HUMAN RESOURCE MANAGEMENT AND ENTERPRISE PERFORMANCE IN SMALL AND MEDIUM ENTERPRISE IN CHINA

Connie S M ZHENG The China Center for Economic Research Peking University No. E1999002 8 January 1999

ABSTRACT
Human resource management (HRM) is a new area for Chinese enterprises, there are a variety of studies on comparison of Chinese personnel management system with western human resource management practice but few on HRM practice and its impact on enterprise performance in Chinese small and medium sized enterprises (SMEs). This paper attempts to provide a pilot study of examining the status quo of HRM practice in Chinese small and medium enterprises, and searching for possible correlation between HRM and enterprise performance. The result of the study is based on analysis of intensive interviews with 74 SMEs in various cities in China. The paper concludes with 4 hybrids of feasible interrelationships between HRM practice and enterprise performance within Chinese enterprises, as a result of distorted indicators in such a transition economy as the one in China.

Human Resource Management and Enterprise Performance in Small and Medium Enterprises in China
Connie S M ZHENG1

INTRODUCTION Human resource management (HRM) is a new area for Chinese enterprises, especially those owned by the state. A variety of studies have discussed differences between Chinese personnel management system with western human resource management practice (e.g. Child, 1994; Ding et al 1997; Goodall & Warner 1997; Lam 1993; Lu and Bjorkman 1997; Luo, 1991; Tsang 1994; Wang 1988; Warner 1993, 1995, 1996b, 1996, 1997a, 1997b; Zhao 1996; Zhu 1997; etc). Their main focus has been on large and medium sized enterprises in particular of joint ventures. There are few studies, except Ding (1988) which have provided a general introduction of enterprise management in small and medium sized firms (SMEs) in China, and even Ding has no emphasis on human resource management practice and its impact on enterprise performance in Chinese SMEs. Twenty years of economic reform in China has included significant contributions made by small and medium enterprises (SMEs), as well as town and village enterprises (TVEs) to Chinese fast growing economy. The process of growth has been significantly slowed down in state-owned enterprises in particular because of their rigid personnel system and managements unwillingness to change. There are many issues in Chinese enterprises that need to be addressed, however, this paper just concentrates on human resources management practice in SME sector, discussing the interrelationship between HRM practice and enterprise performance that has not been studied before. A pilot study based on analysis of intensive interviews with 74 SMEs in various cities in China attempts to examine the status quo of HRM practice in Chinese small and medium enterprises, and searching for possible correlation between HRM and selected enterprises performance. The paper concludes with identification
The author would like to thank the China Center for Economic Research (CCER), Peking University and the World Bank for their financial support to be a visiting scholar at CCER during Oct 1998-Jan 1999 which enabled the completion of this paper. Commnents from the seminar participants, especially Professor Liang Neng and Professor Xun Pomponio are acknowledged.
1

of 4 hybrids which explain feasible interrelationships between HRM practice and enterprise performance in a transitional economy such as the one in China. The rest of paper is organized as follows. The first section is Theory and Literature Review; the second section is Hypothesis; the third section is Data Collection and Research Methods; the fourth section is Results and Analysis; lastly is the Conclusion and Suggestions for further research in the area of HRM practice and Chinese enterprise performance especially of fast growing sector of small and medium sized enterprises (SMEs). THEORY AND LITERATURE REVIEW It must be acknowledged that there are controversies of defining the concept of human resource management, especially when compared with previous personnel management and industrial relations which have had great influence in the western management theories. An argument on what is the essence of human resource management theory is still an on-going debate. A review and research agenda put forth by Guest (1997) has endeavored to pull all those arguments together and this paper summarizes his points on the theory of HRM and its link with performance as follows. 1. there are three types of theory about HRM, namely strategic, descriptive and normative. Strategic theories of HRM are primarily concerned with the relationship between a range of possible external contingencies and HRM policy and practice. They hypothesize that those firms that have a fit between business strategy, structure and HRM policy and practice will have superior performance. Descriptive theories of HRM attempt to capture the broad field and to address some of the interrelationships between HRM policy and practice and key outcomes. The theories emphasize that the essential inputs of a fit of HRM policy and practice such as creating employee influence, enforcing HR flow, setting incentive rewards system and pleasant work systems will lead to four key HR outcomes (i.e. 4C commitment, competence, congruence and cost effectiveness as shown in Beer et al (1984)s model) that will produce low labour turnover, loyal and faithful team of employees who commit themselves to an organizations profit, goodwill and effectiveness as well as to improve their individual well-being, ultimately to create social well being to the whole society (Beaumont 1993).

Normative theories of HRM are more prescriptive in their approach. They provide a basis for prescribed best practice or that a set of values that indicates best practice, and hypothesize that an integrated set of HRM practices is applied with a view to achieving the normative goals of high commitment to the organization plus high quality and flexibility, then higher worker performance will result, assuming that higher worker performance would have a positive impact on organizational performance. 2. according to Guest, there is no general theory about performance per se. It is often rather troublesome to link job satisfaction with firm performance. In the sense, a firm with high growth may not necessarily has good HRM outcomes from all staff. Nonetheless, we can still distinguish the content of performance, and try to provide some measures of performance by looking at firms output (sales and production), time (including lateness, absence, lost working time, failure to meet deadlines), financial indicators which could include a large array of possibilities (i.e. profit, expansion plan etc.), and lastly staff attitude on work and their professionalism. By these exercises, the performance theory concludes that there may be some linkages within a broad view of performance which could explore causal links between HRM and performance. In addition to Guests review on HRM and performance, there is a growing body of literatures that support the correlation between high performance as a result of HRM practice and various measures of firm performance. Poole & Jenkins (1996) examined the development of comprehensive human resource management policies by surveying 909 firms in Britain, and found that HRM is one of the major keys for firms to gain a competitive edge or a lasting and sustained advantage over their competitors in the modern world. Results from Purchell (1995)s quantitative analysis on 176 companies show that there is no direct link between human resource management strategy and corporate strategy, it is obvious though that from resource-based approach, unique human resource capabilities - development of a core competence will create competitive advantage for firms, hence could contribute to profits and growth. Dunphy and Stace (1992) seem to echo Purchell in linking business strategy with human performance and argue that people themselves and their skills are the key to added value, the management of people becomes the critical factor in achieving organizational excellence, hence HRM should be included in setting up firms

business strategy. Wong et al (1997)s study looked at management training and development based on intensive survey and interviews on 138 firms during 1990-1991, and displayed the subtle impact of management training and development on the organization and performance of small and medium enterprises. Other studies (Bratto & Gold 1994, Bearwell & Holden 1994 and Storey 1995) demonstrated that a firms drive to improve performance and pursue excellence leads to the greater emphasis on HRM. These studies have indicated that HRM policies and practices contribute to business success, hence there are interrelationships between HRM and organizational performance. Nonetheless, some empirical studies dispute the above results. Among them, the most interesting one was the study done by Lee and Chee (1996) who examined 48 South Korean manufacturing firms and concluded that business strategy is certainly associated with company financial performance, but participative HR strategy and its interaction with the business strategy are not related to organizational performance. It could be because Lee and Chee used the four variables of power, information, reward and knowledge within the participative HR strategy that arent fully applicable to the cases of South Korean firms. It could also be possible that HRM is too remote to the firms performance to reveal any meaningful direct impact. It may increase employees productivity (per capita value added), but not necessarily the firms overall performance. Hence, to achieve the better organizational performance, it would be necessary to relate the principles of human resource management to business success under different set of competitive strategies That leads to our last discussion on the theory of HRM and performance which is the theory of fitness or integration. Essentially they suggest that the various types of HRM fit can be ordered along two dimensions of Internal-External fit and Criterion specific or Criterion free (see Figure 1). Fit as strategic interaction seeks to link HR practices to the external context and reflects the standard strategic approach. A firm makes choice to respond to and interact with the existing environment. HR strategy and practice would be matched to that choice. Firms with appropriate response and the right match will report superior performance mainly measured by specific financial criteria.

