Managing human resources in vietnam an empirical study of an economy in transition

By making cross-ownership-form comparison, the study investigates the impact of the company’s ownership form and the management’s perception of human resource values on the adoption of o

MANAGING HUMAN RESOURCES IN VIETNAM: AN EMPIRICAL STUDY OF

AN ECONOMY IN TRANSITION

by

Le Chien Thang

A dissertation submitted in partial fulfilment of the requirement for the

degree of Doctor of Philosophy

Examination Committee: Dr Truong Quang (Chairman)

Dr Sununta Siengthai Prof Dr Stephen O Ogunlana

External Examiner: Dr Chris Rowley

Cass Business School City University, London, UK

Previous Degree: Master of Business Administration

Asian Institute of Technology Thailand Scholarship Donor: Asian Institute of Technology Fellowship

Asian Institute of Technology School of Management

Thailand August 2004

Acknowledgement

The completion of this dissertation is out of reach in the absence of invaluable, timely, and relentless helps, supports, encouragement, and inspiration from many people to whom I am in deep debt and utmost appreciation

I would like to express the heart-felt thanks and gratitude to Dr Truong Quang, my advisor and the chairman of the examination committee To me, he is not simply a dissertation advisor but a father-like advisor on many matters of life Indeed, our “teamwork” gives me one of the most rewarding experiences in my life

I am deeply grateful to Dr Sununta Siengthai, School of Management, AIT and Prof

Stephen O Ogunlana, School of Civil Engineering, AIT for their kindness in serving as the

committee members in my examination committee Their critical academic comments and

remarks during the entire period of my research work are vitally important and highly constructive

I would like to extend special thanks and appreciation to Dr Chris Rowley, Reader in Human Resource Management at Cass Business School in the UK, for his kind willingness to become the external examiner for my dissertation His well-recognized expertise in the field has been a valued source for my learning

Sincere thanks go to the faculty of School of Management (SOM), AIT whose teaching gave me the access to knowledge and skills essential for my intellectual development I am thankful also to SOM staff for their kind collaboration and support during my assistantship there

The pursuit of my Ph.D programme was partly realized by AIT’s precious offer of fellowship and assistantship, in which the former SOM Dean Prof Himingshu Paul and my advisor Dr Truong Quang played decisive roles Besides, the research depended on the financial support for the large-scale survey from the Swiss Development Corporation (SDC),

in which the director Dr Hans Stoessel had a helpful hand I would like to thank them dearly Thanks come to Dr Ken Kamoche, City University of Hong Kong, and many of my friends who studied in different universities for assisting me enthusiastically in the search for journal articles crucial for my knowledge building

Thank you Dr Veerasak Jinarat and Mr Sarit Puthpongsiriporn for their assistance in finding the English checking service by native speakers Thank you Mr Nguyen Thang (HCM City Department of Statistics), SDC staff (Ms Bui My Nhung, Ms Nguyen thi Bich Ngoc, Ms Tran thi Thu Hang, and Mr Ha Van Hiep) and MSM staff (Mr Lai van Tai and

Ms Nguyen thi Thuc) for playing a significant part in the data collection stage

Thank my friends and colleagues at the School of Industrial Management, HCMC University of Technology, Vietnam for their help and support during my study Thank you close friends and acquaintances at AIT owing to whom I had a much less stressful study life Last but never the least, I would like to thank my beloved family My parents and siblings have never made their way to this high degree of education but I believe they can understand how much it was the hardship and challenges to which I was exposed This is manifest in their complete and invariable empathy, sympathy, encouragement, and support for me, regardless of when I need them most or least What they have done for me constitutes the most motivational source for my achievement of this precious degree, the cherished dream of

my parents in their existence towards their children

Abstract

A growing interest in, coupled with a greater understanding of, the management of human resources in some other parts of the Asia Pacific makes it appealing to shift the focus to Vietnam, a less charted country with an economy in dynamic transition in the region To this end, this study seeks to provide an additional insight into the on-going but little-known evolution in the managing of human resources in the making of Vietnam By making cross-ownership-form comparison, the study investigates the impact of the company’s ownership form and the management’s perception of human resource values on the adoption of operational human resource management (HRM) practices to explore the impetus for initiating change in this aspect Further, the study subscribes to the systemic view of HRM practices to go into identifying the dimensions of effective HRM practices in use in Vietnam and subsequently to contemplate the relationship between these dimensions and firm performance, as well as the interactive influence of the two contingent factors – business strategies and equitization/privatization

To address these issues, primary data were gathered from a survey of companies with at least 100 employees in Ho Chi Minh City in 2003 This geographical choice represents the best to look for the most advanced level of HRM development in the country for the time being, as the city is the locus of the most dynamic and competitive business activities in the country Out of 1,486 companies receiving questionnaires, a sample of 169 companies replied, making a yield rate of 11.4 per cent The sample is composed of around 38 per cent state-owned enterprises, 25 per cent foreign-invested companies, 20 per cent equitized companies, and 17 per cent LPCs Various multivariate data analysis procedures were applied including logistical regression, factor analysis, cluster analysis, and hierarchical regression to validate the survey sample and address the study’s objectives

The survey findings reveal that the adoption of HRM activities reflects the company’s ownership traits HRM practices are not convergent at the same level of adoption across the four types of surveyed companies Overall, foreign-invested companies are rather more developed in operational HRM practices than state-owned enterprises Conversely, LPCs, albeit more entrepreneurial, are often less receptive in adopting the HRM practices than state-owned enterprises It also disclosed that transforming state-owned enterprises into equitized companies has brought no significant changes in this regard Further, consistent with previous studies, a reasonable association is established between the management’s perceived values

of human resources and the company’s utilization of operational HRM practices

Regarding the effective HRM practices, the study derived five dimensions of HRM practices in Vietnam They encompass information exchange, performance management, training and development, group orientation, and retention management Although these dimensions retain a certain degree of similarity with others found in previous studies elsewhere, this collection of dimensions offers typical features of a Vietnamese version of HRM practices Subsequent statistical analyses show that some of these five dimensions are significantly associated with organizational effectiveness In addition, it is revealed that business strategy plays a certain moderating role on the relationship of training/development and performance management with productivity while this does not hold for equitization Finally, implications of the findings are provided in the hope that they may contribute meaningfully to the capacity building effort in Vietnam through the effective management of human capital to help the country in its drive to accelerate the on-going development process

Keywords: HRM; Firm Performance; Business Strategies; Equitization; Ownership Forms;

Transitional Economy; Vietnam

Table of Contents Title

Title i

Acknowledgement ii

Abstract iii

Table of Contents iv

List of Figures vii

List of Tables viii

Abbreviations ix

Chapter 1: Introduction 1.1 Background 1

1.2 Statement of the Research Problems 4

1.3 Rationale of the Study 6

1.4 Research Questions 7

1.5 Hypotheses 7

1.6 Research Objectives 9

1.7 Scope of the Research Study 9

1.8 Organization of the Subsequent Chapters 10

1.9 Summary of the Chapter 11

Chapter 2: Literature Review and Theoretical Development of Hypotheses 2.1 Chapter Overview 12

2.2 Key Concepts about Human Resource Management 12

2.2.1 Human resources 12

2.2.2 Human resources management 12

2.2.3 HRM practices 12

2.3 Ownership and the Adoption of HRM Practices 15

2.3.1 Ownership forms in Vietnam 15

2.3.2 Ownership influence on the use of HRM practices 15

2.4 Management’s Perception of HR Value and Adoption of HRM Practices 20

2.5 HRM and Firm Performance 20

2.5.1 HRM-performance relationship in mainstream research 20

2.5.2 Dimensions of HRM practices and organizational effectiveness 27

2.5.3 Interacting effect of business strategies 31

2.5.4 Interacting effect of ‘equitization’ 33

2.6 Chapter Summary 34

Chapter 3: Research Methodology 3.1 Chapter Overview 36

3.2 Translation of Hypotheses into Needed Information and Statistical Analysis 37

3.3 Measurement of Needed Information 37

3.3.1 The coverage of operational HRM practices 37

3.3.2 Dimension of effective HRM practices 40

3.3.3 The pilot work and its results 43

3.3.4 Measurement of firm performance 46

3.3.5 Business strategy 47

3.3.6 Management’s perception of HR value 47

3.3.7 Profile and control variables 47

3.4 Data Collection 48

3.4.1 Measurement instrument 48

3.4.2 Data collection procedure 49

3.5 Data Analysis Procedure 50

3.5.1 Data preparation 50

3.5.2 Analysis of scale reliability 51

3.5.3 Logit analysis 51

3.5.4 Factor analysis 51

3.5.5 Cluster analysis 52

3.5.6 Regression analysis 52

3.6 Chapter Summary 52

Chapter 4: Ownership Forms, Management’s Perception on Human Resource Value and the Adoption of Operational HRM Practices in Vietnam 4.1 Chapter Overview 53

4.2 Sample Profile 53

4.3 Descriptive Patterns of Adoption of Operational HRM practices 54

4.3.1 Functions of HR department 54

4.3.2 Human resource planning 55

4.3.3 Recruitment and selection 55

4.3.4 Training and development 56

4.3.5 Performance appraisal 57

4.3.6 Compensation and benefits 58

4.3.7 The profile of operational HRM practices by ownership forms 59

4.3.8 Management’s perception of HR values 59

4.4 Test of Hypotheses 62

4.5 Discussion of the Findings 66

4.6 Chapter Summary 69

Chapter 5: Dimensions of HRM Practices and their Relationships with Organizational Effectiveness, Business Strategy, and Equitization 5.1 Chapter Overview 70

