particular, will be used in this paper to
establish a hypothesis about the linkage between competitive strategies and HRM
systems.
Further, Miles and Snow (1984) developed an organizational adaptation model
and proposed three types of business strategies: defender, prospector, and analyzer.
Porter (1980) argued that two types of organizational strategies could be used by
firms to sustain competitive advantage--the cost leadership strategy and the
differentiation strategy. Firms with a cost leadership strategy gain their competitive
advantage through operational efficiency, scale of economy, and control of costs. In
order to reach operational efficiency, such firms rely heavily on external recruitment
and selection, narrow job design, seniority-based payment, and little employee
influence. In contrast, firms with a differentiation strategy pursue creativity, brand
development, uniqueness, and excellent service. Their HRM strategy is charac-
terized by general training, broad job design and rotation, high employee
involvement, and performance-based payment (Arthur, 1992; 1994). The two types
of competitive strategies are somewhat consistent with “buy-bureaucratic” and
“make-organic” HRM systems (Bae, Chen, and Lawler, 1998; Lawler, Chen, and
Bae, 2000).

Hypothesis 2a: F irms with a cost leadership strategy tend to utilize a “buy-
bureaucratic” HRM system.

In addition, top managerial value toward HRM role can affect the adoption of
HRM systems because, as Burton (1995) has pointed out, managerial value plays a
crucial role in shaping organizational structure and HRM systems.

Hypothesis 2b: F irms with strong managerial values towards role of HR are more
likely to have “make-organic” HRM systems.
HRM Systems and Or ganizational Per for mance
During the past 15-20 years, how HRM practices affect organizational
performance has become a crucial issue. Employers have implemented many work
and employment practices designed to increase workplace efficiency. As domestic
and global product market competition has intensified, many employers have
developed and installed HRM practices that result in productive workforces.
However, HR has long been seen as a cost expense instead of a value (Becker and
Gerhart, 1996). Some of these HRM practices may involve changes that occur at the
employees’ expense. For instance, employers have pursued flexibility by expanding
training and reducing job titles, thereby allowing them more opportunity to quickly
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Human Resource Management Systems and Organizational Performance: An Empirical Study of
Taiwanese Firms in China

move employees among tasks as changes in production are needed. As market

demand changes, many employers have also adopted practices that allow for rapid
fluctuations in the size of their workforces and their labor costs, including an
increased use of outsourcing (or subcontracting) of various types of work, and
increased use of temporary and part-time employees (“contingent workers”) who
have few fringe benefits and no job security (Kochan, Katz, and McKersie, 1986;
Feuille, Lawler, Bae and Chen, 1999).
From theoretical and empirical perspectives, it is important to investigate the
association between these HRM practices and firm performance. Several models
have been used and several studies have been done to explore that linkage (Hiltrop,
1996). First, the “contingency” model emphasizes the importance of developing
appropriate HRM systems to fit organizational strategy. The best “fit” between
employment practices and strategy is the one that promotes firm performance.
Second, the “universalistic” model states that a set of best practices could be
identified regardless of organizational setting. Using the “universalistic” model,
Pfeffer (1994) proposed sixteen HR practices which contribute to the promotion of a
firm’s performance. Third, the “resource-based” model assumes that an HRM
system is an “invisible asset” and is thus difficult to imitate (Becker and Gerhart,
1996).
The overall conclusion of these models is that, although evidence has indicated a
positive association between HRM systems and performance, what constitutes the
effective HRM practices is still a heated debate. For example, while Arthur (1994)
places a lower emphasis on variable pay when discussing a high performance
system, Huselid (1995) puts a high emphasis on variable pay. Becker and Gerhart
(1996) compared five recent studies and found that there was a great variety in the
work practices that composed high performance HRM systems.

Hypothesis 3: The utilization of a high work performance HRM system is

positively related to firm performance.

