Antecesdents and consequences of dimensions of human resource management practices in vietnam ok

Antecedents and consequences ofdimensions of human resource management practices in Vietnam Le Chien Thang and Truong Quang Abstract The purpose of this study is to extend the empirical

Antecedents and consequences of

dimensions of human resource

management practices in Vietnam

Le Chien Thang and Truong Quang

Abstract The purpose of this study is to extend the empirical research concerning the impact of human resource management (HRM) practices on organizational effectiveness into the context of developing and transitional economy countries From a survey of 137 cross-sector companies, it was discovered that there are five dimensions of HRM practices currently in use in Vietnam Variation in the application of these dimensions can be partly traced to several organizational characteristics, but most salient is the perception of management on the value of human resources In some dimensions, this variation constitutes a source of the difference in the perceptual company performance These findings break new ground to propose a process for implementing HRM practices in Vietnam

Keywords HRM practices; firm performance; HR value; Vietnam

Introduction

When change is constant and competition is compulsory, companies have few choices but to search for sources of sustainable competitive advantage To do so, the resource-based theory suggests companies develop and utilize rare, valuable, inimitable, and non-substitutable resources (Barney, 1991; Barney et al., 2001) The power of this idea, in tandem with the recent realization that people working in the company are the source and also the basis for utilization of both human and other resources, has led to the examination of this theory for human resources The theoretical analysis shows that human resources (Wright et al., 1994) and human resource management practices as a system (Lado and Wilson, 1994) match the condition of this theory and thus can confer sustainable competitive advantage There comes a new reality that human capital has gradually gained increasing ground as a more intangible source of competitive advantage over other traditional sources such as product technology, process, market regulation, and access to sources of capital (Pfeffer, 1999)

Empirical evidence abounds to confirm the ‘success contributing’ role of HRM practices Numerous studies in the West (mainly in the US and the UK) point out that the system of HRM practices helps to increase firm performance (Huselid, 1995; MacDuffie, 1995; Delery and Doty, 1996; Delaney and Huselid, 1996; Youndt et al., 1996; Ichniowski et al., 1997; Ramsay et al., 2000) What is noticeable is HRM practices were

The International Journal of Human Resource Management

ISSN 0958-5192 print/ISSN 1466-4399 online q 2005 Taylor & Francis

http://www.tandf.co.uk/journals

Le Chien Thang, Shinawatra University, Pathum Thani, Thailand (e-mail thang@shinawatra.ac.th) Truong Quang, Asian Institute of Technology, Bangkok, Thailand (e-mail qtruong@ait.ac.th).

Int J of Human Resource Management 16:10 October 2005 1830 – 1846

found to vary across countries (e.g Bae et al., 1998) and the variation was hypothesized

to be attributable to cultural values (Ngo et al., 1998) This contextual influence explains

a growing proliferation of research of this kind in a wide diversity of non-Western settings such as in Hong Kong (Ngo et al., 1998), Israel (Harel and Tzafrir, 1999), Korea (Bae and Lawler, 2000), Russia (Fey and Bjorkman, 2001), Taiwan (Chang and Chen, 2002), and New Zealand (Guthrie et al., 2002) In the main, these studies consistently find a positive direct relationship between HRM practices and firm performance

On closer examination, it is also apparent that the way companies blend HRM practices and the impact of those bundles on firm performance differs across studies Hence, the generalization of these results into other contexts, such as developing and transitional countries, may confront the question of validity

Remarkably, for the majority of countries belonging to the developing or transitional world, where recent economic, political, and social changes offer different challenges as companies implement HRM practices (Napier and Vu, 1998), there has been little research effort on the impact of HRM practices on firm performance to delineate this issue To fill this void, this study aims to extend the emerging non-Western literature on the firm-level impact of HRM practices into this less charted area In this vein, Vietnam emerges as an interesting test base for this purpose given its enormous ethnic, religious and cultural diversity (McLeod and Nguyen, 2001)