5.2 Identification of Dimensions of HRM Practices 70

5.2.1 Sample size 70

5.2.2 Significance of the factor loadings 71

5.2.3 Appropriateness of factor analysis 71

5.2.4 Exploratory factor analysis process 72

5.3 Test of Hypotheses 77

5.3.1 Check for assumptions in linear regression analysis 77

5.3.2 Scale reliability analysis 79

5.3.3 Descriptive statistics and correlations among variables 81

5.3.4 Relationship between HRM dimensions and firm performance 83

5.3.5 Business strategy and the linkage of HRM dimensions and firm performance 87

5.3.6 Equitization and the linkage of HRM dimensions and firm performance 90

5.3.7 Assessment of multicolinearity and multivariate normality 91

5.3.8 Non-response bias 92

5.4 Discussion of the Results 94

5.5 Chapter Summary 97

Chapter 6: Conclusion and Recommendations 6.1 Conclusion 99

6.2 Implications 102

6.3 Contributions 104

6.4 Limitations 106

References

Appendices

List of Figures

Figure 1.1: Theoretical Framework of the Study 7

Figure 3.1: Methodology of the Research Study 36

Figure 4.1: Composition of Working Population and Sample 53

Figure 6.1: Proposed Process for Implementing Effective HRM Practices 103

List of Tables

Table 2.1: A Typology of HRM Research 21

Table 2.2: Rotated Factor Solution for HRM Practices 28

Table 3.1: Major Needed Information and Statistical Analysis by Hypothesis 38

Table 3.2: Effective HRM Practices from Prior Studies 42

Table 3.3: Profile of Pilot Sample 44

Table 3.4: Description of Control Variables 48

Table 3.5: Proportion of Working Population by Ownership 49

Table 4.1: Functions of HR Departments 54

Table 4.2: Human Resource Planning Practices 55

Table 4.3: Recruitment and Selection Methods 56

Table 4.4: Training and Development Practices 57

Table 4.5: Performance Appraisal 58

Table 4.6: Compensation Components for Managers and Non-mangers 58

Table 4.7: Components of Benefits Package 59

Table 4.8: Adopting Operational HRM Practices by Ownership Forms 60

Table 4.9: Management’s Perception of Human Resource Values 61

Table 4.10: Logistical Regression Results for HR/Personnel Department Functions 62

Table 4.11: Logistical Regression Results for Human Resource Staffing Activities 63

Table 4.12: Logistical Regression for Human Resource Development Activities 64

Table 4.13: Logistical Regression Results for Performance Appraisal 64

Table 4.14: Logistical Regression Results for Direct and Indirect Compensation 65

Table 5.1: Guidelines for Identifying Significant Factor Loadings Based on Sample Size 71

Table 5.2: The First Run of Factor Analysis 72

Table 5.3: The Second Rotated Factor Solution 73

Table 5.4: The Third Rotated Factor Solution 74

Table 5.5: The Fourth-Rotated Factor Solution 75

Table 5.6: Rotated Factor Solution for HRM Practices 76

Table 5.7: Kolmogorov-Smirov Tests of Normality 78

Table 5.8: Scale Statistical Description and Cronbach’s Alpha 80

Table 5.9: Means, Standard Deviations, Correlations and Cronbach’s Alphas 82

Table 5.10: Human Resource Management Practices and Company Performance 84

Table 5.11: Human Resource Management Practices and Company Performance 86

Table 5.12: Description and Comparison of Business Strategy Cluster Solution 88

Table 5.13: Regression Analysis for Moderating Effects of Business Strategy 89

Table 5.14: Regression Analysis for Moderating Effects of Equitization/Privatization 90

Table 5.15: Variance Inflation Factors in Models of Linear Regressions 91

Table 5.16: Variance Inflation Factors in Models with Interactions 92

Table 5.17: K-S Test of Multivariate Normality for Performance Residuals 92

Table 5.18: Comparison between Two Groups of Different Responding Times 93

Table 5.19: Logistic Regression for Response Tendency 93

Abbreviations

CIEM : Central Institute for Economic Management

DOLISA : Department of Labours, Invalids, and Social Affairs

SPSS : Statistical Package for Social Science

Chapter 1 Introduction

On the Stele of Doctors at the Temple of Literature in Hanoi writes: Virtuous and talented men are key factors for sustaining State development (1442)

Knowledge is the greatest asset of the nation (1466)

(Duggan, 2001)

1.1 Background

The realization of human resources (HR) as a critical source for success is, surprisingly, not exactly new in Vietnam Despite such an early awareness, Vietnamese enterprises have had a rather short time of some 30 years to build up their expertise in managing HR The obvious reason is the onset of the economic development in the united Vietnam only began in 1975 at the end of the protracted period of wars and internal conflicts During the post-unification period, human resource management (HRM) in Vietnam has evolved in the face of drastic changes in the external and internal environments, which make it possible to divide the development of HRM in Vietnam into two distinct stages in close association with two economic development periods, each with its own economic ideologies (Quang and Thang, 2004) Much of what caused the turning point of this development is widely believed to be

attributable to the 1986-initiated economic renovation policy, called doi moi This all-out

renovation campaign promotes diversifying the domestic economic forces and opening the country’s doors to international trades and relations Walking through the key aspects of this development is necessary to move into the mode of readiness for the remaining issues discussed in this dissertation

• 1975-1990: A “command” Personnel Administration

As a result of the end of the war in 1975, the communist government of Vietnam extended the centrally planned economic model, which had been functioning in the North since 1954, into the newly liberated South Since then until 1986, state-owned enterprises (SOEs) had been the only legitimate and officially recognized form of ownership under the countrywide system of mandatory state planning, which was driven by the Marx’s labour theory of value Accordingly, managing people in SOEs was strictly centralized and typical of a “command” personnel administration Enterprise inputs, including labour, were assigned by government plan In each enterprise, there was a Personnel Department (often called “Organization

Department”, Phong To Chuc) which concerned itself more with political and social issues

than functional activities Its main tasks were to keep the employee records and to deal with promotion, salary and benefits management of all levels, including the management of the enterprise The working principles of this system were centralization, secrecy, relationships and experience (not professionalism) More often, the head of the department was a compromise figure for all parties involved, including the party cell (Communist Party of Vietnam), the enterprise management, and the peripheral organizations, such as Trade Union chapter and other representative associations

To maintain organization stability, the government (officially called the state, nha nuoc)

followed the low-wage full employment strategy In fact, the system guaranteed lifetime employment for all, which provided job security for the employees (government and party organizations alike), but did not allow the needed latitude for managers in effective staffing decisions Labour mobility was insignificant and hindered by bulks of bureaucratic administrative procedures, thus putting constraints on the search for match between jobs and people Key positions in the enterprises were filled up by discharged revolutionaries and returning graduates from the Soviet Union or Eastern Europe, whose appointment criteria emphasized more on political merits than professional qualifications (“red” vs “expert”,

hong vs chuyen) As it was based on “promotion from within” principle, little attention was

spent on external sources of recruitment and selection Word-of-mouth, connections and employee’s referral were the most practiced methods Job advertisement in the media was not available since advertising was not possible until the market concept was adopted Application forms predominantly sought information on both war and post-war activities of applicants and their relatives in much details (self, parents, spouse, siblings, and grandparents) A disproportionately small part aimed to seek applicants’ qualification Family history profile and contribution record to the revolution were carefully scrutinized in the selection process and kept in long-term memory of the heads of the department for future promotion and appointment The pay system was centrally fixed and standardized for all levels to ensure egalitarianism Pay and merit increase were not based on performance, but more on seniority, responsibility and personal judgment Merit increase was often perceived

as a “distribution of favour” from both the giver and the receiver No formal appraisal session was planned or held on a regular basis Training only took place in on-the-job forms, and personal development and career planning were neglected, with the exception of approved potential high-ranking persons Employee relations were framed in the socialist basic

principle of “collective ownership” (so huu tap the), which was extensively exhorted to

nurture a sense of responsibility and commitment of the workers to their organizations

As it was generally agreed, this mechanistic and egalitarian approach in managing people did not do any good to stimulate personal creativity, productivity and devotion to the common causes of the organization The poor performance and low level of employee satisfaction in the state-owned sector, with more than a half of SOEs being loss makers or

marginally profitable (World Bank et al., 2000: 30), was in part attributed to the failure of

this system The urgent need to turn these SOEs into more effective and efficient enterprises

to support the country’s transitional move toward its desired stage of development and modernization has paved the way for the second, but more promising, stage of HRM in Vietnam

• 1990-present: Learning and Building a HRM System in a Market-oriented Economy

In 1986, as a remedy for the inefficiency of the autarkic economy and a response to the ideological crisis of the communist bloc in the 1980s, the government initiated a series of economic reforms, known to the world as “doi moi” policy (economic renewal) The new policy envisioned to transform the Vietnamese economy from a close, centrally planned system into a more open, market-oriented, and globally integrated system in a later stage Although the overall campaign to renovate the country’s economy had already started in early 1987, the real impact was only experienced at the beginning of the 90’s In the course of the transition, many radical changes in economic, social, and legal aspects have taken place Salient aspects which provide strong impetus to the change in HRM include: (1) the formal

recognition of ownership diversity, (2) the economic revival and integration, (3) the opposing change in cultural values, and (4) the legislation on employment relations

The government’s formal recognition of ownership diversity gave rise to the sequential advent of different types of companies which has offered significant divergence in HRM practices In essence, this represents a breakthrough in the view of business development since entrepreneurs used to be regarded as ‘ruthless exploiters’ of labours In 1986, the private sector was for the first time formally recognized in the so-called multi-sector

economy (kinh te nhieu thanh phan), marking a definitive outbreak of the “family-style” and

“patronage” approach of management Since 1988, the influx of multinational companies as a response to the country’s lure for foreign investment has brought effective managerial expertise into the rigidly regulated economy in previous decades in tandem with Western and Eastern HR practices and philosophies Later in 1992, the first wave of restructuring of SOEs,

by selling parts of their shares to the public, gave birth to a new genre of mixed ownership

companies known as ‘equitized’ (co phan hoa, a partial privatization) companies in the hope

that they would prosper after the ownership change through improved management To be sure, the legitimate emergence of new forms of ownership in the restructured economy brought in competition among companies for both market and input factors including HR, a

principle that was unfamiliar to Vietnam in the pre doi moi period As a result, a form of

labour market emerged and labour mobility has become increasingly dynamic The situation necessitated more attention from the companies with a view to better manage and retain the company labour force A case in point for more emphasis on managing HR was the alarming

“brain drain” syndrome from the SOEs to the foreign companies

Under the new policy treatments, the economy seemed to unleash its potential to an optimal level The economic gain is visible in the last decade, as the country economic growth accelerated at an unprecedented average rate of 9 per cent during 1992-1997, and even soared to the zenith of 9.5 per cent in 1995 (Asian Development Bank, 2000) The continual stream of speedy growth was interrupted by the Asian crisis in 1997, which brought the 1998 GPD growth of Vietnam to an all-time low level of 4.8 per cent Nevertheless, the crisis was not able to hold the momentum of a fast growing economy for long Again, the economy has recovered in the subsequent three years with an average GPD growth rate of nearly 7 per cent (Vietnam Economic Times, May 2003) This trend promised a continuing sustainable growth in the years to come This positive development, however, further puts a severe drain on skilled labours, which have always been in serious shortage (Quang, 1997; Saigon Times Weekly, 2002) given the country’s education and training system failure to meet the requirement of companies (Quang, 2001: 8) In addition, the country’s high prospect

of integration into different economic blocs such as AFTA in 2003 and WTO in 2005 has further heated up the competitive landscape These external imperatives have compelled companies to actively engage in the strife for competitive advantage, in which the criticality

of HRs in business success has been underlined by both managers and government officials Inevitably, all companies currently operating in Vietnam have faced the arduous task of competing for qualified HRs by means of acquiring, developing, and retaining future talents Recent dynamics of employment attitude and cultural value in the country have added another dimension to the pressure facing companies with respect to managing their workforce Although Vietnamese workers have been known to display a quite positive work

attitude by international standards (Hung et al., 1999), a field research pointed out that the younger generation shows a shifting attitude about employment before and after the doi moi

policy As the survey goes, the youths perceive themselves to be at greater and more flexible

employment opportunities now than before (An, 2002), making labour mobility in industries more dynamic and the search for proper HR’s even more competitive Another study found that the recent move toward a market-oriented economy from a Confucian and socialist heritage has resulted in a clash of old and new values characterized as a paradoxical

composite, embracing both Collectivism and Individualism (Ralston et al., 1999) These

cultural value changes may have certain influence on the personnel management (Hofstede, 1998), especially on the way of motivating people