4. RESEARCH METHODS

Data collection
The data for the Taiwanese firms in China were obtained from one hundred and
nineteen firms. Around seventy-seven percent of surveyed firms reported that they
had less than 500 employees. More than 70 percent of the firms had been running
their businesses in China for less than 10 years with an average of 8.6 years. In
addition, around 70 percent of the sample reported that their employees were not
unionized. More than 85 percent of firms sampled belonged to the manufacturing
sector and the rest to the service sector.
Var iable measurement
HRM systems. The HRM practices of both indigenous Taiwanese firms and
Taiwanese-owned firms in China were studied by a questionnaire that was adapted
from Bae, Chen, and Lawler (1998), who have developed several scales used to
measure the differences in Taiwan and Korea. The questionnaire was made up of
twenty-four questions used to measure HRM practices for non-managerial
employees. The questionnaire items came in the form of a 6-point Likert’s scale
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ranging from “very inaccurate” to “very accurate.” These scales measured the firm’s
human resource flow, work systems, reward system, and employee influence within
the firms.
Firms that were high on the 7-item human resource flow scale utilized extensive
selection and training procedures and had relatively high job security. Companies
that were high on the 6-item work system scale, which covered job design, control
type, and team, tended to use broad job design and team-based work organization
with high autonomy. Firms at the high end of the 7-item reward system scale, which
represented the degree of correlation between workers’ performance and their pay
level, tended to emphasize pay performance. The 4-item employee influence scale
measured the extent to which workers were involved in decision-making related to
their jobs and the extent to which they participated in organizational issues. These
questions are summarized in table 2. The table also shows Cronbach’s alphas for the
four HRM systems. The reliability coefficients were all acceptable except for work
system (.64), which was somewhat lower than expected.
Competitive Strategy. An important variable in this study was the competitive
strategy. Likert items were used to measure the extent to which a firm pursued a
business strategy of differentiation(Porter, 1980). The total number of differentiation
questions were 11 and included such items as “providing customers with a variety of
different kinds of products (services),” “developing and producing new products (or
services) continually,” “pursuing market differentiation,” “pursuing operating
efficiency,” and so forth. Firms scoring high on this scale tended to adopt
“differentiation” as an organizational strategy. Lower scores on this scale indicated a
tendency toward a “cost leader” strategy. The reliability (Cronbach’s alpha) for this
11-item scale was an acceptable .82.
Managerial Value. The managerial value towards HRM scale was assessed
according to Bae (1997). This variable was measured with 14 such items as “Top
management of our firm considers the person in charge of human resources as a
strategic partner in formulating and implementing business strategy,” “Top
management of our firm strongly believes that people and human resource policies
and practices are sources of competitive advantage,” “Our firm attempts to retain
existing employees when a shortage of work occurs due to sales decline,” and so
forth. Top management of firms with high scores on these items considered human
resources high priority. Reliability coefficient for this HRM scale was also
acceptable, reaching .62.
F irm Performance. Another important variable in this study was the firm’s
financial performance. A subjective measure of performance, adapted from Bae,
Chen, and Lawler (1998), was used. Because it was difficult to gain objective
financial data and because many of the firms were often reluctant to release
accounting data, objective measure of performance seemed to be impossible to
obtain. Therefore, self-evaluation of the firm’s financial performance became an
alternative to the objective performance data. Financial performance questions
totaled 9 and made use of Likert-items to measure variable. Financial performance
questions include questions on “long-run level of profitability,” “growth rate of
sales or revenues,” “financial strength,” “market share,” “product quality,” and so
forth. The reliability (Cronbach’s alpha) for the scale was .90.
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Human Resource Management Systems and Organizational Performance: An Empirical Study of
Taiwanese Firms in China

Table 2: Char acter istics of HRM systems

HRM system Questions summar ized alpha

1. The employee selection is very extensive.
2. It is very important to select the best person.
3. Our firm focuses on the long-term potential of candidates.
HR Flow 4. Very little money is spent on training. (R) .74
5. High priority is placed on training.
6. The training process is formal and well-structured.
7. Our firm provides employment security.
8. Most jobs are fixed and clearly defined. (R)
9. Our firm has written job descriptions. (R)
Work System 10. The incumbents need to use a variety of skills and talent. .63
11. Employees engage extensively in problem-solving.
12. Coordination and control are based more on shared goals,
values, and traditions rather than regulations.
13. Employees can decide how to do their work.
14. Pay is much higher than those of other firms for industry.
15. Our firm has seniority-based rewards practices. (R)
16. Pay is closely tied to individual or group performance.
Reward 17. Pay raises and promotions are closely tied to performance .76
System appraisal.
18. The range in pay is very narrow in our firm. (R)
19. Performance is laced on finding personal development.
20. Much effort is given measuring employee performance.
21. Employee participation is very extensive.
Employee 22. Employee financial participation is extensive. .72
Influence 23. We have minimum status differentials to enhance
egalitarianism.
24. The climate of our firm is very cooperative and trustful.
R represents reverse coding.
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Other Variables. Other variables included firm size (number of employees), union
status (a dummy variable is coded 1 if the firm is unionized, otherwise), independent
central HR department (a dummy variable is code 1 if the firm has a central HR
department), and industry type (a dummy variable is code 1 if the firm is in
manufacturing sector).