Due to geographic conditions, the Vietnamese in the north are believed to be most industrious and politically ambitious, while southerners are seen to be more easy going and receptive to new ideas and methods The ethnic Chinese are, in particular, recognized for their high sense of business and entrepreneurship, whereas other ethnic groups (53 in total) are still lagging in many aspects of the fast moving society Thanks to their well established clan networks and community solidarity, the Chinese have played an active role in the economic landscape of Vietnam throughout consecutive political changes, yet they still form the backbone of the recently reviving private enterprises, which are concentrated in Cho Lon – the Chinatown of Vietnam in the south The locus of power is practically in the hands of the Kinh (the Vietnamese) in the north, where the siege of the government and a large number of state-owned enterprises (SOEs) are located Besides a high degree of ethnic diversity, Vietnam carries along in its history a notable complexity of religious influences, such as Confucianism, Taoism, Buddhism, Christianity, Hinduism, Islam and even locally founded religious sects (e.g Cao Dai and Hoa Hao) They have, surprisingly, co-existed and developed with one another without much conflict, as ‘the Vietnamese hardly ever accepted beliefs or practices completely as presented to them; instead they adopted and adapted foreign traditions, blending them with indigenous beliefs and with each other’ (McLeod and Nguyen, 2001)

Typically, as a product of the country’s socio-cultural idiosyncrasy, HRM practices in Vietnam reflect the slow and cautious evolution of a complex system in an attempt to address the concerns and benefits of all stakeholders

Against this backdrop, this study aims to: (1) identify the dimensions of HRM practices currently in use in Vietnam which represents one of the ethnically and culturally diversified developing economies in transition; (2) trace the determinants of these dimensions from the organizational characteristics; and (3) examine the impact of the dimensions of HRM practices on organizational effectiveness The conceptual framework for the research is presented in Figure 1

Theoretical background and hypotheses

The ready imitability of individual HRM practices prevents companies from relying on such practices per se for competitive advantage (Wright et al., 1994) However, the system of HRM practices (set of interrelated practices used in combination) can bring a source of competitive edge (Lado and Wilson, 1994; Wright et al., 2001), thanks to the complexity of combination and synergistic nature among HRM practices Empirical research adopting this systemic view has shown a positive relationship between systems

of HRM practices and various indicators of organizational effectiveness (e.g Huselid, 1995; MacDuffie, 1995)

Under the systemic view, recent studies either examine predetermined combinations

of HRM practices (some even narrow it down to a single index to represent a total system of HRM practices) or develop and empirically verify key dimensions of a company HRM system by factor analysis (Becker and Huselid, 1998) The latter approach is more appropriate to capture variations in the formation of dimensions of HRM practices due to contextual influences This study adopts the same approach by first identifying some primary HRM dimensions from the literature and then conducting an exploratory factor analysis to pinpoint precisely the dimensions of HRM practices arising

in companies currently operating in Vietnam

Dimensions of HRM practices and organizational effectiveness

Previous research relying on factor analysis did not render uniform dimensions of HRM practices, in part due to the inclusion of different practices to reflect the contexts under study Early research by Huselid (1995) anticipated that HRM practices could be grouped into dimensions that augment employee skills, motivate employees, and organize the workforce, but such practices have been consolidated in two factors One factor concerns compensation while the other is a blend of development and organizational structure Other research undertaken in Hong Kong identified two slightly different reliable factors:

‘structural training and development’ and ‘retention-oriented compensation’ (Ngo et al., 1998) Although the two studies resulted in closely related dimensions of compensation, that of the latter tied also to retention Fey and Bjorkman (2001) reviewed the literature and came to expect four factors of training and development, employee pay system, employee feedback, and workplace organization, but their empirical evidence from Russia revealed three factors including ‘development’, ‘feedback’, and ‘pay/organiza-tion’ This outcome created a clearly defined factor of development (which was very similar to but clearer than Ngo et al (1998)) and a feedback factor (which contained items on up – down communication), but combined items related to payment and organization into a single factor Thus, the literature suggests that although some of the dimensions in previous studies are mixed together, there exist at least four dimensions of HRM practices: training and development, information exchange, compensation, and workforce structure One possible source for this variant application of HRM practices

is the influence of cultural values on the practices of HRM (Ngo et al., 1998) This stresses the need for identifying the HRM dimensions in context

