Factors affecting employees loyalty in businesses in ho chi minh city

RESEARCH PROJECT BMBR5103 FACTORS AFFECTING EMPLOYEES’ LOYALTY IN BUSINESSES IN HO CHI MINH CITY... That's why I chose the topic “Factors affecting employees’ loyalty in companies in H

RESEARCH PROJECT

(BMBR5103)

FACTORS AFFECTING EMPLOYEES’ LOYALTY

IN BUSINESSES IN HO CHI MINH CITY

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Table of contents

Chapter 1: Introduction 4

1.1 Problem statement 4

1.2 Research objectives 5

1.3 Research questions 5

1.4 Research scope 6

1.5 Research methodology 6

1.6 Research structure 7

Chapter 2: Literature Review 8

2.1 Theoretical literature 8

2.1.1 Approaches in the study of the loyalty of employees 8

2.1.2 Benefits of building and maintaining the loyalty of employees 9

2.2 Empirical literature 10

Chapter 3: Research Methodology 12

3.1 Data sources-Quantitative study 12

3.2 Variables 12

3.3 Research model 15

3.4 Method of estimation 21

3.5 Method of testing 22

Chapter 4: Research Results 24

4.1 Synthesis of the survey result 24

4.2 Descriptive statistics 27

4.3 Adjustment of scale 29

4.4 Factor analysis 30

4.5 Adjusted model 34

4.6 Testing of the adjusted model 35

4.7 Result of testing hypothesis 39

4.8 Testing the loyalty rate between male and female 41

4.9 Testing the loyalty among employees at different levels 42

4.10 Testing the loyalty among employees at different positions 44

4.11 Testing the loyalty among employees in different business types 46

Chapter 5: Conclusion, Recommendation and Limitation 48

5.1 Conclusion 49

5.2 Recommendation 50

5.3 Limitation and recommendation for coming studies 53

References 56

445 employees who are now looking for the job, there are 39% of employees resigned after working for one company from 1 to 2 years, 26% resigned after 3 years of working That is known as the unsolvable problem that made many companies faced

a difficult situation in order to remain their daily operation and cost management since they have to recruit new employees many times

Businesses have to pay very high when employees resign: they lose not only the experienced employees but also high sales revenue The study showed that 70% of customers stop buying companies’ products because of the leave of key staff It is also a trend to leave for all remaining staff

The problem of how to retain employees is a big problems for business owners and managers of enterprises in Vietnam Especially after Vietnam joined the WTO and the coming TTP Agreement, the domestic enterprises need to expand production and business; hire quality of human resources, retain qualified employees So, the business must identify, consider and evaluate accurate factors that affect the loyalty

of employees And So far, there are many studies on employees’ loyalty, but most previous studies only focused on a general way to a certain extent, such as

the specific factors affecting the loyalty of employees Therefore in this study each specific factor such as salary, working conditions, the appropriate target, etc will be examined to find out how each of them will affect the loyalty of employees in businesses That's why I chose the topic “Factors affecting employees’ loyalty in companies in Ho Chi Minh City”.

The paper purpose is to identify the most important factors affecting the loyalty of employees of businesses in Ho Chi Minh City and to provide recommendation to improve current problem from identified factors

(1) Find out the factors affecting employees’ loyalty in businesses in HCM city

(2) Provide some recommendations to improve the employees’ loyalty in businesses in HCM city

1.3 Research questions:

The research aims to address the following questions:

(1) What are the factors affecting the loyalty of employees in businesses in HCM city? (2) What recommendations should be done to improve the loyalty of employees in businesses in HCM city?

