Impacts of human resource management practices on firms’ performance the case of machicon

Lunghwa Universityof Scienceand Technology Department of Business Administration Thesis for a Master’s Degree Impacts of human resource management practices on firms’ performance: The

Lunghwa Universityof Scienceand Technology Department of Business Administration

Thesis for a Master’s Degree

Impacts of human resource management

practices on firms’ performance:

The case of MACHICON

Researcher: Le Thu Huong

Supervisor 1: Assoc Prof Dr Chu, Chih-Chung

Supervisor 2: Dr Mai Anh

November 2018

Lunghwa University of Science and Technology

Approval Certificate of Master's Degrcee Examination Board

This is to certify that the Master’s Degree Examinations Board has approved the thesis Impacts of human resource management practices on firms’ performance: The case of Machicon.,JSC published by Ms Le Thu Huong in the Master Program of Graduate School of Department of Business Administration

Master’s Degree Examination Board

Board Members: Prof, PhD Tsan Eric

Dr Nguyen Phu Hung

Dr Nguyen Thi Hong Hanh

Advisors：Assoc Prof Dr Chu, Chih - Chung

Dr Mai Anh

Chair：Prof, PhD Tsan Eric

Date： 23/11/2018

ABSTRACT

Thesis title: Impacts of human resource management practices on firms’ performance: The case of MACHICON

Pages: 67 University：Lunghwa University of Science and Technology

Graduate School：Department of Business Administration

Researcher: Le Thu Huong Advisors: Dr Mai Anh

Assoc Prof Dr Chu, Chih-Chung

Keywords: Human resource, Human resource management, firm’s performance, MACHICON

Rationale

Human resource management (HRM) is the most important function of managing

an enterprise Reforming HRM to improve enterprises’ performance and efficiency has been a practical requirement especially for state-owned companies which have equitized This study arises from the need to manage the HR of the Vietnamese firms more effectively, especially at the state companies after their equtisation process MACHICON is a joint stock company, which has been owned 51 percent of the capital

by the Vietnamese government Investigating the impacts of HRM on the firm’s performance is especially important to the MACHICON With special ownership characteristics of combining state and private owners, the HRM in the company has influenced by both the traditional and modern methods of personal management It is critical for this company to reform its HRM toward market rules Moreover, the changes

in HRM of MACHICON is also able to reflect the common trend of HRM in Vietnam

as the company has been transforming in to a joint stock company since 2008 Examining HRM practices in this company might provide a view of HRM practices changed toward adapting marker rules in Vietnam

Research objectives

The aims of this thesis are to examine the theoretical background of the HRM and its linkages to improve firms’ performance and to investigate how HRM practices in MACHICON influence the company’s efficiency These findings from theoretical and empirical aspects will be used to provide suggestions for the Machicon to improve their HRM strategy toward improving the company’s performance

To obtain these aims, the research will address three research questions:

1) What are HRM practices in MACHICON?

2) What are solutions to reforming the HRM practices in order to improve the company’s performance?

To answer these research questions, the thesis will have the following targets:

- To make clear about the theoretical background of HRM, firm’s performance, and the linkages between these two issues, especially for enterprises in a transitional economy

- To analyze and to identify the current model of HRM practices in MACHICON

- To analyses the company’s performance

- To investigate influences of the current model of HRM practices on the company’s performance

- To provide practical implications for HRM practices to improve the company’s performance

Scope of the research

The research focuses on the model of HRM practices and performance of the MACHICON since 2008 when the company started transforming into a joint stock company

Research methodology

This research employs qualitative research method via 36 face-to-face in-depth interviews with employees and managers in MACHICON

Research findings and contributions

The research has found that for MACHICON, the human resource management system is strongly influenced by the traditional management of personnel; there is a need for reforming its human resource system to help the company improve performance

The research findings have contributed to reforming the company’s HRM practices and then to improving the company’s performance Furthermore, this study has

contributed to enrich knowledge about HRM and firm’s performance in Vietnamese

enterprises under their transitional context

ACKNOWLEDGEMENT

First and foremost, I would like to thank lecturers at International School, Vietnam National University, Hanoi and Lunghwa University of Science and Technology, Taiwan Their lectures has helped me to develop my knowledge and research skill to complete this thesis

My special thanks go to managers and employees working at MACHICON for their time and help to participate in interviews in my research Their contributions to this study are countless

I also would like to express my profound gratitude to Dr Mai Anh and Assoc Prof Chu Chih-Chung, my supervisors for their generous guidance and time They have helped me gradually to develop my research skill and inspired me to do my best at every stage of the process I could not complete this study without their enthusiastic supervision and unconditional support

My warm thanks are to my classmate for sharing happiness and difficulties with me

in the memorable EMBA course

Lastly, I am especially indebted to my parents and parents-in law, and my siblings, who always provided unconditional support to me throughout my EMBA course I especially want to extend my greatest thanks to my beloved husband, and my children I could not complete this thesis without their presence, love, and inspiration

Thank you!