Figure 1: Internal

Forms of HRM Fit Criterion specific Fit to an ideal set of practices Criterion free Fit as gestalt Fit as bundles

External Fit as strategic interaction Source: Guest, 1997:271

Fit as contingency

Fit as contingency looks at the external factors such as the nature of market, legislation changes or characteristics of industry etc. and suggests that firms with HR policy and practice responsive to these external factors will obtain superior performance. Fit to an ideal set of practices believes that there is a set of best HRM practices, if firms move closer to the ideal type, it will achieve higher performance. Fit as gestalt or Fit as bundles assumes there is a structure or configuration that is so integrated that the sum of bundle of practices is better than the partial practice. Fit as gestalt stresses the synergistic combination of all HRM practice, and emphasizes that if only taking one element of HRM i.e. pay or training, it may distort the whole picture. In principle, the approach differs from the ideal type of fit which specifies the dimension of HRM practice, and the bundles approach which emphasizes on multiplication rather than additive effect. The gestalt implies that if one key aspect of HRM is missing, the theory may not exist. While in principle, Fit as bundles implies there may be a number of possible combinations of practices which will lead to high performance: for instance, some firm may emphasize job security as importance for the retention of competent staff, while other prefer training and development. This approach allows some substitution as long as a distinctive core of HRM practice within the firm is maintained. Chinese small and medium enterprises are operating under the transitional economy, and HR functions in most of firms have been directed slowly away from the previous mode of planned organism and transformed toward modes more related to a market-oriented system. While most of western enterprises operate under free market

system, they tend to be inward-looking, and start their HRM approach from pursuing internal set of ideal practices to improve internal management and achieve fitness for gaining market advantages. Once that is established, strategic human resource management approaches are sought to respond to increasing changing external environment to gain competitiveness. Chinese enterprise may well be an opposite case. It started with the governments open policy which brought in competition. Firms (particularly state owned enterprises) have been challenged first for profitability, then market competitiveness. If the state could exercise intervention to keep profitability and market competitiveness by price control (i.e. distorted price as mostly reflected as monopolized pricing policies), internal management to solve inefficiency problem would be largely ignored. So enterprise performance is largely affected by external factors such as the nature of market, legislation changes and own industry characteristics. Firms tend to set up business strategies to respond to these changes, and HRM strategy and practice (if necessary) would be set up to match the focused objective of achieving profitability and market advantages. Hence, to examine the relationship of HRM practice and enterprise performance in Chinese enterprises, the concept of fit as strategic interaction and fit as contingency is more applicable in the sense they emphasize more on external factors as determinants of designing HR policy and practice. We will need to hypothesize and test whether specific criteria of strategic interaction and contingency approach are applicable in Chinese enterprise performance. To do this, we use 74 SMEs interviewed in China as the sample for examination, and we will need to come back to this point of discussion in the later section of this paper. What is needed here now is to define HRM (Table 1) which has theoretically been an issue for some time. Why should HRM attract so much attention? How could firms benefit from practicing HRM? What are some elements or bundles of best practice of HRM? What is the core of HRM practice?

Table 1: Definition of HRM

Human resource management involves all management decisions and actions that affect the relationship between the organization and employee - its human resources. (Beer et al. 1984:1)

A method of maximizing economic return from labor resource by integrating HRM to Business Strategy. (Keenoy, 1990) A strategic, coherent and comprehensive approach to the management and development of the organizations human resources in which every aspect of that process is wholly integrated within the overall management of the organization. HRM is essentially an ideology. (M. Armstrong 1992:9) Perhaps it is best to regard HRM as simply a notion of how people can best be managed in the interests of the organization. (M. Armstrong 1994) A diverse body of thought and practice, loosely unified by a concern to integrate the management of personnel more closely with the core management activity of organizations. (Goss 1994:1) HRM is a discourse and technology of power that aims to resolve the gap inherent in the contract of employment between the capacity to work and its exercise and, thereby, organize individual workers into a collective, productive power or force. (Townley 1994:138) HRM is a distinctive approach to employment management which seeks to achieve competitive advantage through the strategic management of a highly committed and capable workforce, using an integrated array of cultural, structural and personnel techniques. (Storey 1995:5)

Source: Price 1997:11

HRM attracts much attention because it has been portrayed as being a radical, integrated and consistent approach to tie people management to business objective. It goes beyond personnel management which emphasizes on technical skills and day-today function such as recruitment and selection, training, salary administration and employee relations. HRM takes a more proactive view by looking at people in economic terms as assets and liabilities which can be actively managed. Each element of HRM are integrated to fit into a pattern which ultimately meets business needs. HRM is seen to be holistic, focusing more on conceptual, higher-level concerns such as the structure and culture of the organization and the provision of necessary competencies. HRM consistently uses organizations reward systems, performance measures, promotion and learning opportunities to maximize the utilization of its human resources. In particular, they focus on the attitudes, beliefs and commitment of employees to achieve behavioral consistency and a culture of commitment that will lead firms to a higher level of productivity, profitability and competitiveness (Price, 1997:12-13). According to Price (1997), there are a half of dozen of definitions of HRM (see Table 1), but the essence of HRM is as simple as to get work done through strategic selection of suitable staff, training and development of competent & skilled workers,

provision of incentive reward systems to retain employees and overall flow of management communication, performance appraisal to increase level of transparency and plus harmonious industrial relations to reduce conflicts and achieve cost effectiveness. In the context of Chinese enterprises, it is assumed that elements or bundles of best (or better) practice of HRM would be those practices that concern: selection of suitable staff from market, not allocated by the state as the planned system exercised previously; provision of incentive reward systems by at least linking performance with payment, and practicing effective welfare scheme that will promote retention of best staff, instead of having standardized rigid wage system and cradle to grave social welfare system (Goodall and Warner, 1997); training and development of competent and skilled workers on on-going basis to match job descriptions & requirements rather than zhuang ye bu dui kou - work in the area with no special skills; increasing level of transparency by exercising institutionalized performance appraisal to promote staff in stead of promotion of staff based on superiors personal opinions toward and relationship with subordinates as well as the length of services in firms, also by overall flow of management communication to encourage staff participation in management instead of having only Partys authoritarian leadership over enterprise management; exercising appropriate labor unions power to create cohesion and to truly protect staff (workers) interest and clarify labor management relationship. Reviewing past limited studies on HRM practice in Chinese enterprises, it is found that their main focuses were on Chinese personnel system reforms and the differences between HRM practice in Chinese-owned enterprises and western HRM models within large and medium size enterprises including joint ventures. Such studies include Warner (1997a)s discussion on labor contract (selection process), payment systems (remuneration), social insurance (retention) systems reforms; Goodall and Warner (1997)s research on selected case studies in Shanghai and Beijing to see whether HRM practice in Chinese joint ventures have blended with Chinese

characteristics of iron rice bowl syndromes. Similar exercises were carried out by Ding et al (1997), Lu & Bjorkman (1997) and Tsang (1994), except their variables have been further extended to training and development, influence of trade union (or worker representatives), dismissal, equal employment opportunity and employee participation in management. There is no such study so far as to examine HRM practice in small and medium enterprises - the sector which has contributed significantly to economic growth since the reform had started 20 years ago. It is therefore significant to evaluate the relationship between HRM practice and SME performance in order to identify some essential factors within HRM framework to assist Chinese SMEs to grow, ultimately they may contribute to sustainable economic development in China. HYPOTHESES OF THE STUDY Following the above-mentioned review, it is assumed that growth-oriented small and medium sized enterprises will also have best practice HRM approach. That leads us to the following hypotheses of this study: Hypothesis 1: Chinese small and medium sized enterprises will follow best practice of HRM in the areas of freely selection of staff from labor market; payment linked with performance; on-going training and development of internal staff; provision of social security scheme; effective performance appraisal; employee involvement in decision making; and exercise positive influence of trade union. Hypothesis 2: as a result of hypothesis 1, Chinese small and medium sized enterprises will show good HRM outcomes in terms of congruence, competency and commitment of staff. Hypothesis 3: Chinese small and medium sized enterprises who practice HRM will demonstrate their strengths in corporate performance specifically in growth, market competitiveness and expansion plan. DATA COLLECTION AND RESEARCH METHODS

10

The author interviewed 74 general mangers (GM) or the managers with main responsibility for HRM issues (in most cases, directors of Administrative Office bang gong shi zhu ren). 23 interviews were carried out during September - October 1996, and the rest were finished during October-November 1997. The interview questions cover the following aspects: HRM practice and performance in SMEs in China, SME ownership, SMEs years of establishment, Corporate performance including sales/production since firms Problems and favorable factors encountered in their developmental

establishment, market position and future five years plan, process. The profile of the interviewed samples are listed in Tables 2-5. The author took the advantage of attending conferences and some business and casual visiting trips to the various cities in China where contacts were available. Most of enterprises were randomly introduced by the authors friends and their circle of influence. There is no particular reason why the sample is more focused on one city than the other. For instance, the largest group of 21 enterprises in Nanning City, Guangxi Zhuang Minority Autonomous Region was interviewed because the recommendation by the director of the Nanning High-Tech Development. Generally speaking, Guangxi is economically behind Guangdong Province. However, the samples selected from Nanning, capital city of Guangxi were mostly small and medium sized domestic private owned enterprises. These enterprises demonstrate relatively competitive market position and growth tendency, compared with those from Guangzhou, where samples selected were mainly state-owned or associated state-owned enterprises. It is observed that HRM and corporate performance of enterprises is not much influenced by firms locality but its ownership, a point that will be discussed later. According to Dixon et al (1991), SME is characterized as: management is independent - managers are also owners capital is supplied by and ownership is held by one or a few people;