5. RESULT AND DISCUSSION

The variables of the HRM systems, summarized in table 2, provide the basis for a
cluster analysis. A cluster analysis is a process that groups objects based on some
measure of similarity between variable scores (Arthur, 1992). Provided in SPSS
software, Ward’s method was applied in this study to the HRM systems variables,
listed in table 2. The results of this analysis give a two-cluster solution, which is
theoretically consistent with the typology of Bae, Chen, and Lawler (1998). The tree
diagram showed a conspicuous difference in the two clusters, identified as
“buy-bureaucratic” and “make-organic” HRM systems.
Table 3 presents the results of the test that determines whether the mean for a
variable in the one cluster is significantly and statistically different from the other
cluster. The results show that the mean scores of the four HRM sub-systems (HR
flow, Work system, Reward system, and Employee influence) in “buy-bureaucratic”
system all were significantly lower
than those in “make-organic” system. In contrast, when the differences of the two
clusters in industry type, union show-up, and independent central HR department
were tested, no significant difference in the three variables was found.
In addition, as is seen in table 3, Taiwanese firms were found more likely to be
categorized as “buy-bureaucratic” (N=93) than that of “make-organic” (N=26)
HRM systems. Previous research has shown that employment practices of home
countries have some influence on those of multinational companies (MNCs) in host
countries. Lawler et al. (1992) found that western firms in Thailand had more
systemic, rationalized HRM practices when compared with those of Thai companies.
Many foreign subsidiaries also have “ready-to-leave” mindsets in case a host
country becomes a hostile investment environment. Though China has attracted a
large amount of investment in the past decade, it has been listed as having a high
investment risk environment (Chen, Bae, and Lawler, 2000). Therefore, Taiwanese
companies tend to be more careful about investing in China and they are more likely
to utilize “buy-bureaucratic” HRM system.
Table 4 presents the effects of competitive strategy and managerial value on HRM
systems to test hypothesis 2a and 2b. Managerial value variables are all positive in
four HRM areas and show significant effects in three equations. The results show
that when they view HRM as strategic partner in business implementation and when
they believe that HR resources are gaining sources of competitive advantages, firms
tend to utilize “make-organic” HRM system, and the managerial value effects can
be more conspicuously found in HR flow, reward system, and employee influence.
The competitive strategy variable in table 4 shows that the results differed
somewhat from what was expected by hypothesis 2a, which hypothesized that firms
with cost leadership strategy tended to utilize “buy-bureaucratic” HRM system.
The organizational differentiation variable was significant and positive in the HR
12
Human Resource Management Systems and Organizational Performance: An Empirical Study of
Taiwanese Firms in China

flow equation only. The competitive strategy did not show a significant effect in the
other three equations. These results are somewhat different from those of other
studies in Taiwan (Chen, Lawler, and Bae, 2000). This unexpected result could be
explained the fact that in the past decade, Taiwan has faced a shortage of labor and
experienced out-migration of business. The businesses move out of Taiwan in order
to take advantage of lower labor costs in foreign countries, such as China. Labor
cost is one of the major concerns for Taiwanese business. Because the Chinese
government has pursued a low wage policy since the 1950s, the cost of labor
Taiwanese firms in China makes up only a minor part of operational cost. Therefore,
it is reasonable that cost and competitive strategy will not show a significant and
positive relationship in these companies.
The other issue in table 4 is the union show-up variable. The variable shows a
negative and significant effect on HR flow but a positive and significant effect on
work system. Trade unions in China can not be understood easily from a western
perspective because Chinese trade unions play an important role in providing
political education and serves as a “transmission-belt” of ideas between the
Communist Party and the workers (Warner, 1997). Therefore, the workplace with
union show-up tends to have better coordination and control, and the union usually
engages extensively in problem solving.

Table 3: Descr iption of HRM System Cluster s

(Means and standard deviations, by clusters)
Cluster 1: Cluster 2: F value
Buy-bureaucratic HRM Make-organic HRM
System (N=93) System (N=26)
HR Flow 4.28 4.92 20.90***
(.64) (.61)
Work System 3.46 4.92 87.58***
(.70) (.70)
Reward System 4.17 4.86 15.27***
(.81) (.73)
Employee Influence 3.97 5.34 52.27***
(.93) (.44)
Central HR .65 .65 .74
Department (.49) (.50)
Industry Type .85 .86 .03
(.37) (.35)
Union Show-up .27 .30 .10
(.45) (.46)
1. Approaching 1 means HRM practices are more like a “buy-bureaucratic” type, while approaching 6
means more like a “make-organic” type. 3.5 is the mean value.
2. *** p<.001.