In addition, the country witnessed a fundamental change in the nature of employment relations There was in effect a shift away from the lifetime employment in SOEs in the previous period to the contract-employment system applied for every type of companies This new nature of employment relations in the transition process requires a new legal framework

to address emerging issues related to the contract base of employment Many problems and conflicts of interests between employees and employers have arisen in the new system For example, since 1995 there have been in total 422 strikes in the whole country, in which 64 cases took place in SOEs (15.2% of total), 229 cases in foreign-invested companies (54.3%) and 129 cases in other non-state enterprises (30.5%) (Duc, 2003) Dealing with the new employment relations calls for more active role of the trade union to act as mediation In response, a new law on union chapter was introduced in 1992 to supersede the outdated law

in 1957 The new law intended to mould the subsequent employment relations into a tripod relationship: the employer, the employees, and the union (Dunlop, 1993) Moreover, in an attempt to systemize the legal framework in coping with employment relations, the Labour Code was passed in 1994 with a view to legally protect the rights and benefits of both the labour and employer Since its inception, the operation of the labour market has been changing so swiftly that the first Labour Code became quickly outmoded and needed to be revised in 2002 to better reflect the more complicated reality of employment relations

Against this backdrop, there is a gradual transformation from the old “command”

personnel administration ubiquitous in SOEs in pre doi moi into a new HRM system Some

traditional personnel management practices still exist in many SOEs Meanwhile, other enterprises have begun to adopt some elements of HRM practices (Zhu, 2002) Some of the noticeable trends are the move towards more proactive recruitment, more formal selection procedure, internalizing training responsibility, more formal appraisals, increasing performance-related compensation, and concerning retention (Quang and Thang, 2004)

1.2 Statement of the Research Problems

Since 1987, doi moi has dramatically changed the business landscape of Vietnam

Competition among companies, both in the marketplace and labour market, has been brought

up to an unprecedented level of intensity Under the pressure of competition, effective management of HR has been seen as a critical factor to create competitive advantage (Pfeffer, 1999; Lado and Wilson, 1994) It is particularly relevant to companies in developing countries as the capital requirements for initiating change in the HRM area are low as compared with many other areas, and companies seeking to catch up with their competitors may start doing so in areas with a lower investment onset (Weinstein and Obloj, 2002)

To initiate change in the HRM domain requires an understanding of what factors influence the adoption of HRM practices In this regard, the international HRM literature has indicated a set of factors, both external and internal to the companies (Budhwar and Debrah, 2001) Nonetheless, there has been no empirical research which has really dealt with the issue

of the factors driving the adoption of HRM practices in Vietnam Related studies are sparse and have been descriptive in nature (e.g Zhu, 2002; Kamoche, 2001) To fill this void, this study focuses on examining the impact of types of economic ownership and management perception of HR value on the adoption of HRM practices

On facing the on-going external changes as presented, management in different companies might interpret the circumstances in their own frames of reference (Fox, 1966), which are bounded by their perception and sense making of the environment stimuli The variability in the management’s interpretation of changes in the business environment that affects the stock of human capital may eventually lead to the different perceived needs of organizational responding behaviours Therefore, they may take different courses of action in terms of HRM practices as a response to those changes (Jackson and Schuler, 1999) In this vein, the study puts forward the questions that how Vietnamese management perceive the role of HR in the face of traumatic changes in the economy and whether the difference in the perception influences the adoption of HRM practices by companies, expectedly, in order to make the most effective use possible of their HR

Companies with different ownership origins hold peculiar characteristics that may shape their adoption of HRM practices (Jackson and Schuler, 1999) In this light, it is reasonable

that the development of diverse company’s ownership forms in Vietnam after doi moi is

likely associated with certain patterns of development of HRM practices across groups of companies with different ownership forms Overall, a comparative analysis of the ownership impact on the adoption of HRM practices would decipher the current and competitive status

of HRM development in Vietnam, a useful benchmark input for companies to direct their actions concerned the management of human assets Hence, this study raises the question that how companies differ in the adoption of HRM practices across ownership forms in Vietnam and whether the adoption represents a tendency of diversity or uniformity in the level of adoption across ownership forms?

Another central issue, if addressed will significantly encourage companies to initiate change in HRM, is the possibility of HRM practices to wield influence on firm performance The company’s endeavour to promote HRM practices as a dimension of strategic priority in the search for organizational efficiency depends on the answer to this question Conviction about the pay-off of HRM practices has been formed widely among Vietnamese managers, however, substantiated evidence directly related to the context of Vietnam is needed to give fact-based confirmation integral for HRM-related decisions Thus, it is essential to examine the impact of HRM practices on firm performance Relatedly, advocates of the fit thesis argue for the need to match HRM practices and other organizational characteristics, e.g business strategy (e.g Arthur, 1992) Therefore, the investigation is extended to explore the influence

of business strategy on the relationship between HRM practices and firm performance

One of the phenomenal adjustments of the economic ownership structure in Vietnam is the process of privatization SOEs have been transformed into equitized companies (EQCs)

by defusing state ownership to other parties including workers, managers, and outsiders This privatization effort is expected to trigger a major change process in the company’s internal organization, with the objective of increasing effectiveness, efficiency, and shareholder’s value by changing the business and managerial practices (Truong, 2001) Does the quest for efficiency after equitization lead to the more-efficient use of HRM practices by ‘equitized’ companies as compared to other companies in the sense of a stronger relationship between HRM practice and firm performance?

1.3 Rationale of the Study

The attempt to investigate the above-mentioned research problems in the context of Vietnam

is meaningful for several reasons As the literature review shows, research into Vietnam HRM is still in its infancy The lack of HRM knowledge in Vietnam has posed great challenges for a growing number of companies in Vietnam, local companies and foreign-invested companies alike, in managing their people effectively in the face of an increasingly competitive business environment This underlines the needs and opportunities for a systematic research on HRM practices in the Vietnamese context The undertaking would help to shed more light on the on-going, yet little known, progress of transformation in HRM

in the emerging economy of Vietnam in the course of transition

Specifically, studying the relationship between ownership and the adoption of HRM practices provides an opportunity to investigate how the new economic policy of formally recognizing multi-typed ownership (other economic forces than SOEs) in an ex-socialist country would reflect on the diversity of HRM practices across different enterprise’s ownership forms On this line of research, a few studies have examined the impact of ownership structure on some aspects of HRM practices in transitional economies, such as Poland (Weinstein and Obloj, 2002) and China (Zhu and Dowling, 2002) The research in Vietnam would add another case to explore HRM in an area perhaps still unfamiliar to academics and practitioners in the field In addition, at the firm level, comparing the adoption

of HRM practices across different ownership forms would help companies in Vietnam identify the gaps in the use of HRM practices and take suitable actions to improve their competitive position

Alternately, the dimension of management perception of HR value would assist in exploring the potential role of management as a trigger for change in HRM practices Theoretically, intended changes in organizations cannot occur in the absence of their management’s will Accordingly, the examination of the impact of the management perception of HR value on the adoption of HRM practices is necessary and may provide important implications

It is also essential to investigate the link between the HRM practices and the firm performance in Vietnam Literature elsewhere has amassed significant empirical evidences to confirm the ‘success contributing’ role of HRM practices Numerous studies in the West (mainly in the US and UK) point out that the system of HRM practices helps to increase the 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) However, HRM practices were found to vary across countries (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 found a

positive direct relationship between HRM practices and firm performance On a closer examination, it seems obvious that the way companies blend HRM practices and the impact

of those bundles on firm performance differs across studies Hence, generalizing these results into other contexts, such as developing and transitional countries, may confront the question

of validity

In addition to that is the fact that the majority of countries belong to the developing or

“under-transition” world, where recent economic, political, social changes offer different challenges as companies implement HRM practices (Napier and Vu, 1998), yet little research effort on the impact of HRM practices on the firm performance has been devoted 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

3 What is the effect of dimensions of effective HRM practices on firm performance?

4 How does business strategy influence the relationship between effective HRM practices and company performance?

5 Is the relationship between effective HRM practices and company performance influenced by the equitization, if so, in what manner?