11

operations and markets are locally based, although markets may not be; smallness is relative to the size of the largest firms in the industry

12

Table 2: Interview Samples - City Distribution

City Beijing (BJ1-3) Fuzhou (FZ1-11) Guangzhou (GZ1-11) Hanzhou (HZ1-2) Kunming (KM1-8) Nanning (NN1-21_ Shanghai (SH1-5) Shenzhen (SZ1-6) Tianjin (TJ1-4) Xiamen (XM1-3) Total Number 3 11 11 2 8 21 5 6 4 3 74

However, Chinese SMEs are quite different from Dixons definition. Many are still full or partly state-owned, though some newly-developed enterprises in the urban area could be largely privately owned. Those from rural area can be either privately owned or collectively owned by town and village governments. Seven ownership categories from the interviewed samples are divided and listed in Table 3. Table 3: Interview Samples - Enterprise Ownership
Enterprise Ownership Wholly State-Owned Enterprise (SOE) Partly Affiliated to SOE Enterprises (ASE) Collectively Owned Enterprises (COE) Joint Venture with Foreign Firms Enterprises (JVE) Domestically Private Owned Enterprises (DPE) Foreign Private Owned Enterprises (FPE) Town & Village Enterprises (TVE) Total Number 9 15 9 9 23 6 3 74 Percentage % 12 20 12 12 31 8 5 100

23 out of 74 (31%) of interviewed enterprises are domestically private owned (DPE) SMEs where owners of firms are Chinese National and operation is largely located within China. While 6 interviewed enterprises are foreign private owned (FPE), which means their owners are from overseas, China operation is only part of their overseas business expansion process. The definitions of DPE and FPE are similar to Dixons definition mentioned above. But among the interviewed enterprises, 9 are still wholly owned by the state (SOE) - the central, provincial and local governments. 15 enterprises are affiliated or partially belonged (some as subsidies) to state-owned enterprises (ASE). Collectively owned enterprises (COE) are defined as those whose capitals are supplied collectively by individual people and/or organizations. Their management is independent from the state, and their operations are largely local

13

based. 9 of such firms were interviewed. Another 9 interviewed enterprises are joint ventures (JVE), which are owned both by Chinese state-owned enterprises and foreign business entities. 3 town and village enterprises (TVE) were also included in the interview. The industry distribution of the interviewed sample has not been intentionally focused on particular sector, hence it shows rather even distribution among various categories (Table 4). They cover sectors such as electronics (14%), trading (9%), technology (8%), pharmaceutical & printing & paper (both 7%), and others. Chinese SMEs is perhaps an exception according to the common view that most of SMEs in the Asia Pacific are service-oriented with less capital and technology intensive (Hall 1995). Instead, the majority of SMEs interviewed indicates a market advantage in developing high-tech and capital-intensive products and services. Table 4: Interview Samples - Industry Distribution
Industry Agricultural Products Chemical Engineering Construction Electronics Hospitality Manufacturing Packaging Materials Pharmaceutical Printing & Paper Real Estate Retail & Wholesales Service Technology (Computing & Software) Trading Others (energy, telecom, etc.) TOTAL Number 3 4 5 10 4 3 4 5 5 4 4 4 6 7 6 74 Percentage 4% 5% 7% 14% 5% 4% 5% 7% 7% 5% 5% 5% 8% 9% 8% 100%

14

Table 5: Interview Samples - Years of Establishment and Staff Number

Years of Establishment
calculated back from December 1998

Number of Enterprises 27 36 11

% 36 49 15 100

Staff Number Number of Category Enterprises 1<N<10 11<N<100 101<N<500 N>500 Total 10 41 17 6 74

% 14 55 23 8 100

1<Y<5
(not including establishment for 5 years)

5<Y<10 (not including establishment

for 10 years)

Y>10 Total

74

Up to December 1998 when the data were tabulated and analyzed, 85% of SMEs interviewed have established their business less than 10 years, among them 27% being established less than 5 year (Table 5). Over 70% of those firms (<5 years) have only been set up for two years. However half of the interviewed SMEs have been quite established, their operations have gone over the turbulent period of maximum five years of development (Williams et al, 1995) and are expected to be continuously growing. This group of SMEs are often regarded as fast growing enterprises which could create jobs and rapidly absorb idol labor force, i.e. laid-off workers from stateown enterprises and public organizations. According to the European Commissions classification (Price 1997:94), enterprises with less than ten employees are defined as micro-enterprises; with small enterprises hiring between 10-99 people and medium sized hiring 100-499 people. 6 interviewed enterprises with more than 500 employees are labor-intensive sector such as line production of electronic products, textiles and hospitality industry (hotel), and/or most of all SOEs where often 1/3 or half of staff are retired, nearly retired, waiting to be laid off. They are also shareholding companies (called ji tuang gong si group proprietary limited) where the interviews were taken place at the headquarters of these companies, general managers tended to include all staff of their subsidies when answered the question of number of staff, even though the actual number of staff in the headquarter was less than 100. Their subsidies operate in a quite independent manner, except carrying the flag of companys name. Therefore this group can be still reasonably called medium-sized enterprises (Table 5). RESULTS AND ANALYSIS

15

To test the hypothesis 1, 7 best practices within HRM framework were determined (Tables 6a and 6b). In consideration of Chinese special characteristics in the transition period, partial practices of those HRM elements are also added. The results are discussed as follows. Human Resource Management Practice In the planned economy such as in China, staff have been generally allocated the Ministry of Personnel that is responsible for cadres allocation and the Ministry of Labor for workers. Even though this practice has now been modified in order to let market forces play a larger role, most state-owned enterprises are still largely constrained by the state regulations. The constraints can be extended not only to decision making on selection of staff, but also on determination of wages and fringe benefits including housing and superannuation (Zhao 1994:9 and Zhu 1997:22). HRM functions within enterprises in the planned economy have been largely limited on looking after staff records and controlling allocation of resources with minimum staff training and development. There are little performance evaluation in place in order to promote better-achieved staff. Promotion is often determined by staff personal relationship with their superiors and superiors opinions toward their subordinates. The influence of trade union (or worker representatives) has been mainly supporting management to motivate staff, organizing group activities to increase cohesion and taking care of staff amenities (birthdays and family funerals) - the roles also played by personnel department. Often two entities are combined and located within the same unit. Would SMEs interviewed in China be still constrained in the similar way and would their HRM functions be the same as those practiced in the planned structure after almost two decades of reform? Overall from the interviews, it is found that over 80% of SMEs interviewed has moved away generally from rigid allocation of staff by the state departments, and engaged in free market selection process. Those enterprises which do not practice free market selection are mainly state-owned enterprises. Staff were still mainly allocated by the state authority in almost 80% of SOEs interviewed. Although the labor contract

16

system has been implemented since 1985 (Goodall & Warner 1997), most of contracted staff would be changed to fixed term not long after joining the firms. But almost hundred percent or at least partial practice of recruiting staff from market has been taken place in DPEs, FPEs, COEs and TVEs. JVEs were reported not be able to fully recruit their staff from market because some of their staff were allocated by the partner state-owned enterprises upon signing the joint venture contracts. Hence they show only 22% of free market selection of their staff (Table 6b). It has been argued that one of most effective remuneration package in HRM practice is to link staff payment directly to their performance in order to increase incentive and improve productivity. 70% of SMEs interviewed have put this practice in place. Again, enterprises which did not link their staff payment to performance are those from state- owned enterprises and joint ventures. It is understandable that wages in SOEs are too rigid to provide any incentives to performance, and any change may cause structural change from top to down or may need to take a long time to report and gain approval from the associated organizations in order to reward staff with excellent performance. But it is surprised to see the similar result from joint ventures. One reason could be that the samples selected are biased, as JVEs interviewed mainly cooperate with large state-owned enterprises in the areas of electronics, hospitality (hotel), agricultural products where group wages dominate. If however the question asked would change to whether incentive payment was given to group performance, the answer could have been quite different. Because of the small sample, such measures are not statistically significant.

17

Table 6a: HRM Practice in Selected SMEs in China

Better HRM Practice Numbe r 46 14 52 27 26 25 25 23 7 38 16 5 Percenta ge % 62 19 70 35 36 34 34 31 9 51 20 6 27 Total % 81 70

1. Selection - Free market selection process (FMS)

Partially using free market selection process (PFMS)

2. Remuneration - Payment linked with Performance (PLP) 3. Retention (i.e. other benefits) - Social Security System (SSS)
Partially paying for staff social benefit (including medical, housing fund and retirement package etc.)