The result of the regression analysis of the effect of HRM systems on

organizational performance is shown in table 5. For these four HRM sub-systems,
HR flow and reward system were positively significant at .05 and .1, respectively.
Work system and employee influence showed no significant effect. These results
indicate that firms that adopt extensive selection, general training, and performance-
based payment are more likely to have higher levels of firm performance.
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第一卷第一期，民國九十年八月

The positive effect of performance-based payment on organizational performance

is expected but interesting finding. As mentioned in a previous section, wages and
benefits in China are usually planned by the central government who traditionally
have implemented an “iron wage system,” meaning that workers assigned to the
same position are supposed to get the same pay regardless of their performance.
However, foreign companies in China enjoy higher autonomy in designing their
compensation systems, meaning that workers in foreign companies in China are not
able to enjoy this “iron wage system.” This could have lead to the positive relation
between the utilization of performance-based payment and organizational
performance.
In addition, it is interesting in table 5 that the union show-up variable had a
positive and significant impact on firm performance. Unionization in firms was
found to help promote the level of firm performance. The relationship between
unions and firm performance has often made for heated debate in western
literature (Michel and Voos, 1992). Our empiricalresults in this regard is quite
surprising, because foreign companies are usually reluctant to set up trade unions in
firms in China because, as mentioned earlier, they have political functions there.

Table 4: Effects of Competitive Str ategy and Manager ial Value

on HRM Systems

HR Flow Work System Reward System Influence

Constant .940** 3.145*** .644 1.409+
(.399) (.713) (.485) (.757)
Managerial Value .402*** .142 .820*** .524**
(.081) (.144) (.098) (.153)
Competitive .225** .038 -.037 .157
Strategy (.071) (.127) (.087) (.135)
Log Size .160 -.115 .087 -.099
(.098) (.175) (.119) (.186)
Central HR .332** .387* -.108 .368+
Department (.107) (.192) (.131) (.204)
Union Showup -.257* .626** .110 -.103
(.115) (.205) (.140) (.218)
Manufacturing .002 .019 .192 -.269
Sector (.151) (.270) (.184) (.287)
F Value 14.348*** 2.16+ 16.616*** 4.295**
Adj-R Square .426 .061 .465 .155
N 108 108 108 108
+ p<.10; * p<.05; ** p<.01; ***p<.001.
14
Human Resource Management Systems and Organizational Performance: An Empirical Study of
Taiwanese Firms in China

Table 5: The Effects of HRM Systems on Fir m Per for mance

Var iable Coefficient (Standar d Er r or )
Constant 2.515***
(.579)
Independent Central HR Department -.493**
(.161)
Union Show-up .388*
(.177)
Industry Type .159
(.216)
Log Firm Size -.063
(.141)
HR Flow .340*
(.131)
Work System .067
(.089)
Reward System .170+
(.101)
Employee Influence .074
(.083)
Adjusted R-square .220
F value 4.805***
N 108
+ p<.10; * p<.05; ** p<.01; ***p<.001.

6. CONCLUSION

This study made three principal hypotheses. The first hypothesis posited that
HRM systems would be a various spectrum across Taiwanese firms in China. Since
China is considered a high investment risk area, Taiwanese subsidiaries were
usually found to maintain a “read-to-leave” mindset. Therefore, most of them are
more likely to utilize “buy-bureaucratic” HRM systems and tend to use such HRM
practices as external hiring, limited training, narrow job design, and less workers’
participation.
Second, it was hypothesized that competitive strategy and managerial value
would exert some effect on the utilization of HRM systems. However, this study
found that the competitive strategy variable did have such a significant effect,
possibly due to really low labor costs in China and would, thus, be less significantly
related to competitive strategy. Another interesting finding was that union show-up
variable had a negative and significant effect on HR flow but a positive and
significant effect on work system. Because Chinese unions usually play a political
role in the workplace, the firms with unions tended to have better coordination and
better control systems.
Finally, the third hypothesis posited was that HRM systems are positively related
to organizational performance. The empirical results in this study partially supports
this hypothesis. For the four HRM systems, HR flow and reward system had
positive and significant effects on organizational performance. Firms with
performance-based payment enjoyed higher organizational performance.
 15
臺 灣 管 理 學 刊
第一卷第一期，民國九十年八月

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Human Resource Management Systems and Organizational Performance: An Empirical Study of
Taiwanese Firms in China

人力資源管理系統與組織績效之研究：大陸台商企業的實證分析

陳世哲
國立中山大學人力資源管理研究所教授

摘 要

過去的實證研究已經指出人力資源管理實務的許多構面與組織績效有正
面的關係，但是並不是每一個人力資源管理的構面對組織績效都有相同的影響
力。本研究蒐集來自台商在大陸的企業共有 119 筆資料，主要研究人力資源管
理實務對組織績效的影響，研究結果發現運用以績效為基礎的薪資制度
(performance-based payment)、提供一般性訓練(general training)，與廣泛甄選
(extensive selection)的人力資源管理實務的情況下，企業可能比較有較好的組織
績效，本研究同時發現有工會組織的大陸台商企業組織績效必沒有工會組織者
要好。

關鍵字：人力資源管理實務、組織績效、競爭策略、管理價值觀。