1.5 Hypotheses

Based on the literature review and the theoretical developments in Chapter 2, the following hypotheses are proposed to form tentatively testable answers for each of the above research questions The conceptual framework for the research is presented in Figure 1:

Figure 1.1: Theoretical Framework of the Study

Productivity Perceptual measure

Ownership Dimensions of Policy-related HRM practices

Organizational effectiveness

Business strategy Equitization Management’s

• Question 1: Impact of ownership on the adoption of HRM practices

The following hypotheses were projected concerning the impact of four types of firm ownership encompassing: state-owned enterprises (SOEs), foreign-invested companies (FICs), equitized companies (EQCs), and local private companies (LPCs)

Hypothesis 1: The HRM Department is utilized more for people matters in FICs and EQCs

but less in LPCs than in the SOEs

Hypothesis 2: Recruitment and selection activities in SOEs are less developed than in FICs

and EQCs, but are more developed than in LPCs

Hypothesis 3: In-house training activities in SOEs are conducted less extensively than in FICs

and EQCs, but more extensively than in LPCs; whereas, SOEs are most likely to outsource training activities

Hypothesis 4: Performance appraisal is utilized more in FICs and EQCs, but less in LPCs

than in SOEs

Hypothesis 5: The inclusiveness of compensation and benefits in SOEs is less than, as equal

as, and more than that in FICs, EQCs, and LPCs respectively

• Question 2: Impact of management’s perceived HR values on adoption of HRM practices

Hypothesis 6: The higher the value that management perceives human resources, the more

extensive the use of HRM practices is in those companies

• Question 3: Impact of HRM dimensions on firm performance

Dimensions of HRM practices consist of five dimensions whose hypotheses are presented below:

Hypothesis 7: The use of HRM practices is positively related to the company performance

Hypothesis 7a: The utilization of information exchange within the company is positively

related to firm performance in Vietnam

Hypothesis 7b: Companies exercising more performance-based management have higher

• Question 4: Interaction effect of business strategy

Hypothesis 8: Business strategy will interact with HRM practices to predict company

performance

• Question 5: Interaction effect of equitization

Hypothesis 9: Equitization has a moderating effect on the relationship between HRM

practices and company performance

1.6 Research Objectives

The research aims at providing the answers to the following study issues:

1 Identify the operational HRM practices used in companies in Vietnam;

2 Investigate the impact of ownership difference and management’s perceived value of human resources on the adoption of HRM practices;

3 Identify the underlying dimensions of HRM practices emerging in companies in Vietnam;

4 Empirically test the relationship between dimensions of HRM practices and firm performance of companies in Vietnam;

5 Test the moderating effect of business strategy and equitization on the relationship between HRM practices and company performance

1.7 Scope of the Research Study

Several dimensions define the scope within which this research stretches its coverage They relate to the structure of the theoretical models and the nature as well as the context of data collected to test the hypotheses This section is designated to the discussion of these issues as described below:

In terms of theoretical models, there are two points that needs to be clarified First, the research centres on the impact of ownership form and management’s perception of HR values

on the adoption of various HRM practices by the companies, although there are many variables that potentially affect this phenomenon (Budhwar and Debrah, 2001) The rationale for this focus was given in the previous section Second, in addition to the direct impact of HRM practices on firm performance, investigation can be extended to look at the indirect influence (or the mediating effects) of HRM practices on firm performance through several

intermediary HRM outcomes or employee behaviour outcomes (Guest, 1997 and Ramsay et al., 2000) Nonetheless, the research study does not investigate the mediating effects on the

relationship between HR practices and organizational effectiveness

Concerning the data collection, the research study concentrates on the four main groups

of companies located in the geographical area of Ho Chi Minh City They are SOEs, EQCs, LPCs, and FICs, with the exception of other economic entities such as households and farms

As generally seen, the city is the largest economic hub of the country where business

activities are most dynamic and competition is most intense Consequently, this locus of the city makes it the most favourable environment in the country for the development of HRM practices to prosper

There has been no previous research work exploring the relationship between the size of the company (in terms of the number of employees) and the formalization of HRM in the context of Vietnam Experience from other countries showed that companies as small as 100 employees often do not have HR departments or HR specialists Guided by the work of

Guthrie et al (2002) and Huselid (1995), companies with less 100 employees were left out of

the target for investigation in this study

1.8 Organization of the Subsequent Chapters

The research study is organized into six chapters with brief descriptions of the five subsequent chapters as follows:

• Chapter 2: Literature Review and Theoretical Development of Hypotheses

This chapter reviews the relevant literatures on the research questions Based on literature and the empirical findings on the dimensions of HRM practices (presented in Chapter 5), the chapter proposes the hypotheses as presented

• Chapter 3: Research Methodology

This chapter details the process through which the hypotheses were to be empirically tested Information needed for hypothesis tests is defined Questionnaire as data collection instrument was developed The survey design was formulated and the use of appropriate statistical models was discussed

• Chapter 4: Ownership Forms, Management’s Perception on Human Resource Value and

the Adoption of Operational HRM Practices in Vietnam

This chapter presents and discusses the empirical findings concerning the first six hypotheses about the influence of ownership forms and management perception of HR value on the adoption of operational HRM practices

• Chapter 5:Dimensions of HRM Practices and their Relationships with Organizational Effectiveness, Business Strategy, and Equitization

In this chapter, the process of identifying the underlying dimensions of policy-related HRM practices is conducted The result of this process is central to the development of Hypothesis

5 as seen above Based on the empirical survey results, the chapter provides the thorough examination and discussion of the last three hypotheses regarding the relationship between dimensions of HRM practices and several measures of firm performance as well as the interactive influence of business strategy and equitization on the linkage thereof

• Chapter 6: Conclusion and Recommendations

A summary of the whole research effort is set out in this chapter before implications from the research for companies, policy makers, and academics are put forward

1.9 Summary of the Chapter

The on-going but little-known diversification of people management across ownership forms

in Vietnam characterizes the mixture of both traditional personnel management practices and HRM practices Attempts to throw more light into the adoption process of HRM practices are worthy, especially in the less charted area of economy in transition in Asia such as Vietnam

In addition, facing the increasing intensity of competition, companies in developing countries may opt for effective management of people to seek competitive advantage Nonetheless, the existence of the relationship between the use of HRM practices and firm performance as it has been generally supported in the literature remains a critical question to investigate in this context

This chapter lays a theoretical framework on how the dissertation was going to address these questions in the subsequent chapters Nine hypotheses are presented, on the basis of the theoretical review and development in Chapter 2, to provide tentative answers on the impact

of ownership and management’s perception of human resource value on the adoption of HRM practices, the effect of HRM practices on firm performance, and the impact of pursuit

of business strategy and equitization on the HRM-performance relationship The hypotheses were tested with empirical data in later chapters In addition, the chapter defines the scope in which the study covers Finally, a brief description of all chapters that comprise the dissertation is provided to give an overview of its conceptual organization The next chapter will present the literature review and theoretical development

Chapter 2 Literature Review and Theoretical Development of Hypotheses

2.1 Chapter Overview

This chapter provides a theoretical foundation for the build-up of hypotheses to address the research framework as presented in the previous chapter A brief overview of HRM begins the chapter, followed by a theoretical analysis about the influence of ownership and management’s perception of HR value on the adoption of HRM practices Then, mainstream literature on the relationship between HRM practices and organizational performance is reviewed The review explores various issues which previous research work has been raised when looking at the linkage On this basis and the factor-analysis findings of dimensions of HRM practices in Vietnam, the chapter goes into formulating hypotheses on the relationship

of the dimensions of HRM practices with firm performance as well as the moderating effect

of business strategy and equitization on this relationship in the context of Vietnam

2.2 Key Concepts about Human Resource Management

2.2.1 Human resources

Human resources are referred to as the combination of the pool of skills, knowledge, and abilities (competencies) under the firm’s control in a direct employment relationship and the manifestation of these competencies in the form of employee behaviours which are in line

with the firm goals (Wright et al., 1994)

2.2.2 Human resources management

HRM can be broadly defined as “the science and practice that deals with the nature of the employment relationship and all of the decisions, actions, and issues that relate to that relationship” (Kaufman, 2001) More specifically, HRM is viewed by Jackson and Schuler (1999) as an overall construct embodying three hierarchical components They encompass (1) human resource practices; (2) formal HR policies, which direct and partially constrain the development of specific practices; and (3) overarching human resource philosophies, which specify the values that inform an organization’s policies and practices In a perfect state, these elements integrate into a system that attracts, develops, motivates, renews, and retains employees who ensure the effective functioning and survival of the organization Put it simply, the essence of HRM lies in the adeptness of bringing together different kinds of people to achieve a common purpose (Bohlander and Snell, 2004)

2.2.3 HRM practices

HRM practices are “the organizational activities directed at managing the pool of human capital and ensuring that the capital is employed towards the fulfilment of organizational

goals” (Wright et al., 1994) The common major HRM practices include HR planning,

recruitment, selection, training and development, performance appraisal, and compensation and benefits (Saha, 1993; Tung and Havlovic, 1996; Jackson and Schuler, 1999)

• Human Resource Planning

Human resource planning provides an initiating base for almost all of the activities that are falling under the umbrella of HRM It is a process of anticipating and making provision for the movement of people into, within, and out of an organization (Bohlander and Snell, 2004)

A systematic HR planning process consists of three elements: forecasting demand for employees, forecasting supply of employees, and balancing supply and demand

• Recruitment and Selection

When an organization finds the need for filling job vacancies, recruitment is the first step that follows Recruitment is the process of locating potential applicants and encouraging them to apply for existing or projected job openings (Bohlander and Snell, 2004) In this effort, the organization communicates its needs for HR and career opportunities it can offer to prospective job seekers internally or externally in a way that aim to attract their applications

or their future job-search considerations Successful recruitment helps to avail to the full the pool of prospect candidates whose qualifications meet the job requirements and the needs of the organization

Following the recruitment process, selection is put in place to sort out relevant employees from the available pool of candidates to hire During this process, the organization carries out interviews, tests, and other selection procedures to generate a reliable and valid assessment of the degree of person-job fit and person-organization fit upon which the hiring decision is based In the strategic viewpoint, selection is crucial since it is the first stage in which the firm can seek to match HR with business strategy (Kamoche, 2001) Some research suggests that investment in effective recruitment and selection can churn out improvement in firm performance (e.g Terpstra and Rozelle, 1993) In addition, organizations which use more sophisticated staffing practices (HR planning, recruitment, and selection) were found to have higher labour productivity (Koch and McGrath, 1996)

• Training and Development

Training and development is strategically vital in today’s business world of constant change,

in which existing competencies are being outmoded at a noticeable speed and new competencies are proactively demanded Although both training and development aim at enhancing the company human capital internally, they differ in many ways as distinguished

by Noe (2002) For instance, training refers to a planned effort by the company to facilitate employees’ learning of job-related competencies – knowledge, skills, or behaviours that are critical for successful job performance While training is focused on helping improve employee’s current job, development is future-oriented in that it helps employees prepare for changes in their current jobs as the consequence of new technology, work design, customers,

or product markets As such, development refers to formal education, job experiences, relationships, and assessments of personality and abilities that help employees prepare for the future

• Performance Appraisal

Performance appraisal is the process of determining how well employees have performed on the job with regard to certain job performance standards and then pinpointing where improvement needs to be made Performance appraisal is pivotal in HRM as it provides the

necessary yardstick for company management to form a variety of decisions on managing HR (Quang and Thang, 2004) According to Kamoche (2001), the ability to conduct meaningful performance appraisal on a regular basis and act upon it can be considered a good test of an organization’s HRM philosophy

In general, the use of performance appraisal falls into either administrative purpose or developmental purpose In the former target, performance appraisal provides input useful for the entire range of HRM activities including compensation decisions, promotion, transfer, layoff decisions, and HRM planning, etc In the latter target, performance appraisal is driven

by the recognition that the responsibility of manager is not only simply to evaluate past performance but also to improve job behaviour In this vein, appraisal provides the feedback conducive in discussing employee’s strengths and weaknesses, in removing potential problems, and in improving performance (Bohlander and Snell, 2004)