Figure 1 Conceptual framework of the study

Our factor analysis for the sample of Vietnamese companies revealed five dimensions

of HRM practices, namely information exchange, performance management, training and development, group orientation, and retention management (Table 1) The theoretical analysis of each dimension is given below

Information exchange The first dimension of HRM practices is composed of six practices, which are mainly related to the exchange of information within the companies Communication across departments is an important ingredient of the information exchange process since it helps to facilitate the coordination of efforts among different parts of the organization (Robbins, 2003) At the individual level, companies may also give employees opportunities to participate (an intrinsic reward) in decision making so as

to account for the opinions of those who will often be in closer touch with implementing decisions later on Such participation is expected to increase the commitment of employees to the decisions because they have a share in them Empirically, employees’

Table 1 Rotated factor solution for HRM practices

Factor loadings

1 Information exchange (a ¼ 828)

Interdepartmental communication 736 169 2 007 055 232 Participation in decision making 695 137 308 081 295 Information sharing programmes 671 253 096 109 030 Employee attitude surveys 564 2 057 293 218 255 Complaint resolution systems 546 294 061 032 422 Job analysis for training demand 524 362 361 218 2 207

2 Performance management (a ¼ 785)

Result-emphasized performance appraisals 149 809 121 091 117 Job security 2 049 800 074 129 209 Job analysis to set realistic

job performance standard

.217 643 057 153 218 Performance vs seniority based promotion 488 595 2 012 2 007 2 011 Company profit/sales in bonus 311 575 157 2 096 151

3 Training and development (a ¼ 748)

Management training 219 012 865 042 057 Technical/professional training 2 107 234 808 2 004 160 Employees transfers used as developmental

activities

.479 132 572 2 153 2 085 Assistance in career planning 380 016 495 412 2 023

4 Group orientation (a ¼ 582)

Seniority-based compensation 2 029 024 062 758 215 Teamwork 085 095 2 067 678 2 112 Group performance in pay 437 167 097 581 088

5 Retention management (a ¼ 627)

Retention-intended pay and bonus 070 261 197 242 753 Industry-attractive pay level 308 217 2 001 2 239 633 Non-entry jobs filled within the firms 397 250 2 089 212 459 Variance 17.44 14.35 11.47 9.07 8.75 Cumulative variance 17.44 31.79 43.26 52.33 61.08

Notes

participation in decision making has been proven to have a positive influence on employee productivity, motivation, and job satisfaction, though the impact is modest (Robbins, 2003: 195) Similarly, the sharing of information on company activities from the upper levels helps employees keep abreast of what is going on in the company so that they can best align their efforts with company activities Furthermore, the arrangement of employee attitude surveys and complaint resolution systems offers employees a channel

to voice their ideas, opinions, concerns, desires, grievances, or needs to the upper levels

in the organization for their perusal and action It is critical to have timely information on these issues so that responsive measures can be taken Finally, companies can conduct job analysis to seek information from the employee side about training demands for mutual benefit This will provide more insightful knowledge on how employees should

be prepared to perform better on the job All these methods, if used in appropriate combination, will facilitate and accelerate the downward, upward and sideward flow of information within the organization Well-channelled information will help people to make good decisions and to implement them more effectively, thus contributing to the company performance in the end Therefore, it would be expected that:

related to firm performance in Vietnam

Performance management A variety of practices was used by companies in Vietnam to reward their employees The application of result-emphasized performance appraisals will direct employees’ effort into what is valued by the company and provide objective criteria to improve fairness in recognizing employees’ contributions