72

4. Training & Development (T & D)

Partially providing training for new staff and/or management

66 40 51

5. Performance evaluation process (promotion) (PEP)

Partially giving evaluation for management staff or using for testing on new recruits improved management communication (DMP/MSC)

6. Decision Making Process - Staff active involvement,

7. Labor management relationship - influence of trade union and

worker representatives (LMR/TU) Partially using union influence in management

n = 74

18

Table 6b: HRM Practice in Selected SMEs in China - Comparison among the Selected Enterprises with Different Ownership
NO PFMS FMS NPLP PFMS /FMS 4 4 7 4 27% 27% 47% 27% COE 0 3 6 4 0% 33% 67% 44% DPE 0 2 21 2 0% 9% 91% 9% FPE 0 0 6 0 0% 0% 100% 0% JVE 3 4 2 6 33% 44% 22% 67% SOE 7 1 1 6 78% 11% 11% 67% TVE 0 0 3 0 0% 0% 100% 0% Total 14 14 46 22 19% 19% 62% 30% Notes: a) ASE: enterprises affiliated with SOE b) COE: collectively owned enterprises c) DPE: domestic private owned enterprises No. % ASE d) e) f) g) FPE: solely foreign owned enterprises JVE: joint venture SOE: state-owned enterprise TVE: town and village enterprises PLP 11 73% 5 56% 21 91% 6 100% 3 33% 3 33% 3 100% 52 70% NO PSSS /SSS 1 7% 2 22% 14 61% 2 33% 0 0% 0 0% 2 67% 21 28% PSSS 7 47% 6 67% 5 22% 2 33% 6 67% 0 0% 0 0% 26 35% NO PT&D T&D PT&D /T&D 7 6 5 4 47% 40% 33% 27% 1 3 2 4 11% 33% 22% 44% 4 8 8 7 17% 35% 35% 30% 2 0 0 6 33% 0% 0% 100% 3 2 5 2 33% 22% 56% 22% 9 4 4 1 100% 44% 44% 11% 1 1 1 1 33% 33% 33% 33% 27 24 25 25 36% 32% 34% 34% SSS NO PPEP /PEP 11 73% 5 56% 12 52% 0 0% 6 67% 8 89% 2 67% 44 59% PPEP 2 13% 0 0% 4 17% 0 0% 1 11% 0 0% 0 0% 7 9% PEP 2 13% 4 44% 7 30% 6 100% 3 33% 1 11% 1 33% 23 31% NO DMP 9 60% 6 67% 8 35% 1 17% 5 56% 7 78% 0 0% 36 49% DMP 6 40% 3 33% 15 65% 5 83% 4 44% 2 22% 3 100% 38 51% NO PTU /TU 9 60% 9 100% 22 96% 6 100% 2 22% 2 22% 3 100% 53 72% PTU 2 13% 0 0% 1 4% 0 0% 2 22% 0 0% 0 0% 5 7% TU 4 27% 0 0% 0 0% 0 0% 5 56% 7 78% 0 0% 16 22%

No PFMS/FMS: election of staff based on allocation by the state and its agents; PFMS/FMS: selection of staff from market or at least partially recruit staff from market; No PLP: payment does not link with performance; while PLP means staff payment is linked to their performance; No PSSS/SSS: no social security system at all or partial payment for welfare expenses paid by enterprises; PSSS/SSS: at least firms partially pay for staff social benefits including medicare, housing etc No PT&D: No training provided at all by enterprise to staff PT&D/T&D: training provided either on on-going basis or partially to those new recruits or management staff; PPEP/PEP: performance appraisal or at least partial performance evaluation given by enterprises; DMP: decision-making process involves staff, promoting smooth management communication; PTU/TU: partially or fully utilizing the influence of trade union.

19

In terms of social security system, 72% of SMEs interviewed provide their staff with, if not full set of welfare, at least partial benefits of medical expenses, housing fund and retirement package. Along with the establishment of social security system in China, firms now could release some burden of providing social benefits to the society. Such practice of providing social welfare as in SOEs, JVEs and/or COEs is called triple division (san-san feng) which means that enterprise pays one third, the state is responsible for another third, and the rest one third is paid by individual staff, automatically deducted from their monthly salary. DPEs and TVEs provide less social security, whereas SOEs interviewed provide 100% of the social security benefits. One of detrimental reasons for inflexible staff movement is not because incentive provided for staff personal career advancement, but because once staff left SOEs, all these benefits would be terminated also. So even staff personal goal is unlinked with firms objective (referred to HRM outcomes analysis - CGR is only 11% for SOEs), individual may still choose to stay in the organization for these social welfare that can be too expensive to afford personally at workers current wage level in China. In the sense, if social welfare does not provide appropriate incentive for staff retention and productivity increase, too much of it can create opposite effects. Training and development is generally lacking in SMEs, and it is one of the important area that growing SMEs need to focus on. Although overall 66% of SMEs interviewed have engaged in training and development of their staff, their irregular training is often limited only to giving orientation to new staff, pre-job skill training. On-going staff skill improvement and management training has been taken place mainly in FPEs (100%) and JVEs (56%). Performance appraisal is designed to give staff evaluation for their performance, and taken as measures to determine staff promotion, transfer or further training and development or even dismissal. Only 40% of SMEs interviewed have taken this measure either seriously or partially in an institutional manner to assist staff career advancement (promotion). Managers in most of SMEs interviewed, in particular in SOEs (89%) and ASE (73%) would promote their staff based on individual opinions and personal relationship. Phenomenally from the SMEs interviewed, the authoritarian of GMs view on staff performance is the basic determinant of staff promotion. An exception was displayed in FPEs where

20

performance evaluation was institutionalized and staff were promoted according to the records of regular performance evaluation taken place at least twice a year. The variable of decision making process (DMP) is rather subjective. It examines whether staff in the interviewed SMEs had actively involved in major decision making within the firms in regard to production, technology innovation and suggestions for reform etc. It also includes whether management staff engage in regular communication with general staff: in Chinese term as whether leaders closely associate with the mass, and the ultimate goal of firms is achieved by joint effort of management and mass. 51% of SME managers interviewed demonstrate strongly their effort to communicate with their staff. Under an atmosphere of easy conversation, these managers were quite emotional to attribute the overall success of their companies to their staff regular suggestions for improvement and their competency, hard-work and commitment. Among those firms with strong indication of DMP, TVEs (100%), DPEs (65%) and FPEs (83%) are doing much better in this area than SOEs (22%), COEs (33%) and JVEs (44%) and ASEs (40%). As noted by Zhu (1997), there is a great power distance between the top and middle management in China as Chinese top management holds nearly all the strings of decision-making in its hands and allows very little power to lower levels. This phenomena is perhaps more significant in SOEs than in DPEs. Trade Union in China was historically organized to carry out the Partys policies and taking care of workers welfare. However trade unions or some so called worker representatives in enterprises do not necessarily bargain freely for better work condition or fix wage levels for workers as in western countries (Zhao 1994, Tsang 1994). In the everyday work of enterprises, union officials (if any) are supposed to diffuse conflicts between the workforce and management. Zhao (1994:10) showed that in recent years, Chinese trade unions have played an increasing role in labourmanagement relations, especially in the joint venture. This statement could be proved true by the result obtained from the interviewed JVEs and SOEs in this study, for at least 56% in JVEs and 78% in SOEs show that their enterprises are having strong influence of trade union. It is certainly not the case for other enterprises with different business structure, for most of them either have no concept of trade unions function

21

(TVE and COE particular, or if they do, they would argue why they need such organ to create more complexities (Table 6b). Human Resource Management Outcomes Five variables (Beer et al 1984) were selected to examine HRM outcome as a result of selected HRM approach in the interviewed Chinese small and medium sized enterprises. The result of testing Hypothesis 2 is shown in Table 7. Overall, 65% of SMEs interviewed have shown less than 10% of staff turn over annually. And again FPEs and DPEs achieved better HRM outcomes in this aspect than SOEs and TVEs. If we take congruent variable to compare with the variable of turn over in ASEs, we may find an interesting result that although 47% of all ASEs interviewed claimed that their staff personal career goals are linked with organizational goals, 80% of selected ASEs indicated a high level of staff retention. The reasons can be two-fold. One is that although ASEs are affiliated with stateowned enterprise, they have more autonomous in selecting their own staff from market (74%), hence selected staff, especially new staff, are not only competent (73%), but also committed (73%), this reduces the tendency to leave the companies. Secondly it could be that half of ASE staff were passed downed from affiliated SOEs which provided full social welfare, hence though these staff personal goals may not match with organizational goals, they choose to stay back in unmotivated workplace as a result of calculating opportunity cost of losing social benefits which would otherwise be too costly to be paid by staff individually. SOEs interviewed show the highest staff turn over rate over 10%, in some cases the rate reached to 30% annually. The sample of TVEs is too limited to conclude that a higher rate of staff turn over is also in place in rural area. However, understandably if TVEs are not fully operational year around as most cases are, except those in Sunan, Jiangsu & Zhejiang Provinces and suburbs in Guangdong Province in China, workers would go elsewhere to seek for obtainable jobs, this may cause a high level of staff turn over. Table 7: HRM Outcomes in the Selected SMEs in China
Enterprise 0<r<10% r>10 % CGR CPT CMT