Author

Le Thu Huong

TABLE OF CONTENTS

ABSTRACT i

ACKNOWLEDGEMENT iii

TABLE OF CONTENTS iv

LIST OF TABLES vi

LIST OF FIGURES AND GRAPH vii

ACRONYMS viii

1 INTRODUCTION 1

1.1 Rationale 1

1.2 Research objectives 2

1.3 Scope of the research 2

1.4 Research methods 3

1.5 Structure of thesis 3

2 LITURATURE REVIEW 4

2.1 Introduction 4

2.2 Human resource mangement 4

2.2.1 Definitions 4

2.2.2 Functions of human resource management 6

2.3 Firm’s performance 10

2.4 A review of empirical research on the relationship between HRM and firm’s performance 11

2.5 Characteristics of HRM in Vietnam 13

2.5.1 Human resource management in Vietnam before 1986 14

2.5.2 Human resource management in Vietnam since Doi Moi 1986 15

2.6 Introduction to machicon company and its human resoure management system 18 2.6.1 Introduction to Machicon 18

2.6.2 The company’s management structure and human resources 22

3 RESEARCH METHODOLOGY 28

3.1 Research method 28

3.2 Data collection 28

3.2.1 Data sources 28

3.2.2 Interviewees 29

3.2.3 Interview questions 32

3.3 Data analysis 33

3.4 Reliability and accuracy of data source 33

4 RESEARCH FINDINGS AND ANALYSIS 35

4.1 Impacts of HRM on the company’s performance 35

4.1.1 The company’s human resource management practices 35

4.1.2 Impacts of human resource management on the company’s performance 41

4.2 Impacts of other factors on the company’s performance 43

4.2.1 Impacts of organizational culture 43

4.2.2 Impacts of trust in leadership 44

4.3 Solutions for human resources management to increase the company’s performance 45

4.3.1 Objectives and development strategy of the company 45

4.3.2 HRM solutions to improve the company’s performance 46

5 CONCLUSION 51

5.1 Synthesis of the study 51

5.2 Contributions of the study 52

5.3 Research limitation and suggestions for further research 52

REFERENCES 53

APPENDIX 56

LIST OF TABLES

Table 1 Characteristics of traditional personnel management 15

Table 3 The Company’s business outcomes 2015, 2016, 2017 20 Table 4 The Company’s planned business outcomes from 2015 to 2019 20 Table 5 MACHICON’s labor force statistical report 2017 24 Table 6 Statistical summary of direct employees by skill levels 24 Table 7 Statistical details of direct employees by skill levels 24 Table 8 Statistical summary of indirect employees by qualification levels 26

Table 10 Human resource development plans until 2020 27 Table 11 Changes of the Company HR and its operation business outcomes 27

Table 13 HRM practices and the company’s performance 42

LIST OF FIGURES AND GRAPH

Figure 6 Evaluate the effectiveness of the recruitment of the company 37

ACRONYMS

1 INTRODUCTION

1.1 Rationale

Human resource is one of the most important inputs that directly affect firms’ performance Human resource management (HRM) is a vital function of the business management that deals with personnel issues in an organization HRM policies and practices strongly influence working environment, individual and firm performance, and then the success of every enterprise Under the economic view, HRM is a process combining management activities toward employees in order to employ efficiently their capacity and working potentials to improve productivity and firm competition capacity Under the social view, HRM presents a focus on the values of labor paid by the companies through their compensation and welfare packages Therefore, HRM usually

is considered as a core of an organization management

This study arises from the need to manage the HR of the Vietnamese firms more effectively, especially at the state companies after their equtisation process The quick development of the market system in Vietnam since Doi Moi occurred has increased in environmental variability and degree of competition that all enterprises need to consider their efficiency to exist in the markets Especially, the increases in labor turnover and costs of employee replacement have forced firms to pay more attention on their HRM practices