To begin this process, the companies may conduct job analysis to set realistic job performance standards in order to compensate jobholders fairly (Werther and Davis, 1996) Empirical evidence for the activation theory confirms that optimized performance

of employees is achieved at a realistic intermediate job demand (one that is neither too low nor too high) and that fairness perception moderates the curvilinear relationship between job demand and job performance (Janssen, 2001) Also, as a part of the performance management, the sharing of the financial success, which employees’ efforts help to generate, in the form of a bonus contingent to company profit or sales will motivate employees to work harder since they know their effort will be paid off

In addition, companies that provide job security for employees convey to them a signal of commitment toward employees and opportunities for long-term career development in these companies This practice, if used together with a promotion policy that is based on performance instead of seniority, will likely encourage employees to perform at their fullest potential to be promoted on their way to build a long-term career

in a company Hence, the following hypothesis is proposed,

performance

Training and development Companies in Vietnam utilized four HRM practices

in association in their efforts to develop their human resources Companies which invest

in both technical and management training seem to benefit from the enhanced skills and knowledge of their human capital In fact, training and development are indispensable

as a performance enhancer in a variety of settings (Harel and Tzafrir, 1999; Delaney and Huselid, 1996) Obviously, training and development are particularly pertinent

to companies, start-up or established alike, in Vietnam as an effective tool to fix

the performance gaps, given the chronic shortage of skilled labour caused by the failure

of the country’s education system to meet the human resources requirement of companies (Quang, 1997; Kamoche, 2001) As pointed out in a recent report, only about one third of the companies in operation are satisfied with the qualifications of their new recruits (Saigon Times Weekly, 2002)

Companies may also rotate employees across different jobs as an alternative for training and development Employee transfers used as developmental activities allow employees to broaden their skills and avoid the boredom of work repetition (Herzberg, 2003)

After all, providing employees with assistance in career planning, if done properly, will encourage employees to take responsibility for their personal development and at the same time direct these efforts in harmony with the company’s strategy This practice has been included as an important part of high performance HRM practices in many studies (e.g Huselid, 1995; Fey and Bjorkman, 2001; Guthrie et al., 2002) It has also been shown that a manager’s support for career development explained significant variance in employees’ willingness to participate in development activities and developmental behaviours (Noe, 1996) Thus, we put forward that:

Group orientation This factor reflects the Vietnamese culture rather well In this aspect, China, Japan, Korea and Vietnam are considered part of the same cultural region, which has been influenced by a common Confucian heritage (Hung et al., 1999) The Confucian value highly respects seniority, which comes into play in the form of seniority-based compensation in the work setting In addition, the high collectivism of the cultural values in Vietnam (Ralston et al., 1999) harmonizes with the preference for teamwork in organizations As one study illustrated, teamwork is positively associated with organizational commitment and work satisfaction among Vietnamese employees (Hung et al., 1999) Concurrently, the egalitarianism practice resulting from socialist ideology puts group performance in pay as a standard to reward group effort To a certain degree, the blend of these practices could be a reflection of a mentor system, which can

be observed in many Vietnamese companies The underlying feature of this system is that a senior person who is more experienced and competent is designated as a group leader to sponsor and guide other less senior persons in the group work arrangement Group work, if arranged properly, will stimulate members to pool innovative ideas, solutions, and suggestions that can only come as a result of synergistic collective wisdom, and thus contribute to performance improvement As a result, it is hypothesized that:

Retention management The serious shortage of skilled labour in Vietnam (Quang, 1997; Kamoche, 2001) and the more flexible employment opportunities among the younger generation in the Vietnamese workforce at present (An, 2002) have made employee retention an important issue for HRM practices of Vietnamese companies The three building practices of this dimension were also identified as salient ingredients

of HRM practices in other Asian research (Ngo et al., 1998)

First, a policy of pay and bonuses that intends to promote retention will likely help to tie employees voluntarily to the company since the general standard of living in Vietnam

is still low The reported gross national income (GNI) per capita in 2000 was US$390 or