22

category no. percent no. percent no. percent no. percent no. percent ASE (15) 12 80 3 20 7 47 11 73 11 73 COE (9) 4 44 5 56 4 44 6 67 78 DPE (23) 17 74 6 26 17 74 19 83 20 87 FPE (6) 5 83 1 17 5 83 6 100 6 100 JVE (9) 6 67 3 33 6 67 6 67 3 33 SOE (9) 3 33 6 67 1 11 5 55 2 22 TVE (3) 1 33 2 67 3 100 1 33 3 100 Total (74) 48 65 26 35 43 58 53 72 52 70 Notes: a) 0<r<10 - staff turn over rate is less than 10%, or very minimum and/or zero; b) r>10 - staff turn over rate is over 10%, regular staff resigned, laid-off, or sacked, unstable staff; c) CGR - congruence means that staffs personal career goal are consistently linked with organizational goals; staff are generally enthusiastic about likely advancing personal career within the environment of current organizational setting; d) CPT - competent staff who are generally well educated & trained, skilled and able to produce and provide quality products and services to meet market demand; e) CMT - commitment of staff to sacrifice self-interests for the sake of achieving overall organizational objectives. Interviewed manager strongly advocated that the success of owned firm was largely due to a joint effort of staff and management.

Congruence means that staff personal career goal are consistently linked with organizational goals and staff are generally enthusiastic about likely advancing their personal careers within the environment of current organizational setting. The result from the interviewed SMEs indicates that overall 58% of examined enterprises have HRM outcome of congruence. Among them, TVEs show 100% of congruence among their staff. One director of an interviewed TVE told me that in rural area the life and death of the enterprise is the life and death matter for each staff. The enterprise glows with vitality, staff will have rice to eat. No personal goal in life is more important than to have rice to eat. Hence the well-being of all staff is closely linked with the growth of enterprise, staff generally indicate a higher level of commitment at least in town and village enterprises (100% in most of cases) compared with other enterprises, especially SOEs where only 11% of firms interviewed had such congruence. In contrast also, the congruence in FPEs and DPEs is relatively stronger than that in ASEs and COEs. SMEs interviewed demonstrate a higher level of staff competency (72%). It is found that the majority of staff in the SMEs are universities/colleges graduates or even postgraduates. They are well educated, if not fully trained, with technical skills and knowledge that are sufficient and competent enough to produce and provide quality and services to meet market demand. TVE is an exception, as supply of workers is mainly from villages and towns where education of labor force is relatively low. Moreover, TVEs interviewed were largely labor-intensive, the requirement of technical skills and level of education is relatively low. However TVE enterprises have

23

been challenged to compete within the same industry, and aware of losing market if they do not have sufficient skills and technology advancement. In this aspect, Sunan (Jiangsu and Zhejiang) may have been less problematic, as even in the early development of TVEs, they have pooled in a large scale of skilled workers and technical staff from urban area. The success of Sunan Model has in one way proved the importance of inputting skilled workers to assist enterprise growth. In less developed area such as Guangxi and the other mid-west provinces, education and development of high competent staff is the key to boost enterprise growth, hence overall economic development. The last outcome of HRM practice would be staff commitment. JVEs and SOEs show less staff commitment compared with staff in ASEs, COEs, DPEs, FPEs and TVEs. Zhou (1994:137) pointed out that in China nationally, overstaffing in stateowned enterprises was about 20-30%, and retired and/or nearly retired personnel reached to 22% in 1991. In some old SOEs, this proportion reached almost 1:1. Such SOEs are carrying huge burdens of both redundant staff and persistently making loss. Facing about 11 million workers being laid off from SOEs in 1997, and expected further drastic reform, SOEs would be continuously challenged for their inefficiency and low productivity. Many staff regard SOE as having no hope for further development unless internal management be improved and ownership issue be clear up. Even with limited samples of SOEs examined, it is quite clearly that an extreme low staff commitment (22%) as a result of uncertainty of future development of SOE. JVEs also have had low staff commitment. It is explained from interviews that this is mainly caused by conflicts between joint parties in terms of labor contract issue, mismatch management caused by misunderstanding between local labor force and foreign management staff. Mostly it is also because local staff tend to take JVE as a stepping stone for their career jump from small and medium sized to better and larger JVEs or even setting up their own similar business as to compete with JVE where staff have obtained skills and knowledge. Hence general staff commitment at least in the interviewed JVEs show a rather low key rating. Enterprises Performance

24

It is a problematic area to determine what type of performance indicators we need to measure how HRM practice influence corporate performance (Guest 1997). It is often easy to concentrate on one view of performance at the expense of the others. Nonetheless, to help the study, we still need to list a typical scorecard of those important enterprise performance indicators such as the financial, customer and employee constituencies. With a limited number of interviews in the sample, plus the fact that interviewed personnel had also been limited to GMs and HR responsible managers, it is rather difficult to collect all data in regard to firm finance, customer response and employee behavior. Therefore, this study has only examined the variables that relate to the measures of output of goods and services; firms market position in term of their competitiveness in dominating market shares and ranking in the same industry; and firms expansion plan in regard to future growth objectives. The questions were asked so that GMs and HR managers could easily describe first how their firms have grown (or decreased) in their sales and production annually (in some cases also including profits made) since the firms have been established. Secondly indicate their increasing (or decreasing) market share of products and services; and finally picture their 5-year plan with explanation of how they may achieve the goals, including feasible factors and inevitable difficulties that may encounter in the process of development. Table 8 indicates that SMEs interviewed are overall growth-oriented (70%), with relatively strong market competitiveness (72%), and tendency to further grow (70%). In terms of different business structure (i.e. ownership), FPEs and DPEs are growing much faster than ASEs and JVEs with increasing sales and production. Often DPEs and FPEs interviewed record not only an output growth but also an increasing number of staffing growth. With implicit encouragement from Chinese government after the 15th Party Congress in September 1997, private sector in China has gained much solid backing. A total number of 1 million private enterprises have been set up to the end of December 1998, absorbing 14.6 million employees nationwide, possessing the assets valued at RMBY65.54 billion (US$7.89 billion) (China Daily, 4 January 1999:p2). The growth will be continuing in this sector as echoed by this study which show that both FPEs (100%) and DPEs (87%) have much higher tendency to

25

expand their businesses within the next five years. In most cases, the interviewed GMs and/or HR managers showed the author their plan of expansion with doubling up sales and production and staffing increase accordingly. Table 8: Enterprises Performance in the Selected SMEs in China
Enterprise category ICR/SP MKT EXP

no. percent no. percent no. percent ASE (15) 8 53 9 60 9 60 COE (9) 6 67 8 89 7 78 DPE (23) 20 87 18 78 20 87 FPE (6) 6 100 5 83 6 100 JVE (9) 4 44 6 67 6 67 SOE (9) 6 67 6 67 4 44 TVE (3) 2 67 1 33 2 67 Total (74) 52 70 53 72 54 70 Notes: a) ICR/SP-increasing sales/production consistently in the past few years since the firm has been established; b) MKT - the firms competitiveness in the market both in terms of dominant market share and its ranking in the same industry; c) EXP - expansion plan including 5-year-plan of staffing and production and sales.