MACHICON is a joint stock company, which has been owned 51 percent of the capital by the Vietnamese government It was a state company and established in 1984 After one fourth of the development process, the company was equitised in 2008 to become a joint stock company As a state company transformed into a joint stock company, its management is still strongly influenced by the traditional management style as under the central planned economy To adapt with the new market environment and to meet requirement of private owners joining to manage the firm since its equitisation, the company has tried to reform its management, especially HRM The main purpose of this transformation is to improve the firm performance Investigating the impacts of HRM on the firm’s performance is especially important to the MACHICON With special ownership characteristics of combining state and private owners, the HRM in the company has influenced by both the traditional and modern

methods of personal management It is critical for this company to reform its HRM toward market rules Moreover, the changes in HRM of MACHICON is also able to reflect the common trend of HRM in Vietnam as the company has been transforming in

to a joint stock company since 2008 Examining HRM practices in this company might provide a view of HRM practices changed toward adapting marker rules in Vietnam

1.2 Research objectives

The aims of this thesis are to examine the theoretical background of the HRM and its linkages to improve firms’ performance and to investigate how HRM practices in MACHICON influence the company’s efficiency These findings from theoretical and empirical aspects will be used to provide suggestions for the Machicon to improve their HRM strategy toward improving the company’s performance

To obtain these aims, the research will address three research questions:

1) What are HRM practices in MACHICON?

2) What are solutions to reforming the HRM practices in order to improve the company’s performance?

To answer these research questions, the thesis will have the following targets:

- To make clear about the theoretical background of HRM, firm’s performance, and the linkages between these two issues, especially for enterprises in a transitional economy

- To analyze and to identify the current model of HRM practices in MACHICON

- To analyses the company’s performance

- To investigate influences of the current model of HRM practices on the company’s performance

- To provide practical implications for HRM practices to improve the company’s performance

1.3 Scope of the research

The research focuses on the model of HRM practices and performance of the MACHICON since 2008 when the company started transforming into a joint stock company

1.4 Research methods

This thesis employs qualitative research method to investigate the research questions This is a suitable research method to investigate opinions, attitudes and feelings of people In this study, this method helps to investigates insights of the relationships between HRM practices and the case study company by using both primary data from in-depth interviews and secondary data such as government documents, company’s reports, or related research has been conducted Through these data sources, the research topic has been broadly and deeply examined

The author uses thematic analysis to analyze the collected data with the help of Nvivo software to keep and classify and synthesis the data sources

1.5 Structure of thesis

To achieve the research objectives, this thesis is structured as follows:

Chapter 1: Introduction This chapter firstly presents reasons for choosing the research topic, then the research aims, research questions, scope of the research

Chapter 2: Literature review This chapter present theoretical background of HRM and relationships between HRM and firm’s performance Characteristics of Vietnamese HRM practices has been also presented in this chapter in order to help the readers understanding the research context

Chapter 3: Research methodology This chapter introduces the research methods employ to investigate the research questions Qualitative research approach, in-depth interviews and data analysis methods are presented in detail in the chapter

Chapter 4: Research findings and analysis

Chapter 5: Conclusion

2 LITURATURE REVIEW

2.1 Introduction

The aim of this chapter is to provide an overview of HRM theoretically and practically in Vietnam context It analyses of the concept of HRM and the underpinning HRM theories Reviews of previous research on relationships between HRM practices and firm’s performance have been also presented These reviews provide suggestions to investigate the similar relationships in the MACHICON

2.2 Human resource mangement

2.2.1 Definitions

Human resource

There are different views of human resource Broadly, human resource is the human resources of a country, a territory This is one of the basic input resources that can be mobilized and managed in order to contribute to that nation’s socio-economic development Another view sees human resource is labor force or social labor force; is a part of the working-age population who have capacity to work (Nguyen 2010)

To an enterprise, human resource is all employees with their experiences, skills, training and dedication to participate in the various activities of the enterprise, to create added value and to increase its competitive power (Boxall et al 2007; Nguyen 2010)

To an economy, human resource is the basic resource to create motivation for economic development Through using human resources, other resources such as capital resource, science and technology can be used and demonstrated their functions To an organization, human resource is a major factor affecting the performance All the activities of the organization can only be effective if the employees are trained, used, managed, and developed well Therefore, organizations want to develop well, it is vital

to well understand and effectively use the human resources

Human resource management (HRM)