1.4 Research scope:

Research objects who are currently working in the economic organizations; including Limited Liability Company, Joint Stock Company, State-owned Company, Joint Venture Company, Private enterprise and Enterprise 100% foreign capital

Due to time limitation, the study focuses on investigating the objects who are currently working in businesses in HCM city in positions of staff, team leaders, supervisors and middle managers

1.5 Research methodology:

The research is launched by using quantitative research methods, using the measured variables in qualitative research phase to determine the factors and the measurement properties

Quantitative survey was conducted in the area of HCM city Sample objects are currently working in businesses in HCM city, conducted by direct interviews with the questionnaires, selecting a random sample of working employees in Business Seminars launched by Dun & Bradstreet in 2015 Measurement model included 29 observed variables, using 5-level Likert scale range (1: totally disagree to 5: completely agree) to quantify; and 7 hypotheses according to minimum rule 5 x 3 =

15 samples for each measurement variables (Bentle & Chou, 1987) From here, the original sample was calculated to be 29 x 15 = 435

Using data processing techniques by SPSS software, testing conducted through the following steps:

(1) preliminary assessment of the scale and reliability of variables measured by Cronbach Alpha coefficients, and the values (factor loading) by EFA (Exploratory Factor Analysis);

(2) testing the hypothesis and the overall model fit After that, T-Test would be used for testing and ANOVA (Analysis of Variance) would be used for analyzing to

1.6 Research structure:

Chapter 1: Introduction

Chapter one presents the reasons why research needs to be conducted, and objectives

of this research The core of this chapter is comprised of the following sections: backgrounds, problem statement, objectives, research question and hypotheses, scopes and limitations

Chapter 2: Literature review

Chapter two reveals the literature review of the independent and dependent variables

Chapter 3: Research methodology

Chapter three describes how the research was conducted It provides an overview of the methodology, which includes various sections: research design, target population and sample size, survey instrument, operational definitions and measurements, data collection, data analysis, factor analysis

Chapter 4: Empirical results and discussion

Chapter four presents the results of the study This chapter contains four main sections: the demographic characteristics of employees and descriptive statistics of independent and dependent variables, multiple regression analysis, simple linear regression, and direct and indirect effects on employee loyalty

Chapter 5: Conclusion, recommendation and limitation

Finally, chapter five discusses the findings of the study and answer questions of this research were raised in chapter one Besides that, it also includes limitations of this research and recommendations for further research

CHAPTER 2: LITERATURE REVIEW

2.1 Theoretical literature:

2.1.1 Approaches in the study of the loyalty of employees:

Theoretically, we have many approaches in the study of the loyalty of employees in businesses Loyalty can be considered as a component of organizational commitment, or an independent concept

Per Allen & Mayer (1990), they focused on three psychological states of employees associated with the organization Employee loyalty to the organization can derive from their true feelings: (1) they will stay with the organization despite elsewhere higher salaries, better working conditions, (2) they can be loyal to their organizations just because they do not have the opportunity to earn a better job, and (3) they can

be loyal to their organizations because the moral standards of the organizations that they pursue

According to Mowday, Steers and Poter (1979), loyalty is the "intention or desire to maintain membership of the organization" Mowday's famous definition of loyalty is similar to the concept of "Maintain" in the research of Aon Consulting Institute for many years in US: employees who intend to stay with the organization in the long term will stay with the organization even though they get more relatively attractive offers from other organizations According to Johnson (2005), today employees are more loyal to their profession than loyal to their employer; and the nature of the relationship between employees and employers has changed fundamentally, and it is necessary to reevaluate the loyalty concepts

By the Loyalty Research Center (2004), employee loyalty is as commitment of employees associated with the organization's success, and they believe that working

According to the scale model of employee loyalty of Man Power (2002), the evaluation criteria of loyalty include:

(1) be willing to recommend their company as a good place to work;

(2) be willing to introduce the products and services of the company;

(3) Intended long-term commitment to the company

In the scope of this study, definition of Mowday et al (1979) and the scale of employee loyalty of Man Power (2002) are used

2.1.2 Benefits of building and maintaining the loyalty of employees:

The importance of employee loyalty is uncountable, reducing employee turnover cost

is just one visible example; but also retaining experienced and reliable staff Seniority, experience and stability of the organization will be the things we think of first, but beyond the personal experience will give us an overview of the benefits to the organization of the construction and maintenance of employee loyalty in today's economic situation

 From revenue perspective: The loyal employees tend to work much more effectively than what customers expect and always have high morale in their best ability Both of these characteristics are very important for the company to retain loyal customers and bring in more sales