In comparison, SOEs and ASEs were generally stagnating. Only 44% and 60% of SOEs and ASEs interviewed respectively expressed their desire to grow their business in the future. Most of them are quite happy to maintain current situation keeping ends met was the only goal! It has much to do with the unceasing control by the state. Even though some of SOEs and ASEs have become shareholding companies, the most shares are locked in the state treasurers black box. The black box implies rigid control by the state in terms of staffing, investment and expansion plan. Often these plans need to be reported to the top to gain approval. The process holds back enterprises which need to be flexible and constantly to make quick decision in order to respond to market shift. The black box distorts micro-enterprises behaviors, causing confusion and obfuscation that hinders enterprises from pursuing market opportunities and growth. The role of GMs in SOE and ASE is quite different from that of DPE and FPE. It often takes more time for a SOE managers to sit on the fence watching grasses grow on either side rather than to decide to take their sheep to glaze the greener plain, where DPEs and FPEs have already been taking up much market shares. In terms of market position, it is interesting to notice that given less favorable HRM outcomes displayed in SOEs & COEs interviewed, 67% of SOEs and 89% of COEs have still indicated their relatively strong market position. After carefully

26

examining all variables and factors that are favorable for these enterprises to take up relatively large proportion of market share, it is found that the following reasons can explain this distortion: 1) those SOEs interviewed are mainly engaging in the production and sales of goods and services whose prices and markets are still largely monopolized by the state, for instance trading of sugar, cigarette and liquor, provision of energy (water) etc. Monopolized price is the only way under market condition for these enterprises to gain market advantage. The previous studies used to measure SOE performance by the total factor productivity and profitability (Huang & Meng 1997) without looking at the price distortion, hence the result could be quite misleading. Scholars favorable of profitability measures started to advocate that SOE can still be vitalized if management seriously pursues profit maximization as the classic firm theory argues. This has brought the ultimate consequence of neglecting firms internal management, which resulted in declining efficiency in most of Chinese SOEs. It is the core issue of SOE reform that should focus not just on profit maximization, but on HRM aspects to improve internal management. Zhang (1998) recently proposed a qualitative criterion by applying Corporate Governance to measure enterprise performance. The point emphasizes solving management selection mechanism and the long-term managerial incentive problem to achieve sustainable development of SOE. 2) collectively owned enterprises (COEs) are often based in local, and well protected by local government and its agents (taxation office, bureau of property and land etc.). Regional protectionism helps COEs maintain their increasing sales and production and advantageous market position without allowing new entry. The motivation behind of this behavior is the intention to seek bigger share of pie (i.e. tax revenue) and higher rents from local government and government officers (Tu et al, 1998:6). Hence the result of enterprise performance in this study does not necessarily prove the hypothesis 3 because of these inevitable distortions. In summary, Chinese SMEs interviewed have followed some of western best practices of HRM in particular areas of free or partially free market selection of staff (81%); linking payment with staff performance (70%) and training and development

27

of staff (66%). However they still hybridized with Chinese characteristics by providing either full or partial cradle to grave welfare benefits (72%). Generally, SMEs interviewed are weak in implementing performance evaluation (40%), exercising employees involvement in management decision-making (51%) and rather underutilizing the power of trade union to resolve industrial disputes if any. HRM outcomes in the selected SMEs in China indicate a general low level of staff turn over rate (35%), medium level of staff congruence (58%) and relatively high competent (72%) and committed staff (70%). SMEs interviewed are overall growth-oriented (70%), with relatively strong market competitiveness (72%), and tendency to further grow (70%). However, distortions exist to link these performances directly with HRM practice and outcomes, as it seems that there are more important factors other than HRM factors that have caused SME growth in China.

HRM Practice and Enterprise Performance The small sample used in this study and the distorted indicators from the Chinese enterprise practice prohibit statistically meaningful regression and correlation tests. Therefore, in order to provide a set of sensible outcomes of testing the actual relationship between HRM practice and enterprise performance in Chinese SMEs, I further selected and compared a few typical enterprises with different ownership structure (Table 9 - Case Studies). The case study finds that hybrids appear, without other useful instruments, the hybrids can be used perhaps more logically to explain the interrelationship (if any) between Chinese HRM practice and its effects on SME performance. The Chinese SME-HRM model set up in Figure 2 attempts to examine these interrelationships. FIGURE 2: HRM Practice and Enterprise Performance - Chinese SME-HRM-Model

Enterprise Performance
Good Bad

28

HRM Practices

HYBRID I No i.e. Tyrant SOE

HYBRID III i.e. Messy ASE

Yes

HYBRID II i.e. Baby DPE

HYBRID IV i.e. Unfortunate JVE.

The horizons indicate both good and bad enterprise performance, while verticals show whether firms have taken HRM approaches. Hybrid I means that enterprises which do not practice HRM, however achieve good results in their overall performance in terms of output reflecting in amount of sales and production, profits etc; market competitiveness and growth tendency. The case of GZ4-SOE is more or less as such a case except it did not show its tendency to grow. GZ4-SOE is a stateowned enterprise which engages in wholesaling of sugar, cigarettes and liqueur. Established as a shareholding company for 7 years since separating from Bureau of Commerce, Guangdong Province in 1991, GZ4-SOE has been an enterprise that is responsible for its own profit and loss. It has a total staff of 660, nonetheless around 250 are retired and nearly retired workers and another third are redundant workers and all staff were allocated still by the state, mainly from the old regime, new recruits are rare. The company has a personnel department, but its function is limited to take care of all staff documents and take part in decision-making of allocation of welfare including housing and medicare as well as bonus. There are no fit of HRM elements in place. Staff turnover rate is relatively high. The company encourages staff to go, even in time provides some financial support to help those who want to start their own business. Congruence, competence and commitment of staff are generally low. However, the company is still increasing its sales annually, in some years even made profit. Market position is good as there are less competitors in the field, the company has enjoyed the unfair competition for quite some time. The main factors for further growth come from government support in term of continuously giving monopolized price on goods they trade and incentive to get further loan. Hybrid II are grouped by those enterprises which exercise HRM practice, and generate good HRM outcomes which naturally lead to better enterprise performance. NN12-DPE is such an example. The private firm was established by 3-4 brothers and

29

friends four years ago. The GM used to work in a Governmental Research Institute of Engineering Technology. With eyes of Bo Le (an ancient Chinese who knew the quality of good horse), he recruited a team of engineers and technicians, and tapped into the cutting-edge area to provide environmental products and services. The number of employees expanded to 216 in 1997 when the interview was conducted. The company set up a series of motivation scheme, emphasizing to link staff remuneration (partial social benefits scheme to create incentives) package to their performance. Partial training for young staff and management education are also regularly conducted within the firm. Annual performance evaluation is also in place to recognize staff achievement and to decide their increasing level of salaries and promotion. The HRM outcomes are generally satisfactory. With competent staff, innovation, quality and new products to meet market demands, the company has increased their sales consistently for the past years, dominating over 60% of market shares in the same industry at least within Guangxi Region. The business is still growing. The factors for growth are, among the others, skilled workers, quality products and services and good geographical location in the Nanning High-Tech Development Zone. The main difficulty the company has encountered is unfair competition, especially in tendering a large project. In many cases, the State prefers to give the project to SOE, rather than based on criterion selection and fair competition. Obtaining capitals and getting incentive loans are still problematic for private enterprises. Hybrid III are the companies that do not practice HRM, so their enterprise performance are resulted in bad shape. An example is FZ2-ASE - a small bowling club established in 1996. Affiliated with its parent state-owned enterprise - Fuzhou City Foreign Trade Co. Ltd., the club has very limited authority to recruit staff from market except contracted workers on shifts, all major staff including management staff were allocated by the Trading Company. Again those who were affiliated with SOE still enjoy social benefits - the rules set by the parent company. There is a minimum training for the waiters and waitresses. Performance appraisal was aimed at correcting mistakes made by waiting staff, and none of management staff was included in the performance evaluation. HRM outcomes indicate less staff turnover. The reason was that most staff found that it would be better-off to work in a small firm than in large one where bonus was leaner, hence congruence and commitment of staff indicate high,

30

however competency is generally low. And overall enterprise performance was bad. There are two reasons to explain the situation. Firstly, there are a hundred of bowling clubs set up in Fuzhou during 1995-1996. Bowling used to be an expensive sport, but now the competition dragged the price down so much that most of the clubs doesnt make money. Secondly, management is still an issue, most of fixed term staff do not work much while work were basically done by contracted workers, efficiency is low as a result of low productivity. Hybrid IV is an unfortunate case where HRM practice did take place, nonetheless the end results were not desirable. Such cases are shown in joint ventures where particular foreign joint partners tend to focus on addressing internal management - the intention not well understood by their domestic partners. Conflicts often occur between local labor force and non-domestic management staff, in particular areas of management understanding of local staff - their work ethnic and cultural background. SZ1-JVE has operated in Shenzhen for 13 years, however both its HRM outcomes and enterprise performance have not been satisfactory.