US$2,000 in PPP equivalent (World Bank, 2002: 20) In fact, monetary reward is found

to positively relate with employee job satisfaction in Vietnam (Hung et al., 1999) Second, in combination, companies may package their compensation more attractively compared to the industry average to retain people Better compensation conveys a message that the company values its people In return, employees can view the surplus income as a gift and hence work more industriously (Pfeffer, 1999)

Finally, promotion from within is one of the effective HRM practices as in most studies (for example, Huselid, 1995; Ngo et al., 1998; Fey and Bjorkman, 2001; Guthrie

et al., 2002) The availability of internal promotion opportunities binds workers who seek career advancement to companies offering such chances At the same time, it creates an incentive for employees to perform well so as to earn the monetary and status rewards brought by promotion (Pfeffer, 1999) On this basis, we propose that:

management

Influence of manager’s perception of HR value on the HRM practices

Previous case studies or research on the adoption of HRM practices among companies in Vietnam have usually been based on types of company ownership, the size of the company (the number of employees), the degree of exportation, and union status (Zhu, 2002), leaving unexplored the interesting aspect on what, if any, is the role of a company’s top management Management philosophies and core values certainly affect the managerial practices of a company If the management of a company considers HR an important source of productive capabilities to achieve efficiency and effectiveness in its operation, the company is likely to adopt HRM practices to utilize the human capital as fully as possible Empirical evidence in other countries (Lewin and Yang, 1992; Bae and Lawler, 2000) supports this analysis However, the relevance of this analysis remains a question for the context of Vietnam Under the pressure of increasing competition, the criticality of HR in business success has been underscored by companies in Vietnam (Quang and Thang, 2004) In the face of such a pressing need for HR, companies are expected to take action to improve their human capital Hence, we extend the hypothesis that:

extent of dimensions of HRM practices is likely to be found in a company Research methods

Measures

HRM practices were adapted from Ngo et al (1998) and Fey and Bjorkman (2001) and pilot tested with companies operating in Vietnam for content validity As in Fey and Bjorkman (2001), the use of HRM practices was measured on five-point Likert scales from 1 ¼ ‘to a little extent’ to 5 ¼ ‘to a great extent’

Measuring firm performance by ‘bottom line’ measures such as ROE, ROA is always desired by both business practitioners and academics However, getting Asian companies

to disclose reliable financial data is often difficult and the data are not comparable across firms (Bae and Lawler, 2000) In addition, though not as strong, subjective measures of firm performance have been shown to correlate well with objective measures (Geringer and Hebert, 1991; Powell, 1992) Hence, analogous to many prior studies

(to name but a few, Delaney and Huselid, 1996; Ngo et al., 1998; Fey and Bjorkman, 2001), this study used perceived organizational and market performance adapted from Delaney and Huselid (1996) Respondents were asked to compare how their firms have been performing regarding market share, sales growth, profitability, quality of products/services, development of new products/services, employee satisfaction, ability

to retain essential employees, and ability to attract critical employees to other organizations that do the same kind of work (where 1 ¼ significantly lower, and

5 ¼ significantly higher) The first three measures were averaged to form a composite measure for perceived market performance, while the rest was used for perceived organizational performance

The management perception of human resource value was measured with items adapted from Lewin and Yang (1992) on a five-point Likert scale to reflect the prioritization of human resources, the valuation of human resources relative to financial resources, and the management belief about human resources as a strategic asset and a critical contributor to the firm’s overall performance

Sample and data collection

A mail survey was conducted during February and March 2003 to collect data A list of 1,486 identifiable companies with at least 100 employees was compiled from the Business Directory in Ho Chi Minh City The city was chosen for data collection because

it is the major economic centre of the country where business activities are most dynamic and concentrated Contacts via mail were initially made with a HR manager, head of personnel department, general manager, or those who are in charge of HRM aspects

of the company A two-step mailing approach was taken to create a favourable response