 From expense perspective: The loyal employees will stay working with the company in long term, refuse offers from the opponents, not actively look for a new job and always present the company as a good workplace All four of these attitudes have a positive impact to the operating cost of the company, because the company will avoid a significant cost for replacing staff

In other words, instead of just focusing on holding the employees (try to keep the employees who were laid off), managers need to be more positive and proactive in

finding the benefits of understanding, managing and enhancing the loyalty of

Thus, despite the loyalty of employees is recognized as one of the factors which is most crucial to the success of the business, it is not surprising to note that companies are facing with the critical challenges in developing a team of enthusiastic and dedicated

2.2 Empirical literature:

In the study of Albert S King and Barbara J Ehrhard (1997), they described the commitment cohesion exercise, which is an instrument that increases the understanding of employees’ attraction to “the ideal” or empowered organization The exercise measures employees’ perception of loyalty, values, and organizational commitment Three conditions, i.e loyalty, values and commitment, influence empowerment structures within an organization The exercise supported the notion

of a stepwise movement from loyalty to value congruence (or agreement) to organizational commitment It also demonstrated how progressive phases are associated with perceived quality of work life and connected to an empowered organization

In the research of Zhen Xiong Chen, Anne S Tsui and Jiing-Lih Larry Farh (2002), they investigated the relationship between loyalty to supervisor and employee's in-role and extra-role performance in comparison with that of organizational commitment in the People's Republic of China Two studies were conducted In the first study, a five-dimension loyalty to supervisor scale was developed and validated

In the second study, the relationships between loyalty to supervisor, organizational commitment and employee performance were examined Results indicated that loyalty to supervisor was more strongly associated with both in- role and extra-role performance than organizational commitment

In the study of Frederick Reichheld (2006), he reported that loyalty, for those who plan to stay with an employer at least two years, can be affected by several factors,

Employee loyalty is critical for organizations as constant turnover or churn can be very expensive In his report he stated that one of the most effective ways to improve employee loyalty is to make employees feel like they are an important part of the organization His report found that only 55 percent of the employee surveyed feel like their organization treats them well He suggested that an employee feedback system can help raise employee loyalty by providing two-way communications between employees and management

According to the results of Artz’s study, fringe benefits are significant and positive determinants of job satisfaction Fringe benefits are also believed to have a profound impact on the loyalty of employees It plays as a motivator that helps to improve employee performance and reduce employee turnover

In the study of Herzberg (1968) interviewed a group of employees to find out what made them satisfied and dissatisfied on the job He revealed two important factors that affect job satisfaction: motivation and hygiene Motivation – hygiene theory factors pointed out that factors creating of job satisfaction and job dissatisfaction were separate Factors that led to job satisfaction are called motivation factors, including achievement, recognition, the work itself, responsibility and advancement Factors that led to job dissatisfaction are called hygiene factors, consisting of administrative policies, supervision, salary, interpersonal relations and working conditions Herzberg’s study had put a strong foundation for later research on factors affecting job satisfaction

CHAPTER 3: RESEARCH METHODOLOGY

3.1 Data sources - Quantitative study:

This is the stage of formal study with data collection techniques of interviewing through a questionnaire The collected data is processed by SPSS software After encoding and cleansing date, the formal analysis will be implemented as follows:

 Assess the reliability of the scale: the reliability of the scale was assessed through Cronbach’s alpha coefficients, from which inappropriate variables will

be eliminated if the Corrected Item–Total Correlation is small (<0.3) and the scale will be accepted as Cronbach’s alpha coefficient is satisfactory (> 0.6)

 Then, analyze the factor will be used to test the convergence of the component variables of the concept The variables with a singular correlation coefficient between variables and other factors (factor loading) less than 0.5 will be disqualified Analytical methods of Principal axis factoring with Promax rotation will be done and stops when extracting factors of Eigenvalue greater than 1

 Finally, test the hypothesis of a structural model and the level which fit the overall model

3.2 Variables:

(1) High income / salary -H1:

For most people, employment and quality of employment are often measured by the income of the job Thus, income is considered as a measure of work as well as the success

of the employee at work High income makes people more satisfied at least in term of physical secure so that they pay more attention to work and try to prove themselves This

 When the employees earn and feel worthy of their dedication, they will be enthusiastically excited at work.