31

Table 9 - Case Studies Enterprises Variables Industry Years of Establishment Staff Number PFMS/FMS PLP PSSS/SSS PT&D/T&D PPEP/PEP DMP PTU/TU 1<r<10 r>10 Congruence Competence Commitment ICR/SP MKT EXP GZ4-SOE NN12-DPE FZ2-ASE SZ1-JVE

Retail & Wholesales 7 660 No No Yes No No No Yes No Yes No No No

Enterprise Profiles Chemical Hospitality Engineering (Sports) 4 216 2 35

Electronics 13 200 Yes/No Yes Yes/No Yes/No Yes/No No Yes/No No Yes No Yes No No No Yes Yes Yes Yes Yes Yes Yes maintain

HRM Practice Yes Yes Yes No Yes/No Yes/No Yes/No Yes/No Yes Yes/No Yes No No No HRM Outcomes Yes Yes No No Yes Yes Yes No Yes Yes

Enterprise Performance Yes Yes No Yes Yes No No Yes No

Growth Factors/Difficulties Government Support Yes No No unfair competition/ imperfect market and No Yes Yes legal system Incentive provided to Yes No No get loan Skilled workers No Yes Yes Location business/technology No Yes No park Quality of No Yes Yes products/services The major difficulties are imperfect legal system, less opportunity to get and

skilled workers as half of staff in SZ1-JVE were allocated by the partner SOE. It is still

32

in business because of its sufficient capitals and quality products. Still hoping of recognizable big market, JVEs tend to wait for further opportunity to expand and grow their businesses in China. In a sense, it is hard to conclude that there is a close link between HRM practice and enterprise performance in Chinese SMEs, at least it is not so obvious from the analysis based on 74 interviews on SMEs in this study. However there is one hybrid that do exist and show that it is possible that interrelationship between HRM practice and enterprise performance is closer in domestic private or partly private owned enterprises including DPE, FPE & JVE than in state or affiliated state-owned enterprises. CONCLUSION AND FURTHER RESEARCH Overall the results of this study show that most of the interviewed SMEs in China are now practicing at least some elements of HRM within their firms. As a result of deregulation of the employment system (Zhu, 1997), firms have more autonomy in recruiting their own staff, introducing motivation and competition mechanism, reducing lifetime employment and guaranteed wages. However, the focus on employment training is still rather weak in the SMEs interviewed. There is also room for improvement in the areas of performance appraisal, especially in terms of institutionalization of performance evaluation process. Performance evaluation should be aimed at promoting staff based on skilling, training and education rather than on GM personal opinions and relationship with subordinates as well as the length of services. Great power distance between the top and middle management in China may have been the reason for low level of staff involvement in management decision making, especially in state-owned enterprises where the state control and partys authoritarianship still dominate. Examination of SME performance indicates that Chinese enterprises interviewed are growth-oriented, having relatively market advantages and will be continuously expanding. Nonetheless, it is difficult to conclude that the performance is necessarily the direct result of HRM practice. It is found only in some enterprises, in particular

33

DPEs where this interrelationship between HRM and performance is relatively clear. Other hybrids show opposite results. The opposite results cant be reflected by not practicing HRM, however it is observed that distorted indicators in the current status quo of Chinese transitional economy have been the main reasons. Such distortions cover unfair competition, imperfect market and legal systems an inflexible labor market. A study done by Yabuki (1995 via Zhu 1997) shows that the labor productivity of the non-state sector foreign-invested and individually operated enterprises is over three times that of SOEs. Would this reflect that DPEs and FPEs emphasize more on HRM aspects of selecting competent staff with higher education and on-going job training as well as to its overall internal management? Given we also prove at least within the interviewed sample in this study that DPEs and FPEs perform much better than SOEs and ASEs in both areas of HRM outcomes and enterprise performance. However, the small sample is a limit. Further research need to compare only two types of business structures, i.e. domestic private owned and state-owned enterprises, and examine the effects of HRM on their overall corporate performance. If the result turns out to be the same, it can be concluded that HRM does have a positive impact on the newly developed and growing domestic private-owned small and medium enterprises. Until then, this study has just laid down some ground work for further such research in the topics.

34

REFRENCES
Beardwell I and Holden L (1994), edited, Human Resource Management: A Contemporary Perspective, Pitman Publishing. Beaumont, P. B (1993), Human Resources Management: Key Concepts and Skills, SAGE Publications, New Delhi. Boxall, P (1992), Strategic Human Resource Management: beginning of a new theoretical sophistication, Human Resource Management Journal, Vol 2, No.3. Bratton, John & Gold, Jefferey (1994), Human Resource Management Theory and Practice, McMillan. Bruch M and Hiemenz M (1984), Small and Medium - Scale Industries in the ASEAN Countries: Agents or Victims of Economic Development?, Westview Press, Boulder and London. Bucknall, Kevin B. (1989), China and The Open Door Policy, Allen & Unwin, Sydney. Bureau of Personnel, Shanghai (1988), edited, Market Economy & Human Resources Allocation: Study on Socialist Labor Market, Bureau of Shanghai Technological Cadres, Shanghai Social Science Institute Publishing Society. Chen, Xin (1995), Chinas SMEs and Their Human Resources Development, paper of the International seminar on Internationalization of SMEs and HRD in the Asia-pacific region, Tokyo 5-9 December. Child, J (1994), Management in China during the Age of Reform, Cambridge University Press. China Enterprises Upgrading Yearbook (1992), Reform Publishing Society, Beijing. China Town & Village Enterprises Yearbook (1995), p383, China Agricultural Publishing Society, Beijing. Chinas Yearbook of TVEs (1995), 1000 National Best-Practice TVEs in China, China Agricultural Publishing Society. Chittenden F., Robertson M and Watkins D (1993), Small Firms: Recession and Recovery, published on behalf of the Institute of Small Business Affairs by Paul Chapman Publishing. Clark, Robert (1991), Australian Human Resource Management: Framework & Practice, Chapter 1 & 2, McGraw-Hill Book, Co, Sydney. Claydon, Tim (1994), Human Resource Management and the Labour Market - Chapter 3 - Human Resource Management: A Contemporary Perspective, edited by Beardwell & Holden, Pitman Publishing. Cronk, T., Kirkwood, Lyle., & Kirkwood, Lorraine (1994), Human Resource Management, Thomas Nelson Australia, Melbourne. Delbridge R & Lowe J 91997), Managing Human Resource for Business Success: a review of the issues, the International Journal of Human Resource Management, 8:6 December, pp857-873. Ding, D., Fields D., & Akhtar S (1997), An Empirical Study of Human Resource Policies and Practices in Foreign-Invested Enterprises in China: the case of Shenzen Special Economic Zone, the International Journal of Human Resource Management 8:5 October, pp595-613. Ding, De Zhang (1988), edited, Small & Medium Enterprises Management, China Outlook Publishing Society. Dixon, B., Hodgetis R., Kelmar, J., and Kuratko, D., (1991), Effective Small Business Management, 3rd edition, Harcourt Brace Jovandvich Publisher, Sydney. Dunphy, Dexter & Stace, Doug (1992), Under New Management: Australian Organizations in Transition, McGraw-Hill Book Company, Sydney. _____Chapter 5: From Business Strategy to Human Performance, pp112-144 _____Chapter 7: People are the Core of the Business, pp178-199 Editing Committee (1995), Chinas Yearbook of Enterprises Management, Enterprises Management Publishing Society, Beijing. Editing Team (1985), Jiangsu, Zhejiang & Guangdong: the Successful Paths for TVEs, Guangdong Peoples Publishing Society. Giaoutzi, M., Nijkamp, P. and Storey, D J. (1988), ed. Small and Medium Size Enterprises and Regional Development, Routledge. Goodall, K & Warner M (1997), Human Resources in Sino-Foreign Joint Ventures: selected case studies in Shanghai, compared with Beijing, the International Journal of Human Resource Management 8:5, October, pp569-594. Guest, D. E. (1997), Human Resource Management and Performance: A Review and Research Agenda, The International Journal of Human Resource Management 8:3 June, pp263-276. Hall, C. (1995), Investing in Intangibles: Improving the Effectiveness of Government SME Advisory Services in the APEC Region, paper prepared for 1995 APEC Symposium on HRD for SMEs, Strategic Approach of HRD for SMEs toward 21st Century in Taipei, Taiwan.