In the first mailing, two sets of questionnaires, a sympathy provoking cover letter with confidentiality assurance and two postage-paid return envelopes were directed to target respondents to boost the willingness to participate With the same intention, a formal letter of introduction from the Ho Chi Minh University of Technology was attained and included The targeted mail receivers were asked in the cover letters to fill in the first questionnaire seeking information on HRM policy and practices and forward the second questionnaire asking about perceptual firm performance to one appropriate member of the board of directors Such an approach to gathering information on one company from separate sources aimed to address the problem of common source bias; that is, raters tend to relate the degree of utilizing HRM practices with firm performance

if they are asked for both After two weeks, a reminder letter was sent to non-responsive managers as another follow-up attempt to engage their response

Finally, 137 valid pairs of questionnaires were returned making for a yield rate of 9.4 per cent This falls in the range 6 – 28 per cent in similar kinds of research (Guthrie et al., 2002: 187) The sample consisted of 42.3 per cent state-owned enterprises (SOEs), 27 per cent foreign-invested companies, 15.3 per cent equitized companies (partially privatized), and 15.4 per cent local private companies By industry, companies split into 54 per cent in manufacturing, 19 per cent in service, 3.6 per cent in transportation, 8.8 per cent in construction, and 15.3 per cent in commerce Considering the usually low habit of taking part in survey research in Vietnam, the response rate was considered statistically acceptable and valid

Data analysis

This study used three main multivariate data analysis procedures: (a) factor analysis to identify the dimensions of HRM practices; (b) hierarchical multiple regression which

controlled for a series of variables comprising firm size, firm age, industry, ownership, union status and exportation to test the proposed hypotheses; and (c) general linear model

to investigate the variations of dimensions of HRM practices due to organizational characteristics In addition, reliability analysis procedure and general linear model were also applied to assess scale reliability and potential non-response bias

Potential non-response bias

The low response rate might raise concerns about whether the companies in the sample provided sufficient representation for those non-responding companies To account for this issue, this study followed Guthrie et al (2002) approach to analyze the potential non-response bias The sample was divided into two sub-groups according to the time

of response One group included companies which responded before, while the other group consisted of companies which did so after receiving the reminder letter The latter was assumed to be similar to non-response companies A general regression model was performed to compare the two groups in terms of HRM dimensions, HR value, and perceived firm performance No significant difference was found between the two groups Thus, though the threat of non-response bias could not be totally removed, the result built up confidence that the sample was representative

Results

Factor analysis with varimax rotation reveals five dimensions of HRM practices in Vietnam (Table 1) A summary of means, standard variations, bivariate Pearson correlations, and Cronbach’s alphas for the main variables is presented in Table 2 Nearly all constructs have alpha values above the suggested reliability level of 7 Group orientation and retention management, however, have only marginal levels of reliability The results indicate that significant positive correlations ( p , 01) were found between either market or organizational performance and all dimensions of HRM practices, except for group orientation In addition, the management’s perception on HR values correlates positively with all dimensions of HRM practices ( p , 01) These findings are preliminarily supportive of almost all of the hypotheses However, more robust analysis to test these hypotheses will follow

To examine whether or not the application of HRM practices affects firm performance, a series of linear regression models was estimated (Table 3) Factor scores for the dimensions of HRM practices were regressed on the measures of market and organizational performance along with a number of control variables including firm size (log of the number of employees), firm age (the number of years in operation), industry, type of ownership, union status and exportation

On top of the control variables in the restricted model (Model 1), the inclusion of HRM practices (Model 2) accounted for an additional 14 per cent of the variance in perceived market performance (F ¼ 4.70; p , 001) Overall, Model 2 explained 27 per

performance management, and training and development were significantly positively related with perceived market performance The other two dimensions were not significant Similarly, 45 per cent of variance in perceived organizational performance

dimensions of HRM practices accounted for an extra 32 per cent of variance (F ¼ 13.76,

p , 001) relative to the restrictive control model (Model 3) Again, the three identical dimensions were found to have positive associations with perceived organizational performance Thus, consistent with Hypotheses 1, 2 and 3, the more the companies

Table