 They have little intention of leaving the company for another job while they are satisfied with their current income

 They are more responsible for the work they are in charge

 They have more discipline in observing the rules of the company

(2) Favorable working conditions - H2

The working environment has always been interested by workers because it is related

to personal convenience and it is also a factor which makes them complete the tasks Workers do not like the working environment dangerous, disadvantageous and inconvenient Temperature, light, noise and other environmental conditions must be consistent Moreover, many workers prefer working closer to home, with the working facilities clean, modern and appropriate (Lam, 1998)

(3) Target suitability – H3Targets are considered suitable when employees realized their goals and values are relevant to their commitment to the goals and values of the company The target suitability is similar to the concept of the suitability of individual - organization, which is defined as the compatibility of personal values and beliefs with the rules and values of the organization (O’Reilly et al., 1991) The suitability of individual – organization is the basis of the most important prediction of many factors to be studied (Chatman, 1991; Kristof, 1996; Van Vianen, 2000)

Research in sales planning indicated that the target is a prerequisite for a positive working attitude and employee behaviors (Netemeyer et al., 1997) Commitment to the goals and values of the organization plays an important role in the service and retail sectors The implementation of the policies and activities of an organization related to

services require the commitment of employees to its goals and values

(4) Support from management- H4 Support from the management is the central focus of many researches Support from the management is defined as the level of consideration and support that employees can receive from the supervisors (Netemeyer et al., 1997) Leaders must have ability to help and treat employees fairly, encourage two-way communication, and recognize the contribution of the employees to implement the goals of the organization

(5) Support from colleagues- H5 Support from the colleagues will help employees, especially newcomers, learn new skills and knowledge It will help promote the business, increase the productivity and decrease time and energy wastage The term "knowledge is power" is antiquated in a team environment, knowledge should be shared so the team can work well together, learn from each other and respect each other's views and ideas

(6) Reward – H6 Fair reward exists when employees are rewarded worthily with their work pressure and achievement (Netemeyer et al., 1997) Reward fairness is based on the concept of fair distribution (Lane & Messe, 1971) The concept of fairness contained both fairness in distribution and procedure Previous studies indicated that the fair distribution in related

to employment relationship is more important than fair procedure

Fairness theory pointed out each individual follows a particular rule of fairness governing their attitudes and behaviors (Lane & Messe, 1971) This suggests that employees who are rewarded fairly will have a more positive perspective and willingness to act in the direction of supporting businesses

(7) Empowerment – H7

Empowerment exists when supervisors believe in the ability of making decisions of employees and encourage them to use initiative (Conger & Kanungo, 1998; Hartline et al., 2000) Empowerment means nearly autonomous tasks Core of this concept is the willingness of supervisors to subordinates to make decisions within the scope of regulation and use initiative Empowerment can be a tool to increase organizational effectiveness because it can enhance confidence in the ability to perform the employee's job Empowerment is particularly important for employees who contact directly with customers because it creates flexibility in meeting customer requirements (Bowen & Lawler, 1992)

3.3 Research model:

This study uses a linear regression model to test the influence of the determinants on the loyalty of employees in businesses

Loyalty Y = β0 + β1*High income H1 + β2* Favorable working conditions H2+ β3*

Target suitability H3 + β4* Support from management H4+ β5* Support from colleagues H5+ β6* Fair reward H6 + β7* Empowerment H7 + εi

In which:

(1) Dependent variable is Y

(2) Independent variables are H1, H2, H3, H4, H5, H6, H7

High income

Working conditions

Target suitability

Support from management

Loyalty of

Support from colleagues

Reward

in randomly irregular patterns In this study, probability sampling method is used

 Dimension of sample: There are 7 hypotheses and 29 observed variables which were identified Likert 5 scale is used Therefore, according to minimum rule, there are 5 x 3 = 15 samples for each measurement variables (Bentle & Chou, 1987) So that the original sample are calculated: 29 x 15 = 435

 Method of taking sample: Selecting a random sample of working staffs in Dun & Bradstreet seminars in HCMC in 2015