35

Harvey, Don & Bowin, Robert B (1996), Human Resource Management: an experiential approach, Prentice Hall, Upper Saddle River, New Jersey. Hendry, C & Pettigrew A (1990), Human Resource Management: an agenda for the 1990s, International Journal of Human Resource Management, Vol 1, No. 1, pp17-43. Huang Da Jiang & Wang Ming Guang (1993), edited, Grant China Management Dictionary, China Logistics Publisher, Beijing. Huang, Y P & Meng, X (1997), Chinas Industrial Growth and Efficiency: A comparison between the State and the TVE Sectors, Journal of the Asia Pacific Economy 2 (1): 101-121. Johns, B.L, Dunlop W.C. and Sheehan W.J (1989), Small Business in Australia: Problems and Prospects,. Allen & Unwin, Sydney. Lee, M B & Chee Y H (1996), Business Strategy, Participative Human Resource Management and Organizational Performance: The Case of South Korea, Asia Pacific Journal of Human Resource, Vol 34 (1). Lu, Y & Child J (1997), Chapter 3: Decentralization of Decision Making in Chinas State Enterprises, in Brown, D. H & Porter, R (ed.), Management Issues in China, London, Routledge. Lu, Y & Bjorkman I (1997), HRM Practice in China-Western Joint Ventures: MNC standardization versus localization, the International Journal of Human Resource Management 8:5 October, pp614-628. Pettinger, Richard (1997), Introduction to Management, Chapter Five Strategy and Chapter Seven Human Resource Management, Macmillan Business. Poole, M. & Jenkins G (1996), Competitiveness and Human Resource Management Policies, Journal of General Management Vol. 22, No. 2 Winter, pp 1-19. Price, A (1997), Human Resource Management in a Business Context, International Thomson Business Press, London. Purcell, John (1995): Chapter 3 - Corporate Strategy and its Link with Human Resource Management Strategy, Human Resource Management: A Critical Text, edited by John Storey, Routledge, London. Ralston D., Gustafson D. J., Terpstra R H., Holt D H. Cheung, F & Ribbens B (1996), The Impact of Managerial Values on Decision-making Behavior: a comparison of the US and Hong Kong, Asia Pacific Journal of Management, Vol. 10, No. 1: 21-37. Ratha, D., Singh, I. and Xiao, G. (1994), Non-State Enterprises as an Engine of Growth: an Analysis of Provincial Industrial Growth in Post-Reform China, Transition Economics Decision, Policy Research Department, The World Bank, working paper. Stone, Raymond J. (1995), Human Resource Management, John Wiley & Sons, Brisbane. Storey, John (1994), edited, New Wave Manufacturing Strategies: Organization and HRM Dimension, Paul Chapman Publishing, London. Storey, John (1995), Chapter 14 - Human Resource Management: still marching on, or marching out?, Human Resource Management: A Critical Text, edited by John Storey, Routledge, London. Tan, D W., Ye, Z X., & Sheng, Z W (1990), edited, Courses Outline for Modern Personnel Management, China Personnel Publishing Society, Beijing. Tu, P, Liang, Q P, Jiang Z Z and Ke R Z (1998), The Report on Collective and Private-Owned Enterprises in Zhe Jiang Province, Institute of Business Research, Peking University, Working Paper Series, No, 1998C03, September. Tyson, Shaun (1995), Human Resource Strategy: Toward a General Theory of HRM, Pitman Publishing. Warner, M (1993), Human Resource Management with Chinese Characteristics, the International Journal of Human Resource Management 4:1. P45-65. Warner, M (1995), Managing Chinas Human Resource, Human Systems Management, 14:3, p239248. Warner, M (1996a), Managing Chinas Enterprise Reform: A New Agenda for the 1990s, Journal of General Management, 21:3, p1-18. Warner, M (1996b), Beyond the Iron Rice-Bowl: Comprehensive Labour Reform in State-Owned Enterprise in North-East China, in Brown, D. H & Porter, R (ed.), Management Issues in China, London, Routledge. Warner, M (1996c), Chapter 10: Joint Ventures vs. State-owned Enterprises: Management and Human Resources in China, in Selmer, J (ed.) Proceedings of International Conference on Cross-cultural Management in China, Hong Kong, Baptist University, p167-179. Warner, M (1997), Human Resources in the Peoples Republic of China: the three systems reforms, Human Resource Management Journal Vol. 6 No.2, pp32-43. Warner, M (1997), Introduction: Human Resource Management in Greater China, the International Journal of Human Resource Management 8:5 October, 565-567 Williams, A et al (1995), Success for Small Business, Allen and Unwin, Sydney.

36

Wong, C., Marshall J. N., Alderman N., & Thwaites A (1997), Management Training in Small and Medium-Sized Enterprises: Methodological and Conceptual Issues, the International Journal of Human Resource Management 8:1 February, pp44-65. Zhang, Weiying (1998), Chinas SOE Reform: A Corporate Governance Perspective, Institute of Business Research, Peking University, Working Paper Series, No, 1998E04, April Zhao, Shuming (1994), Human Resource Management in China, Asia-Pacific Journal of Human Resources, Vol. 32, No. 2, pp3-12. Zhao, Z J, Liang, W X & Wu, W J (1985), edited, Making Profits for SMEs, Hebei Scientific and Technology Publishing Society. Zhou, Yue She (1985), edited, Economies of China TVEs, chapter 25-26, Anhui People Publishing Society, Hefei. Zhou, Zheng Hua (1994), Qi Ye Gai Ge: Zhongguo 1994 Jingji Fengxi (Enterprises Reform: China Economic Analysis 1994), Shanghai Renming Chubang She (People Publishing Society). Zhu, C J (1997), Human Resource Development in China during the Transition to a New Economic System, Asia Pacific Journal of Human Resource 35(3), pp19-44.

37

APPENDIX Interviewed Enterprises Profile

Enterprises 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. BJ1-DPE BJ2-ASE BJ3-JVE FZ1-DPE FZ10-JVE FZ11-FPE FZ2-ASE FZ3-SOE FZ4-ASE FZ5-FPE FZ6-DPE FZ7-DPE FZ8-DPE FZ9-ASE GZ1-SOE GZ10-DPE GZ11-DPE GZ2-TVE GZ3-SOE GZ4-SOE GZ5-ASE GZ6-DPE GZ7-ASE GZ8-ASE GZ9-ASE HZ1-JVE HZ2-DPE KM1-COE KM2-DPE KM3-COE KM4-SOE KM5-ASE KM6-ASE KM7-COE KM8-JVE NN1-DPE NN10-COE Years 6 5 4 2 15 9 2 13 5 2 2 3 8 6 2 2 5 6 10 7 5 2 7 6 2 5 3 8 6 6 5 6 5 5 4 2 2 6 4 5 Staff Number Industry

38. NN11-SOE 39. NN12-DPE 40. NN13-COE

10 Trading 20 Construction (Materials) 110 Electronics 5 Photography 980 Hospitality(Hotel) 70 Real Estate 35 Hospitality(Sports) 84 Energy (Water) 20 Service(Gov. Agent) 6 Energy (Steel) 100 Hospitality(Foods) 7 Service(Public Env.) 6 Electronics 40 Construction (Design) 120 Transport 8 Packaging Materials 100 Electronics 200 Electronics 60 Service(Gov. Agent) 660 Retail & Wholesales 300 Hospitality(Hotel) 60 Packaging Materials 200 Retail & Wholesales 70 Real Estate 15 Telecommunication 40 Pharmaceutical 130 Pharmaceutical 400 Retail & Wholesales 80 Chemical Engineering 60 Chemical Engineering 1000 Pharmaceutical 100 Chemical Engineering 1000 Trading 40 Service (Banking & Finance) 380 Agricultural Products 100 Pharmaceutical 80 Manufacturing (Sports Facilities) 140 Agricultural Products 216 Chemical Engineering 50 Pharmaceutical

38

41. NN14-DPE 42. NN15-ASE 43. NN16-ASE 44. 45. 46. 47. 48. 49. 50. 51. 52. NN17-TVE NN18-TVE NN19-FPE NN2-DPE NN20-SOE NN21-FPE NN3-DPE NN4-SOE NN5-JVE

10 9 3 10 5 2 3 20 2 5 3 7 4 8 6 5 11 3 3 6 5 13 8 5 4 4 10 4 5 7 3 10 10 7

20 125 53 100 30 50 20 6000 20 90 60 130 170 50 2500 56 150 6 30 30 28 200 60 5 4 8 97 29 1100 32 28 100 2000 30

53. NN6-COE 54. NN7-COE 55. NN8-DPE 56. NN9-COE 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. SH1-DPE SH2-DPE SH3-FPE SH4-FPE SH5-JVE SZ1-JVE SZ2-ASE SZ3-ASE SZ4-DPE SZ5-DPE SZ6-DPE TJ1-DPE TJ2-JVE TJ3-DPE TJ4-ASE XM1-SOE XM2-ASE XM3-JVE

Technology (Computing & Software) Electronics Technology (Computing & Software) Construction (Materials) Trading Packaging Materials Packaging Materials Manufacturing (Textile) Printing & Paper Telecommunication Agricultural Products Technology (Computing & Software) Technology (Computing & Software) Electronics Real Estate & others Technology (Computing & Software) Printing & Paper Construction (Materials) Printing & Paper Printing & Paper Printing & Paper Electronics Trading Technology (Computing & Software) Trading Electronics Trading Construction (Decoration) Manufacturing (Textile) Electronics Real Estate Retail & Wholesales Electronics Trading

39