• Compensation and Benefits

Competent employees are unlikely to contribute any discretionary effort if they are not motivated The expectancy theory (Vroom, 1994) suggests that the use of rewards can influence the employee’s level of work motivation Indeed, the theory maintains that if employees have reason to expect that greater work effort will result in a reward that is valued, they should have the motivation to exert it (Bohlander and Snell, 2004)

Basically, rewards take the forms of direct compensation and indirect compensation Direct compensation consists of wages and salaries, incentives, bonuses, and commissions Indirect compensation encompasses the many benefits offered by the employer, and non-monetary elements include recognition, rewarding jobs, organizational support, work environment, and flexible work time (Bohlander and Snell, 2004)

Compensation and benefits can be powerful tools for facilitating the alignment of employee’s efforts with the organizational goals Under the condition of intense competition with higher proportions of upscale customers and low supervisory monitoring, outcome-based incentives were found to positively impact sales, customer satisfaction, and profit

(Banker et al., 1996a) The effectiveness of compensation is in part dependent on the fit

between pay strategies and organizational strategies (Balkin and Gomez-Mejia, 1990) Similarly, it was found that departures from strategically-indicated pay policies led to lower

organizational performance (Montemayor, 1996) In addition, Shaw et al (2001) examined

the impact of pay systems on organizational performance and found generally that poor performance was observed when individual incentives were coupled with Total Quality Management (TQM), and high performance was observed when skill-based pay was paired with TQM

Companies adopt HRM practices differently under the influence of many factors both internal and external to the companies For reasons mentioned in the first chapter, the study concentrates on investigating the impact of two internal factors, namely, ownership forms of the companies and the company’s management perception of HR values

2.3 Ownership and the Adoption of HRM Practices

2.3.1 Ownership forms in Vietnam

Prior to 1986, SOEs were the sole players of the Vietnamese economy In 1986, LPCs were for the first time formally recognized in the so-called multi-sector economy, marking a definitive outbreak of “family-style” and “patronage” approach to management Since 1988, the influx of FICs has brought useful managerial expertise into the rigidly regulated economy

in previous decades together with Western and Eastern HRM practices and philosophies In

1992, the first wave of restructuring SOEs by selling part of their shares to the public gave birth to a new genre of mixed ownership companies known as ‘equitized’ companies (EQCs)

in the hope that they would prosper after the ownership change through improved management

After doi moi, the state-owned sector has been restructured with a dramatic reduction in

numbers from over 12,000 enterprises in 1990 to 6,300 in 1992 The on-going ‘equitization’ process is meant to further improve the efficiency and effectiveness of the state sector Several hundred enterprises have been ‘equitized’ so far, and have achieved much better annual growth: in sales at about 20 per cent, employment at 4 per cent, wages at 12 per cent, assets at 21 per cent, and profit at 2 per cent on average (World Bank, 2002a) As recently as

2001, SOEs have remained the key building block of the economy, contributing to 39 per cent of GDP and providing jobs to 1.7 million workers (World Bank, 2002a) or only 4.5 per cent of the labour force of 37.7 million people (CIEM, 2002)

In terms of growth, the local private sector is leading the club, followed by the invested sector, a trend that reflects Vietnam’s gradual transition to a market economy In

foreign-2002, the industrial output of the former grew at 19 per cent and the latter at 15 per cent At the rate of 12 per cent, the state sector recorded more modest achievements In addition, since the launch of the Enterprise Law in 2000, the private sector has burgeoned with nearly 50,000 new LPCs registered by October 2002 (World Bank, 2002a) Despite their faster growth, the two sectors remain relatively small LPCs were fragile with less than 3 per cent employing more than 300 employees LPCs generated about one million jobs but less than 4 per cent of GDP Meanwhile, the other sector created 354 thousand jobs and 13 per cent of GDP (CIEM, 2002)

2.3.2 Ownership influence on the use of HRM practices

The adoption of HRM practices may be influenced by the ownership structure in a number of ways Companies with a long experience in the market economy will have more developed HRM practices than will companies previously in the centrally planned economy (Weinstein and Obloj, 2002) Thus, FICs may learn from their foreign owner’s countries and bring these HRM practices into Vietnam In addition, based on the institutional theory (Meyer and Rowan, 1977; DiMaggio and Powell, 1983) which asserts that the institutional environment can strongly influence the development of formal structures in an organization, Jackson and Schuler (1999) predicted that as social entities that seek approval for their performance, companies may use HRM practices to help them gain legitimacy and acceptance which facilitate survival In this sense, FICs differ from local companies in their external origins to the business environment They face a greater need to gain legitimacy and acceptance and thus they are more likely to adopt HRM practices Similarly, SOEs, as state representatives,

are under more pressure to conform to legal regulations concerning labour relations than are LPCs, given the weak enforcement of laws in Vietnam

Furthermore, the resource dependence theory (Pfeffer and Salancik, 1978) proposes that the possession of resources affects the distribution of powers in organizations and hence HRM practices may be used to reflect this nature of power distribution (Jackson and Schuler, 1999) In this view, unlike SOEs, EQCs depend on more types of stakeholders for their capital Therefore, they may use HRM practices to cope with the more complicated power distribution Moreover, the owners in EQCs are more identifiable than are those in SOEs and are constantly watching how management runs the company, thereby making efficiency a more compelling goal for management to achieve This may provide an incentive to adopt more HRM practices to extract economic gains from human capital

A detailed comparative analysis of HRM practices across ownership forms is given below with coverage of HRM/Personnel Department functions, recruitment and selection, training and development, performance management, and compensation and benefit In each area, a hypothesis is proposed to form the direction for investigation SOEs are chosen as a frame of reference to make comparisons with other types of companies The rationale is that since SOEs remain the backbone of the Vietnamese economy, the comparison offers room for the potential discovery of diverse use patterns of HRM practices in other younger types of companies, especially the evolution of managerial practices of their offspring (EQCs)

• Functions of HRM/Personnel Department

HRM in the Western philosophy is driven by the “axiom” that the fit between HRM and business strategy (Schuler and Jackson, 1987) confers companies a source of competitive advantage (Porter, 1985) Conversely, Vietnamese companies are guided by the harmony of long-term relationship and mutual responsibility in that the employer is expected to take care

of employees, who, in exchange, show their full commitment and loyalty A direct implication of this distinction is that while FICs are striving to bring in HRM practices, SOEs

do not stress the formalized HRM practices, but rather place emphasis on the measures of putting social needs above economic needs This is typified by building “a corporate family sustained by certain forms of welfare paternalism and bound by a unique conception of corporate face” (Kamoche, 2001)

With regard to EQCs, the ownership change sets them apart from SOEs in management approach In a World Bank’s survey of 425 EQCs, these companies expressed that

‘equitization’/privatization gave management more decision-making autonomy as compared with the period before equitization (World Bank, 2003a: 42) Privatization/equitization also placed more thrust on management for better firm performance (Cohen, 2002) Accordingly, management of EQCs is under greater pressure to allocate firm resources more effectively and to apply efficacious managerial practices for performance improvement Furthermore, employee participation, under the form of shared ownership in newly equitized/privatized companies, might serve as an incentive for employees to work harder for the mutual benefits (Vietnam Economic News, 26-4-1999) and to lend support to company result-oriented improvement programs In effect, companies under equitization reported a higher level of worker motivation to work hard for the firm success after equitization than before (World Bank, 2003a: 42) and two main sources of worker support for equitization were share ownership and subsidized shares (World Bank, 2003a: 56)

LPCs find themselves in a different situation Their owners are dynamic, receptive, to-learn, and as young entrepreneurs they are more willing to take risks However, since their managerial expertise is mainly capitalized on a “learning by doing” basis, they often lack critical management skills and knowledge, especially in HRM to conduct their business properly Moreover, many LPCs are trapped in the syndrome of cost cutting myopia, and hence, are inclined to narrow the scope of activities of the HRM department Therefore,

eager-Hypothesis 1: The HRM department is utilized more for people matters in FICs and EQCs

but less in LPCs than in the SOEs

• Recruitment and Selection

Staffing activities in the Vietnamese local companies are generally considered not as effective as in FIC’s (Vietnam Economic Times, 21-2-2001) Being driven more by economic than social imperatives, FICs are more likely to strive for the best return on investment through human assets As recruitment and selection can influence the quality of the human assets by drawing a large pool of qualified applicants, FICs tend to extend their search efforts

in recruitment and to apply effective selection methods to acquire the most appropriate candidates for the job In contrast, SOEs have usually been over-resourced with an excessive

number of workers as a result of the lifetime employment (bien che) practice and a high ratio

of senior workers, who have yet to reach their mandatory retirement age, but can hardly be retrained (Vietnam Economic News, 8-6-1999) Struggling with overstaffing problems and low productivity, SOEs are less likely to engage actively in recruitment and selection of new personnel

After the initial downsizing exercise to reshape themselves, EQCs start making profit and seek business growth opportunities, which require them to employ more people (World Bank, 2002a) Since HR staffing is one of the most critical activities to help improve the overall efficiency through ability-job fit, EQCs are likely to pay more attention to the recruitment and selection than SOEs are On the contrary, while lacking managerial expertise, LPCs are cost-sensitive and often appoint people to key positions based on close relationships and trust Accordingly, they tend not to formalize the process of recruitment and selection, but rely more on convenient, low-cost channels to find and select job applicants Consequently,

Hypothesis 2: Recruitment and selection activities in SOEs are less developed than in FICs

and EQCs, but are more developed than in LPCs

• Training and Development

Until recently, cheap labour used to be claimed by the Vietnamese authorities as one of the country’s main competitive advantages to lure foreign investment This perception has been adjusted toward the real need of the market, since the critical question of labour productivity had been virtually left out of consideration There is in fact a serious shortage of skilled labour in Vietnam to support the drive toward building the company’s competitiveness and the country development process (Quang, 2001) A report by the HCMC Department of Labour, Invalids, and Social Affairs (DOLISA) pointed out that only about one third of the companies in operation are satisfied with the qualifications of their new recruits (Saigon Times Weekly, 2002) Under these circumstances, training is considered a necessary and useful tool to fix the performance gap Yet, while the use of training has been hailed as an effective measure to improve the firm performance (Dinh, 1997) and key to the survival and success of SMEs (Ho, 1999), the local business community holds divergent views about the effectiveness of this activity