HRM involves in the application of policies and practices in designing and developing an organization It includes human resource development, compensation, and provision of welfare services for employees The contents of HRM are based on

human resources strategies that are interrelationships and aligned with the business strategy HRM can be viewed as a philosophy of how to manage workers on the basis of

a number of theoretical and organizational theories HRM concerns with both the enhancement of organizational effectiveness through the human person, and the ethical aspect - how people are treated according to moral values (Armstrong & Taylor 2014) Frederick Taylor, known as the father of management science, played an important role in the development of personnel management in the early 1900s His theory on HRM mainly focuses on optimizing efficiency in the production environment Taylor advocates the choice of "science" and worker training, and is a pioneer in building incentive systems that reward workers to achieve and / or exceed performance standards His principles laid the foundation for working on HRM in the future However, in the 1920s and the 1930s, the second industrial revolution deeply affected the entire economy in advanced industrialization countries Under these effects, workers face the risk of unemployment due to the replacement of machinery and automation Since then, the social welfare for workers has been got attention of both academia and practice

In the 20th century, the United States saw a boom in the number of union members between 1935 and 1950, which led to a greater emphasis on bargaining and collective bargaining in personnel management Managing human resources have opened up to the scope of labor relations, collective bargaining, and a more complex labor relations environment Philosophies of human relations and labor relations were the main concerns of personnel management in the 1940s and the 1950s

In the 1980s, human resource management has a conceptual framework that includes management philosophies based on a number of theories of behavioral sciences, strategic management, human capital, and labor relations Concerns and concepts of HRM are integrated into the company's general strategic plans to cope with rapid change, fierce competition, and pressure for increasing efficiency However, managing human resource in this period was mainly personnel management

Human Resource Management (HRM) is a comprehensive and coherent approach

to human recruitment and development today (Armstrong & Taylor 2014) It includes human resource strategy, human capital management, knowledge management, social responsibility of enterprises, organizational development, and human resources

(recruitment planning, recruitment and talent management), study and development, compensation and reward, labor relations, welfare and providing services to employees The concept of human resource management given by Watson (2010: 919) is more comprehensive According to this author, HRM is management of efforts, knowledge, competence and commitment that people contribute to a business as part of their exchange (or temporary contract) to carry out tasks These contributions help the enterprises continuing to develop in the future

The purposes of human resource management are to:

● Assist the organization to achieve the goals set by developing and implementing personnel strategies integrated with the business strategy

● Contribute to the development of a cultural environment with high productivity

● Ensure that the organization has talented, skilled and committed workforce

● Establish a positive working relationship between management and employees and the working environment of mutual trust

Encourage the application of ethical approach to human management

2.2.2 Functions of human resource management

Human resource management directly affects employees’ performance if it encourages flexibility, skill development, and working opportunities to employees Hence, the functions of human resource management are to develop human resources that reflect the worker's interest in the necessary skills, motivation and quality of their works

The main functions of human resource management include human resources planning, recruitment, training, salary and benefits, job evaluation, management and employment

Human resources planning

Human resource planning is the process of developing human resource strategies and establishing programs or strategies to implement them This process is to meet the organization's objectives and to develop work plans Human resource planning is the identification of demand and supply for human resource that is to find solutions for balancing these relationships (Nguyen & Nguyen 2010)

Human resource planning strongly influences perfection of an organization It plays

a central role in management of human resource strategy Process of human resource

planning in enterprise should be done in a close relation with process of planning and implementing business strategies and policies Normally, the planning process includes several steps such as environmental analysis, human resource status; demand forecasts and supply-demand balance (Analysis of demand and supply relationships), the ability

to adjust, and the development of policies, plans and programs to help businesses adapt

to new demands Improving effectiveness human resource planning requires evaluation

of the human resource plans This evaluation is important for each organization to successfully complete their work goals (Nguyen & Nguyen 2010)

Recruitment

Recruiting is the process of finding, attracting and recruiting the qualified staff to fill the vacancies in an organization From the above understanding, it can be seen that recruitment has a great influence on other activities within the organization, through recruiting to build the quality and quantity of human resources needed by the organization, so the hiring process should be carefully demonstrated

Recruitment has a great influence on other functions of human resource management such as assessment of work performance, salary, training and development

of human resources, labor relations In practice, bad recruitment will result in financial losses (hiring costs, salaries, etc.), wasting time (recruiting, training, mentoring), and causing internal conflicts

To recruit effectively, organizations need to develop recruitment strategies through specific recruitment policies such as Needs identification; Planning (identifying sources and methods, locations and time, funding and specific standards); Assessment of the recruitment process; Guiding new employees to integrate Preparations such as job analysis should be clear and accurate with specific recruitment information, details It is also necessary to use testing tools and absolute objectives in the recruitment process to increase the effectiveness of recruitment