 Result and information of sample: Detailed questionnaire is presented in Appendix There were 500 questionnaires which were sent directly to the object of study During the survey process, there are some questionnaires some row were left unanswered All these questionnaires are to be removed prior to data entry Therefore, the number of formal questionnaire to be analyzed only remains 453 sets, accounting for 90% of the sent questionnaires

 Test the hypothesis of a structural model and the overall model fit Next, performing ANOVA & T-Test between among different groups with structure model inspected to find out the meaning difference of some certain groups

Implication

& Suggestion

CHAPTER 4: RESEARCH RESULTS

4.1 Synthesis of the survey result:

4.1.1 Survey result of gender:

The total number of female is 283, accounting for 62.5% and the total number of male is 170, accounting for 37.5%

Table 4.1: Survey result of staff on gender

Percent

4.1.2 Survey result of age:

The greatest number is of between 21-30 years old with 351 people, accounting for 77.5% (including 241 female and 110 male) The later is of 31-40 years old, with 90 people, accounting for 19.9% (including 36 female and 54 male) The remaining two age groups <20 and >40 occupy a small amount of 12 people

Table 4.2: Survey result of staff on age

4.1.3 Survey result of education level:

The largest number is of staff with university degree, 274 people, and occupying 60.5% (in which 155 female and 119 male) Next, those with college degree are of about 83 people, occupying approximately 18.3% (in which 67 female and 16 male) Followed by those with an intermediate level, there are 53 people, occupying approximately 11.7% (in which 39 female and 14 male) Followed by those with a high school degree, there are 35 people, accounting for approximately 7.7% (in which 20 female and 15 male) The last group includes staff who have higher degree,

8 people (2 female and 6 male), accounting for approximately 1.8%

Table 4.3: Survey result of staff on education level

Level High school

Intermediate College University Higher degree

4.1.4 Survey result of working position:

The largest group is of employees working as staff with about 313 people, accounting for 69.1% (in which 223 female and 90 male) Next, the team leader/expert group has about 84 people, occupying approximately 18.5% (in which 40 female and 44 male) There are 56 managers, accounting for 12.4% (in which 20 female and 36 male)

Table 4.4: Survey result of staff on working position

Working position

Staff Leader Manager

4.1.5 Survey result of business type:

The largest group is of employees who are working for the joint stock companies, with 130 people, accounting for 28.7% (including 76 female and 54 male) Next group is of employees who are working for limited liability companies, with 125 people, occupying approximately 27.6% (including 94 female and 31 male) The number of employees working for state-owned companies and private companies are

as large as 72 people of each, accounting for about 15.9% of each Number of employees who are working for enterprises with 100% foreign capital are 28, accounting for 6.2% And the last, number of employees who are working in joint ventures are 26, occupying approximately 11.7%

Table 4.5: Survey result of staff on business type

Count Col %

Business type

LLC JSC Private State 100% FC

4.2 Descriptive statistics:

4.2.1 Factors affecting the loyalty of employees:

The statistic results showed that employees evaluated the factors from very low to very high That means with the same statement, some staff entirely agreed, but also some staff entirely disagrees This can be explained by that the samples were collected in many different business types; each of them has different human resource policies

Overall, average value of the independent variables has quite considerable difference (value = 2.87 – 4.12), which proves that there is a different assessment of the level

of importance among the independent variables

Table 4.6: Descriptive statistics of factors affecting the loyalty of employees

Std

Deviation Statistic

4.2.2 The loyalty of employees:

The observed variables in the scale of the loyalty of employees, Y1 (I'm willing to introduce to people about my company as a good working place), Y2 (I am proud to introduce to people about the product / service of the company), Y3 (I will stay

salary) with relatively high average value (value = 3.72; 3.84; 3.17) This shows that employees really desired long-term commitment to the business that they are working

Table 4.7: Descriptive statistics of variables belonging to the loyalty of employees