On the forefront, foreign investors responded quickly with full-scale training activities when they found out that local managers and workers need training before they are capable of

meeting performance standards (Shultz et al., 2000) Local companies do not follow this

fashion, but have taken it for granted that training and development are the primary responsibility of the government The first public effort to call for local companies to pay due attention to training only came in 1996 (Do, 1996) Similarly, managers at FICs are more sensitive to training and are inclined to see it as an investment and a motivational tool (Saigon Times, 2002) By contrast, SOEs view training as an expense and hence tend to keep the budget allocated for it as small as possible This is also due to the fear that the well-trained employees would leave the company afterwards for better paid jobs in FICs (Quang and Dung, 1998) Moreover, training objectives are perceived distinctly between SOEs and FICs As shown in one survey, while the former are more concerned with diplomas, the latter are more concerned with practical results at workplace (Vietnam Economic Times, 2001) Hence, SOEs are more likely to outsource their training activities than FICs and rely less on in-house development activities due also to the insufficiency of their own training competence and facilities

Having been deprived of the comfortable state of subsidiary and protection recently, EQCs are keen to start building their competitive edge by investing more in human assets A survey of 30 EQCs pointed to significant improvements in the employee’s managerial skills and productivity compared to the pre-equitized period as a direct result of their investment in training (Vietnam Economic News, 26-4-1999) Following this positive development, more training activities are likely to occur in the future because of the dearth of skilled labour in these firms A conference on EQCs confirmed that many workers need refreshment training

to meet performance requirements (Vietnam Economic Times, 14-3-2002) In a different approach, LPCs still rely heavily on recruiting experienced employees to acquire their needed HRs While informal training is made available to the majority of the employees, formal training is only provided to a relatively small group of them (Pham, 2001) In addition, LPCs tend to be cost-sensitive in choosing the training options (Anh, 2000) Thus, we forward that

Hypothesis 3: In-house training activities in SOEs are conducted less extensively than in

FICs and EQCs, but more extensively than in LPCs; whereas, SOEs are most likely to outsource training activities

• Performance Appraisal

In his case study, Kamoche (2001: 640) observed that FICs conducted a more objective performance evaluation than SOEs In FICs, performance evaluation was adopted from parent companies (Pham, 2001: 43) It was only carried out regularly and based on predetermined criteria, in particular the achievement of targets (Kamoche, 2001) In another survey of 47 SOEs, Quang and Dung (1998: 97) found that 94 per cent of the companies claimed to have practiced performance appraisal in the form of dialogue between the employees and his/her superior in combination with self-evaluation Under the socialist principle of egalitarianism, performance assessment in the SOEs follows a political mechanism dependent on the agreeableness of the subordinate-manager relationship, which is attributable to the emphasis on social outcomes such as maintaining harmony in the relationship (Kamoche, 2001) In EQCs, the pressure for transparency is gaining ground gradually, in which performance appraisals are likely to be adopted more extensively On the contrary, LPCs pursue a more simple procedure in performance appraisal A survey of private companies reported that they used more informal than formal performance appraisals (Vo and

Dinh, 1997) for reasons of saving time and effort, convenience, and lack of expertise in the practice Based on this, we propose that

Hypothesis 4: Performance appraisal is utilized more in FICs and EQCs, but less in LPCs

than in SOEs

• Compensation and Benefits

As the general living standard in Vietnam is still low as compared with other countries in the region such as the Philippines and Thailand (Vietnam’s 2001 GDP per capita of US$395, the Philippines’ US$981, Thailand’s US$1907, World Bank, 2003b), a remuneration policy which is based on stable salary is reckoned an effective tool for companies to motivate their employees In principle, companies are required to pay the minimum wages and social insurances for employees Companies in different sectors are subject to different minimum wages, which also vary depending on geographical regions As for the benefits, a social insurance system has been officially launched as a requirement to secure a basic portion of the employee welfare For an employment of three months or longer, companies are required

by the Labour Code, which was issued in 1994 and amended in 2002, to sign labour contracts with employees and contribute 20 per cent of the employee’s wage to social insurance (employer 15 per cent and employee 5 per cent) The employer’s 5 per cent is for the prevention of sickness, maternity, labour accidents, and work-related health problems while the other 15 per cent is for unemployment and funeral expenses (TBKTVN, 27-3-2003) In addition, companies purchase health insurance for employees at 3 per cent of the salary on a shared basis (employer 2 per cent and employee 1 per cent) (TBKTVN, 16-12-2002)

Besides the legal obligations, companies exercise different discretions in rewarding employees In this respect, FICs and LPCs can formulate their own reward system at their discretion within the legal framework Nevertheless, while the rewarding systems in FICs follow the standardized reward systems, which are tantamount to their headquarters, local LPCs are still in their initial steps regarding compensation issues FICs offer more attractive pay packages which instigate the well-known syndrome of “brain drain” from local companies to FICs The systems also display their move toward an individualized approach, which attempts to link pay to individual merit (Kamoche, 2001)

Prior to the doi moi period, SOEs were offered little latitude in the compensation

practices which were strictly regulated by the State However, subsequent reform in the 1990’s brought substantial changes into the system by allowing SOEs, for the first time, to determine the pay levels according to their ability to pay (Zhu and Fahey, 1999) Nevertheless, despite its long existence, the remuneration system at SOEs is still heavily constrained by the egalitarian principle, which in effect limits the innovativeness in pay differentials as a means to motivate employees

On the other hand, as self-dependent business entities, EQCs still do not have the promised authority to decide on the compensation issues on their own More often than not, they are required to register their pay schemes at the DOLISA, Department of Finance, and Department of Enterprise Supervision (Quang, 2002) This may prevent them from introducing innovative aspects into the payment systems because they are still deep-rooted in the past legacy, as in the case of SOEs

Although LPCs are potentially flexible in financial terms (Atkinson, 1984) with respect to designing their reward systems, they are in practice more sensitive to the cost-saving

approach, which can be detrimental to the employees As revealed by a recent report, LPCs did not sign labour contracts with as many as 60 per cent of employees to avoid the social insurance contribution (Dau Tu, 2003) Hence,

Hypothesis 5: The inclusiveness of compensation and benefits in SOEs is less than, as equal

as, and more than that in FICs, EQCs, and LPCs respectively

2.4 Management’s Perception of HR Value and Adoption of HRM Practices

In general terms, 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 of its operation, the company is likely to adopt HRM practices to utilize the human capital to the full Empirical evidence in other countries (Lewin and Yang, 1992; Bae and Lawler, 2000) supports this analysis However, the relevance of this analysis remains an open question for the context of Vietnam Under the pressure of increasing competition, the criticality of HRs in business success has been underlined by companies in Vietnam (Quang and Thang, 2004) To be sure,

in the face of such a need for HRs, the companies are expected to take actions to improve their human capital Hence, we extend the hypothesis that

Hypothesis 6: The higher the value that management perceives human resources, the more

extensive the use of HRM practices is in those companies

2.5 HRM and Firm Performance

2.5.1 HRM-performance relationship in mainstream research

The central interest of mainstream research is whether HRM practices can authentically provide companies with a source of competitive advantage through generating better company performance Drawing on the resource-based view by Barney (1991), Wright and McMahan (1992) and Wright (2001) argued that, through examining the four criteria of value, rareness, immobility, and non-substitutability, HR can serve as a source of competitive advantage Almost in parallel, the concern that whether HRM practices, through its influence

on HR, can constitute a source of competitive advantage is a topic receiving opposing theoretical arguments For instance, Wright (2001) in his examination of HR and the resource-based view of the firm noted two divergent views One school of thoughts maintained that HRM practices cannot form the basis for sustainable competitive advantage,

because any individual HRM practices can be easily copied by competitors (Wright et al.,

1994) In contrast, the other view proposed that a firm’s HRM practices can provide a source

of sustainable competitive advantage because HRM systems (instead of individual practices) can be unique, casually ambiguous, and synergistic in how they enhance firm competencies, and thus could be inimitable (Lado and Wilson, 1994) The latter view seems to be well accepted within the current strategic HRM paradigm (Wright, 2001) From this perspective, Wright argued further that HRM practices can contribute to acquire, develop, utilize, and maintain HR of the firm, thus can be instrumental in creating the critical competitive edge

In the realm of empirical research, a review by Wright and Boswell (2002) provided a typology of HRM studies, which categorized four types of empirical research on the relationship between HRM practices and firm performance (Table 2.1) This resulted from the combination of two dimensions, namely, the number of practices and the level of analysis (Wright and Boswell, 2002)

These authors noted that the research examining systems of HRM practices at the

organizational level of analysis tends to include studies from the industrial relations and

strategic HRM fields Many studies fall into this category, and the number of studies focused

here seems to be growing exponentially In addition, the area of HRM research focusing on

single HRM practices and their impact on individuals is traditionally the domain of

industrial/organizational psychology A large volume of research has accumulated in this area

over the years Unlike the two previous areas, the two remaining areas of HRM research

exploring individual practices at the organizational level of analysis and multiple practices at

the individual level of analysis have lower volumes of research The former category is

exemplified by studies examining the relationship between recruiting/selection practices or

compensation practices and firm performance, while as the latter might be illustrated by

psychological contract research, particularly the one that focuses on how the system of HRM

practices influences individual perceptions of the psychological contract

Table 2.1: A Typology of HRM Research

Number of HRM Practices

Organization

Strategic HRM Industrial relations High Performance Work System

Isolated functions (e.g research aimed at demonstrating relationship between a particular functional area and firm performance)

Level of Analysis

Individual

Psychological contract Employment relationship

Traditional/Functional HRM

Industrial/Organizational Psychology

Source: Wright and Boswell, 2002, p.250

The sizable growth in the number of studies focusing on systems of HRM practices at the

organizational level of analysis is in part owing to the robustness of the argument concerning

the synergistic and complementary nature of HRM practices Macduffie (1995) argued that

bundles of complementary HRM practices, rather than individual practices, are the

appropriate unit of analysis for studying the linkage of HRM practices to performance,

because they create the multiple, mutually reinforcing conditions that support employee

motivation and skill acquisition Empirical evidence is also available to support this

argument For instance, Ichniowski et al (1997) found that bundles of HRM practices

increase the productivity, and the synergy among individual practices causes the greater

effects of these system variables than the effects of the full set of individual practices

Furthermore, groups of complementary HRM practices have large effects on productivity,

while changes in individual work practices have little or no effect at all on productivity

Following this fastest growing area of research, this dissertation reviewed the previous

empirical studies regarding this development trend In general, while scholars held common

interests in finding supporting evidences for the linkage, they differed remarkably in their

perspectives and approaches of how to investigate the relationship The differences ranged

from the bundling approach, the type of models, the composition of practices, and data

collection approaches, to results that were found These are the topics of detailed discussion

in the following section

• Bundling Approach: HRM System or Factor Analysis

Despite the ascendancy of the bundle approach, there still is room for differences among scholars in selecting how to bundle the HRM practices In the main, two approaches are widely seen in the literature, even though there remains limited theory specifying how HRM

practices should be grouped together (Ngo et at., 1998) One approach examines the total

HRM system by integrating HRM practices into a single index to measure the extent a

company utilize HRM practices (e.g Delery and Doty, 1996; Youndt et al., 1996; Bae et al., 1998; Bae and Lawler, 2000; Guthrie, 2001; and Guthrie et al., 2002), while the other

develops and empirically verifies key dimensions of a firm HRM system through methods

such as factor analysis (e.g Huselid, 1995; Wood and Albanese, 1995; Ngo et al., 1998; Ramsay et al., 2000; and Fey and Bjorkman, 2001)

In the selection of approach, authors reasoned that the need to identify the underlying dimensions of HRM practices, which are related to each other in certain ways, makes the use

of factor analysis more appropriate (Ngo et at., 1998; Fey and Bjorkman, 2001) This

approach is also advantageous in providing a more insightful picture of the structure of the aggregation of HRM practices rather than the black-box composite index

• Practices to be Included

Previous work was seriously lacking consensus with regard to precisely which HRM

practices should be included (Becker and Gerhart, 1996; Ferris et al., 1999: 391) This

becomes apparent with the review of ten articles in highly recognized scholarly journals published from as early as 1994 to as recently as 2002 The input HRM practices included in the studies of their impacts on organizational effectiveness vary significantly (Appendix A) There were as many as 66 variables across the ten studies, covering such areas as staffing, training, rewards and recognition, work system, communication, employee relations, performance appraisal, and others Only five showed up in majority of studies, including incentives/gainsharing/profit sharing, participation, formal training, promotion-from-within, and job rotation Thirty-six out of the sixty-six practices appeared in only one study Besides the diversity of practices used, scholars varied remarkably in the number of measures used, spreading from the low of 7 to the high of 27 The lack of consistency in the set of practices used prevents the comparability of prior work and the accumulation of knowledge

• Types of Model Structure

Other differences can be seen in how researchers established the linkage between HRM practices and organizational performance Generally, two structures of models can be found

in literature One of which, known as direct linkage, established a direct linkage between

HRM practices and firm performance (e.g Huselid, 1996; Guthrie et al., 2002) The other,

namely mediating linkage, added between HRM practices and firm performance mediating

constructs, e.g employee outcomes (Guest, 1997; Ramsay et al., 2000) in the hope to shed

more explanatory light on the direct linkage

Within the direct linkage structure, two prominent modelling variants in accordance with two theoretical perspectives of universalism and contingency have been explored The

universal perspective is in fact a one-size-fit-all logic It is held that greater use of specific HRM practices will always result in better (or worsen) organizational performance For example, conducting more valid performance appraisals or using more valid selection devices should always be better than using less valid measures Rather than a simple linear

relationship, the contingency perspective maintains that the relationship between HRM

practices and firm performance will differ for different levels of the critical contingency variable The contingent variable that is most widely examined is business strategy Drawing

on behavioural perspective and agency theory (Jensen and Meckling, 1976), scholars favouring contingency perspective argued that different strategies require respective unique sets of employee behaviours to get things done and that an organization can use HRM practices to shape employee behaviours effective in achieving its strategy One rare exception

is the investigation of country of origin as the contingency variable of the linkage (Ngo et al.,

1998)

A particular consensus shared among researchers adopting this line of direct-linkage research is the casual direction of association moves from practices through workforce to

performance (Ramsay et al., 2000) However, Guest (1997) and Ramsay et al (2000) noted

that there were a serious lack of theory and empirical effort to offer explanations of how and why this ‘black box’ link works Guest (1997) proposed a theoretical model in which employee outcomes were introduced as a mediating component to bridge the gap between HRM practices and firm performance Hitherto, the rare and most intensive endeavour to

examine this direction on the empirical basis is the work of Ramsay et al (2000) in which

three alternative models of high commitment management, high involvement management, and labour process were proposed and tested

• Data Collection Approaches

The sampling frames were defined differently across the previous studies Scholars tended to use firm size (in terms of employment) as a selection criterion It seems that previous research lacked consensus on how large a firm should be to qualify for selection At least 15,

50, 100 employees were three observed cut-off points (Fey and Bjorkman, 2001; Ngo et al.,

1998 and Bae and Lawler, 2000; Guthrie et al., 2002)

However, sampling procedures followed clearly seen patterns Sampling either focused

on a narrow setting of one industry with one group of employees or broadly covered across industries and a broad range of jobs but normally classified into two main groups of managerial and non-managerial employees The only study which made a deviation from this

pattern was that of Bae et al (1998), where a broad range of industries was covered but for

only nonsupervisory employees Another prominent pattern is that most studies derived their data from a single informant This may introduce potential common method bias – the tendency that respondents tend to relate the level of applying HRM practices to the performance of the companies correspondingly The only two studies that did not step on this

tread were those of Arthur (1994) and Youndt et al (1996)

On a whole, previous work was rather consistent in the methods for data collection Data were collected by surveying HR professionals or senior managers in all of the studies except

for Ichniowski et al (1997), in which standardized interviews were employed Most of the

studies used cross-sectional data The simultaneous collecting of data on HRM practices and organizational effectiveness may cause the potential problem of simultaneity; that is, causality between HRM practices and organizational effectiveness cannot be definitively determined It is certainly possible that firms experiencing higher organizational effectiveness

are better positioned to invest in greater level of HRM practices Only two (Huselid, 1995;

Youndt et al., 1996) attempted to overcome this problem by gathering data from two different

points of time Consequently, the results of the studies bearing this limitation must be interpreted under the light of their limitations

The final issue regarding data collection in previous studies is the magnitude of the sample size Studies varied considerably in the sample sizes, from the low of 30 (Arthur, 1994) to the high of 968 (Huselid, 1995) organizations The average sample size was 249 Median of the sample sizes was 138 In addition, the typical range of response rates was between 6 per cent and 28 per cent, with an average of 17.4 per cent in this kind of research

(Guthrie et al., 2002)

• Findings of Previous Studies

It is worth noting that a great variety of measures to gauge organizational effectiveness was used in previous studies These measures fall into two broad categories The first category consists of hard objective measures Consistent with the observation of Dyer and Reeves (1995), the current review also witnessed a similar set of variant measures including (1) human resource outcomes, (2) organizational outcomes (3) financial outcomes (4) stock-market performance The second category is perceptual measures of firm performance Though less desirable than the previous type, this type of measures was not only used by

Western scholars (e.g Delaney and Huselid, 1996; Youndt et al., 1996), but also widely used

in particular in a significant number of studies of the non-US settings (e.g Ngo et al., 1998; Bae and Lawler, 2000; Fey and Bjorkman, 2001; Guthrie et al., 2002) due to difficulties in

collecting reliable objective performance data

Given the diversity of methodologies used in previous studies, it should be expected that the findings in prior work are highly diverse (A summary of these researches is presented in Appendix B) However, the common feature across these outcomes is that the authors consistently found significant relationship between effective HRM practices and various indicators of organizational effectiveness The findings are synthesized by type of performance measures and type of model structure as described below:

∗ At the level of HR outcomes: a plenty of previous research found the impact on turnover Employee turnover was lower in steel minimills with commitment HR system (Arthur, 1994); negatively associated, across a wide range of US industries, with Huselid’s (1995) two High Performance Work Practice factors dubbed ‘employee motivation’ and

‘employee skills and organization structure’ The greater employee retention (in perceptual measure) was reported in Hong Kong firms with retention-oriented compensation and more

employee satisfaction with more structural training and development (Ngo et al., 1998); and

higher ability to retain quality employees in US firms with incentive compensation (Delaney and Huselid, 1996)

∗ At the level of organizational outcomes: a positive relationship of effective HRM practices with productivity, quality and service was found in various contexts Productivity was higher in steel mills with more commitment oriented HR system (Arthur, 1994), in US firms that applied more high performance work practices (HPWP) (Huselid, 1995), in US

steel finishing lines with innovative HR system (Ichniowski et al., 1997), in New Zealand firms with higher levels of high involvement HRM practices (Guthrie et al., 2002), in

worldwide auto assembly plants with innovative HRM practices (Macduffie, 1995), in US

metal-working plants with HR system focused on enhancing human capital (Youndt et al.,

1996, in perceptual measure) The last two contexts also provided higher quality; and more on-time delivery in the final setting In addition, quality and customer satisfaction were higher in US organizations which applied more incentive compensation (Delaney and Huselid, 1996, in perceptual measure)

∗ At the level of financial outcomes: previous research looked at the impact on return on equity (ROE) and return on asset (ROA) It was reported that ROE was marginally positively related to result-oriented appraisal and significantly related to profit sharing (Delery and Doty, 1996) In addition, ROA was positively associated with result-oriented appraisals, profit sharing, and employment security (Delery and Doty, 1996), and with employee motivation factor (Huselid, 1995) Furthermore, Hong Kong firms had higher sales when providing more structural training and development and reported greater profit with higher in

retention-oriented compensation (Ngo et al., 1998, in perceptual measure) Fey and Bjorkman

(2001) discovered that management development, managerial feedback, HRM-strategy alignment, employee development, and employee pay/organization were significantly related

to composite perceptual performance of market share, sales growth, profitability, and

product/service quality Finally, at the market-based outcomes, tobin’s q (market value of a

firm divided by replacement cost of its assets) was found to be positively associated with two HPWP factors in Huselid’s work (1995)

In addition to evidence supportive of the universal view, previous work has documented mixed evidence of the contingency view While Huselid (1995) and Bae and Lawler (2000) had ample evidence to support the ‘best practice’ view and little evidence supporting the fit argument, other authors argued for the complimentary role of the contingency view and provided increasing supports for it Arthur (1994) reported turnover moderates the relationship between HR system and performance Delery and Doty (1996) showed the links between organizational performance and performance appraisal, participation, and internal

career opportunities were contingent on strategy Youndt et al (1996) uncovered that an

administrative HR system interacted with cost strategy to predict equipment efficiency; with delivery flexibility to predict customer alignment while a quality strategy interacted with the human capital-enhancing HR system to predict customer alignment, employee productivity,

and equipment efficiency Guthrie et al (2002) provided evidence that for firm pursuing a

differentiation strategy, higher levels of high involvement HRM practices were associated with increasing level of productivity It is noticed that the most popular contingent variable examined in the contingency view was organizational strategy Sidestepping from this, Ngo

et al (1998) examined the influences of country origins on the relationship between HRM

practices and firm performance of multinational corporations and found that country of origin interacted HRM practices to predict firm performance, providing a new area of additional support for the contingency perspective