Reliability is used to describe the degree of measurement error, because we cannot know exact variability of the correct and incorrect variables as well as cannot directly calculate the reliability of the scale However, we can establish the reliability based on Cronbach’s alpha coefficients This coefficient shows the extent of correlation between the variables

in the questionnaire, and will be used to calculate the change in each variable and correlation among variables (Bob E Hays, 1983)

4.3.1 Scale of independent variables:

 Component: High income has Cronbach’s alpha = 0.76 and correlation coefficient

is greater than 0.3, which meet the requirements included in the factor analysis followed

 Component: working condition has Cronbach’s alpha = 0.84 and correlation coefficient is greater than 0.3, which meet the requirements included in the factor analysis followed

 Component: Target suitability has Cronbach’s alpha = 0.79 and correlation coefficient is greater than 0.3, which meet the requirements included in the factor analysis followed

 Component: Support from management has Cronbach’s alpha = 0.80 and

correlation coefficient is greater than 0.3, which meet the requirements included in the factor analysis followed

 Component: Support from colleagues has Cronbach’s alpha = 0.84 and correlation

coefficient is greater than 0.3, which meet the requirements included in the factor analysis followed

 Component: Reward has Cronbach’s alpha = 0.92 and correlation coefficient is

greater than 0.3, which meet the requirements included in the factor analysis followed

 Component: Empowerment has Cronbach’s alpha = 0.87 and correlation coefficient is greater than 0.3, which meet the requirements included in the factor analysis followed

4.3.2 Scale of the loyalty:

Component of loyalty has Cronbach’s alpha = 0.84 and correlation coefficient is greater than 0.3, which meet the requirements included in the factor analysis followed

4.4 Factor analysis:

4.4.1 Factor analysis by KMO (Kaiser - Meyer - Olkin):

KMO (Kaiser - Meyer - Olkin) is an index used to examine the relevance of factor analysis KMO large value (between 0.5 and 1) means that factor analysis is appropriate, if this number is less than 0.5, the factor analysis is potentially incompatible with the data (Trong & Ngoc, 2005)

The variables which have factor loading of less than 0.5 will be rejected; the stop when Eigenvalues (represents variability explained by each factor) is larger than 1 and the total extracted variance is greater than 50% (Gerbing & Anderson, 1988)

Principal axis factoring with Promax rotation will be used in the factor analysis of measured scale of independent components Use of Principal axis factoring with Promax rotation will reflect the data structure more accurately than Principal component method with Varimax rotation (Gerbing & Anderson, 1988)

Above scale complexes after removing the variables in the evaluation phase of reliability, there will be remaining 26 variables The process of factor analysis of these scale complexes will undergo 2 steps Specific analysis results of each step are shown in the Appendix

Step 1, 26 observed variables shall be under the analysis, according to Eigenvalues standard of greater than 1, only 6 elements were drawn In this table (Appendix B), Cumulative = 68.255% said that the first six factors explained 68.255% of the data

variability, KMO coefficient = 0.91 (> 0.5) However, observed variable Q7.1 was excluded due to the low factor loading

Step 2, after removing observed variable Q7.1, 25 remaining observed variables were analyzed in accordance with Eigenvalues standard of greater than 1, still only

6 elements were drawn In this table (Appendix B), Cumulative increased to 69.38% and KMO = 0.909 (> 0.5) Factor loading of the variables were observed from 0.5 upwards

4.4.2 Naming and explaining the factors:

The interpretation of the factors is fulfilled on the basis of realizing observed variables with large factor loading with one factor Thus, this factor can be interpreted by the variables having large coefficients for itself

In the factor matrix after rotation in this table (Appendix B), factor 3 gathers the observed variables from the components “Support from management” and “Support from colleagues” that consist of observed variables Q4.1, Q4.2, Q4.3, Q5.1, Q5.2 This factor includes the behaviors of the relationship of the leaders to the employees whom they directly manage Therefore, this factor could be named "management decisions" The observed variations of the remaining five factors including High income / salary, Favorable working conditions, Targets suitability, Fair reward and Empowerment have no change from baseline

4.4.3 Explanation of results:

The results of analyzing factors gave the measurement model of the loyalty

of employees to the organization that is a combination of scale: High income

/ salary; Working conditions; Targets suitability; Management decisions;