The ample evidence supportive of the direct relationship between HRM practices and organizational effectiveness has urged scholars in the field to advance the exploration into the mediating bridge To date, little light has been shed on our empirical knowledge of this area

As pioneers, Ramsay et al (2000) made a serious attempt to open the ‘black box’ of the

HRM and performance relationship by exploring the flow from HPWP, through intermediate employee outcomes, to organizational performance Three variants of HPWP including High Commitment Management (HCM), High Involvement Management (HIM), and Labour Process (LP) laid a foundation for three alternative models in explaining why and how the flow from HPWP to organizational performance occurs The HCM model puts an emphasis

on the spillover of HPWP to employee commitment both directly and indirectly through its influence over extrinsic satisfaction (satisfaction with pay), manager relation, and discretion, then via this to organizational performance The HIM version emphasizes the role of discretion given to employees by empowerment as the key to unlock the HPWP-performance linkage LP model stands that by giving more discretion (or added responsibility) HPWP will bring employees with work intensification, stress and job strain; and the last factor accounts for improved organizational performance

These three models were empirically tested using the large data from the 1998 national

survey of British workplaces (Workplace Employee Relations Survey) The results indicated

that although there were strong evidence supporting the direct relationship between HPWP and various measures of firm performance and employee outcomes in all the three models, little support was found for the explanatory power of the mediating employee outcomes in the three models Though limitations in the data set and the simplicity of the statistical models to capture reality were cited to explain the failure of the three models, given the largest, most reliable, and most current nature of the data set to date and the well-established and tested measured used in the models, the authors maintained that it is safe to conclude that what bridges the room between HRM practices and performance remains a fertile soil for both

theoretical and empirical research effort (Ramsay et al., 2000)

• Concluding Remarks

Theoretical and empirical studies provide reasonable level of support for the positive relationship between systems of HRM practices and various indicators of organizational effectiveness In the main, the evidence is supportive a direct relationship yet tends to be mixed in results regarding the effect of business strategies on the relationship In addition, although there is a growing volume of research of this kind in non-Western context, there is limited, if any, research in the context of developing countries These underline the opportunities to extend research into this yet to be exploited area

There is a methodological diversity in research examining the multiple HRM practices at the organizational level of performance One of the possible sources that were responsible for this variation is the influence of contextual factors This is illustrated by the use of different performance measures and the heterogeneity of practices included in the prior studies While financial data such as ROA and ROE are more available in Western countries, they are difficult to be obtained in other countries such as Korea (Bae and Lawler, 2000) and Russia (Fey and Bjorkman, 2001), making it more appropriate to use perceptual measure of firm performance An implication is the needs to tailor the methodology to the context

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

Remarkably, 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 HRM practices to group into dimensions that augment employee skills, motivate employee, and organize the workforce, but consolidated in two factors One factor is about compensation while the other

is a blend of development and organizational structure Another 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 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 only confirmed three factors including ‘development’,

‘feedback’, and ‘pay/organization’ This outcome created a clearly defined factor of

development (which was very similar but clearer than Ngo et al.’s, 1998) and a feedback

factor (which contained items on up-down communication), nevertheless, combined items related to payment and organization into a single factor

Consequently, 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 value

on the practices of HRM (Ngo et al., 1998) This emphasizes the need for identifying the

HRM dimensions in context As a result, 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 The process of identifying these dimensions is presented in Chapter 5 For the purpose of hypothesis development, the composition of the dimensions and the related theoretical analysis are discussed in the next section

2.5.2 Dimensions of HRM practices and organizational effectiveness

Given the background as reviewed above, our factor analysis for the sample of Vietnamese companies reveals five dimensions of HRM practices, namely information exchange, performance management, training and development, group orientation, and retention management (Table 2.2, p.28) The theoretical analysis of each dimension is given below

• Information Exchange

The first dimension of HRM practices includes six practices, which are mainly related to the exchange of information within the companies (Table 2.2) 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 the employees the 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 executing the decision because they have taken part in it Empirically, employees’ participation in decision making have been proven to have positive influence on employee productivity, motivation, and job satisfaction, albeit the impact is rather 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 in line with the company activities

On the other hand, the arrangement of attitude surveys and complaint resolution systems offer employees a channel to voice their ideas, opinions, suggestions, concerns, desires, grievances, or personal 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 the training demands for mutual benefits 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 make good decisions and implement them more

effectively, thus contributing to the company performance in the end Therefore, it would be

expected that

Hypothesis 7a: The utilization of information exchange within the company is positively

related to firm performance in Vietnam

Table 2.2: Rotated Factor Solution for HRM Practices (n=137)

1 Information Exchange (α = 0.828)

Interdepartmental communication .736 169 -.007 055 232

Participation in decision making .695 137 308 081 295

Job analysis for training demand .524 362 361 218 -.207

2 Performance Management (α = 0.785)

Result-emphasized performance appraisals 149 .809 121 091 117

Job analysis to set realistic job performance standard 217 .643 057 153 218

Performance vs seniority based promotion 488 .595 -.012 -.007 -.011

Company profit/sales in bonus 311 .575 157 -.096 151

3 Training and Development (α = 0.748)

Technical/professional training -.107 234 .808 -.004 160

Employees transfers used as developmental activities 479 132 .572 -.153 -.085

Assistance in career planning 380 016 .495 412 -.023

Retention-intended pay and bonus 070 261 197 242 .753

Industry-attractive pay level 308 217 -.001 -.239 .633

Non-entry jobs filled within the firms 397 250 -.089 212 .459

Cumulative Variance Explained 17.44 31.79 43.26 52.33 61.08

Note: bold type indicates the factor to which HRM practices best loaded

KMO = 0.800; Bartlett's Test of Sphericity: χ 2 = 1218.70, p-value = 0.000

• Performance Management

A variety of practices were used by companies in Vietnam to reward their employees’ efforts

in the job The application of result-emphasized performance appraisals will direct employees’ devotion into what is valued by the companies and provide objective criteria to

improve fairness in recognizing employees’ contributions

To begin with, the companies may conduct job analysis to set realistic job performance standard in order to compensate jobholders fairly (Werther and Davis, 1996) In this regard, 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 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 the company This practice, if used in par 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 the company Hence, the following hypothesis is proposed that

Hypothesis 7b: Companies exercising more performance-based management have higher

performance

• Training and Development

Companies in Vietnam utilized four HRM practices in association in their efforts to develop their HR Companies which invest in both technical and management training may likely 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 (Harey and Tzafrir, 1999; Delaney and Huselid, 1996) Indeed, training and development are particularly pertinent to companies, start-up or established alike, in Vietnam as an effective tool to fill the performance gaps, given the chronic shortage of skilled labour due to the failure of the country education system to meet the HR requirement of companies (Quang, 1997; Kamoche, 2001) As pointed out in a report, only about one third of the companies in operation were

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 allows employees to broaden their skills and avoid the boredom of work repetition (Herzberg, 2003)

Finally, providing employees with assistance in career planning, if done properly, will encourage employees to take accountability for their own personal development and at the same time direct these efforts in consistency 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 also has been shown that

manager’s support for career development explained significant variance in employees’

willingness to participate in development activities and developmental behaviours (Noe, 1996) Thus, we forward that

Hypothesis 7c: There is a positive association of training and development with firm

performance

• 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.,

1998) 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 (chu nghia binh quan) practice resulted from the 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 champion and guide other less senior persons in the group work arrangement Group work, if arranged properly, will stimulate members to pool together innovative ideas, solutions, and suggestions that can only come as a result of synergistic collective wisdom, and ultimately contribute to performance improvement As a result, it is hypothesized that

Hypothesis 7d: Companies focusing more on group orientation will achieve higher

identified as salient ingredients of HRM practices in other Asian research (Ngo et al., 1998)

Firstly, a policy of pay and bonus that intends to promote retention will likely help tie the employees voluntarily to the company since the general standard of living in Vietnam is still low The reported GNI per capita in 2000 was a mere US$ 390 or US$ 2000 in PPP equivalent in comparison with US$ 2,000 (US$ 6,320 in PPP) of Thailand and US$ 3,380 (US$ 8,330 in PPP) of Malaysia (World Bank, 2002: 20) In fact, monetary reward is found

to positively relate with employee job satisfaction in Vietnam (Hung et al., 1999)

Secondly, 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 from the company 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 the 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-type rewards from the promotion (Pfeffer, 1999) On this basis, we propose that

Hypothesis 7e: Higher firm performance is found in companies emphasizing more on

retention management

2.5.3 Interacting effect of business strategies

Finding an optimal “one best way” of organization and management was once the goal of many classical schools of thoughts, notably the scientific management by Frederick Taylor in

1911, and theory of bureaucracy of Max Weber in 1922 (Scott, 1981) This approach gradually came under attack by an increasing number of researches especially after the World War II One of the countering empirical studies was Woodward’s (1965) research of 203 firms in England in the 1950s in which three basic production technologies were shown to strongly correlate with a corresponding number of organization structures This discovery suggested that the notion of one best way to organize did not seem to be relevant; instead, there was at least a best way for each class of production technology (Groth, 1999)

This research stream was soon complemented by other studies, which focused on the impact of size, age, product diversification, the degree of stability of the environment, and cultural factors, etc (Groth, 1999) To name this body of theory, Lawrence and Lorsch (1967) coined the term “contingency theory” and also argued that the amount of uncertainty and rate of change in an environment impacts the development of internal features in organizations According to Scott (1981), contingency theory is “guided by the general orienting hypothesis that organizations whose internal features best match the demands of their environments will achieve the best adaptation”

In an effort to propose a “general contingency theory of management”, Luthans and Stewart (1977) clarified the definitional confusion about the difference between a situational/“it all depends” approach and a contingency approach which, according to the authors, deals with functional relationship between performance criteria, situational, and management variables One of the studies that elaborate this point was Mealiea and Lee’s (1979) which integrated macro dimension of contingency theories (looking at the relationship between size, technology, environment and structure) and micro dimension of contingency theories (examining the interaction between structure and employee behaviour) They argued that only when congruence exists on both the macro level (size, technology, environment ↔ structure) and the micro level (structure ↔ employee behaviour) the organization is expected

to perform at desired levels

In the realm of HRM, in an intensive review, Jackson and Schuler (1999) argued that understanding HRM required the consideration of the internal and external contexts of the organizations and further suggested that the relationship between HRM and firm performance might be contingent on both organizational and environmental factors The organizational factors included technology, organization structure, organization size, life cycle stage, and business strategy On the other hand, the environment contingencies consisted of legal, social, and political environment, unionization, labour market conditions, industry characteristics, and national culture