Training

Training is an activity that maintains and enhances the organization's quality of HR

It helps the organization moving forward and developing in a competitive environment Training includes learning activities that enable employees to perform their functions and tasks more effectively The learning process makes workers understand their works

as well as improve their skills (Nguyen & Nguyen 2010) At the present, most organizations are interested in and focus on the training of employees to improve the

working efficiency The role of training not only focuses on equipping or enhancing knowledge and skills for employees, but also enables employees to share their perceptions, views and training links with the organization's goals

The training process is conducted through the following steps: Training needs analysis (organization level, tasks and individuals); Define training objectives; Planning and conducting training (selection of subjects, selection of programs, contents, training methods, cost estimates ); Evaluating training results In practice, these steps are carried out simultaneously, supported and linked These strong interrelations of the training steps make training of the organization is successfully

Compensation and benefits

Salaries are fixed and regular amounts paid to workers for a unit of working time The incentive system is non-wage compensation to pay for employees doing good work such as commissions, bonuses, dividing productivity and distributing profits (Nguyen & Nguyen 2010)

Other types of benefits are indirect remunerations such as insurance; pension; payments for holidays / Lunar New Year holidays; entertainment; accommodation; transportation and other benefits associated with working relationships or membership

in the organization In addition to the above, the remunerations also include financial factors such as job content suitability and good working environment

non-In practice, remuneration generally has a great influence on job choice, employee performance, and organizational performance The basic objective of the labor remuneration is to attract good workers, in line with the organization's work requirements It is vital to be carefully considered some following issues when set up a remuneration system First, remuneration system must be legal (complying with the regulations of the state such as minimum wage, overtime payment, ) Second, compensation package should be sufficient (enough to attract qualified human resources

to work for the organization) to encourage employees and to create their motivation for accomplishing highly effective work Third, compensation system must be equitable because if the remuneration system is unfair, labor motivations are eliminated Equity here is considered in two respects of internal and external equity Fourth, compensation system is assurance that makes employees feel their monthly income is guaranteed and predictable Finally, the compensation management system is effective and must have financial resources to support the system to be implemented in the long term

To develop remuneration policy, organizations should pay attention to the factors that affect the employees’ remuneration such as factors of the external environment; the elements of the organization; factors of work; factors belong to individual workers

Job evaluation

Job evaluation is the process of providing information about the performance of an employee during completing a given job Results of the performance assessment allow clarifying both level of job completion of individuals and units, and reasons for completing or not fulfilling the tasks and expectations of the staff This will serve as a basis for developing work plans and individual employee development plans in the following business cycle (Le 2008)

Establishing a fair, unbiased and accurate job evaluation system is an important element of human resource development, especially in building a transparent HRM that creates a good working environment Having a good job evaluation system contributes

to attract and to retain talents, is an accurate basis to pay salaries, bonuses

To be successful, job assessment criteria must be carefully designed and implemented By doing so, the organization must develop a detailed and descriptive system for job descriptions When building an assessment system, organizations should base on standards such as suitability, sensitivity, reliability, applicability, and practicality The condition for a successful evaluation program is that Some methods used when constructing a rating system are job ranking; classify; grading; compare factors Each method has certain advantages and disadvantages In fact, many organizations need to use more than one methodology to build an effective assessment system To implement this system, it requires co-operation between managers and the employees

Managing and staffing

Managing and staffing include many activities in the HRM but this study pays more attention on HR relations regarding to personal relations, HR communication and health and safety issues for workers These are core issues to help managing human resource in

an organization

HR relations include human resource management activities having a great impact

on the overall labor relations in the organization They affect attitudes, behaviors and interests of employees that managers need to understand Clear, appropriate, consistent and equal discipline will help employees to be more disciplined, productive, and

positive attitudes and behaviors For punishment, forcing to leave is the most severe punishment hurting employees and affecting their family life so the management needs

to carefully consider when using it Promoting is a positive activity for encouraging employees, but it is also important to consider carefully because the decision to promote

a person may influences entire the organization Transmission refers to transferring someone from one department to another This activity might base on the needs of the organization and may be due to personal preferences However, management needs to consider every detail to ensure that the transfer will bring changes that are more positive for both individual workers and the organization

Human resource communication is all communication between the people in the organization in order to reach harmony and understanding In terms of HRM, HR communication not only informs, it also engages employees so they’re prepared to take action to help the organization achieving its goals in an effective way To do that, managers need to master organizational behavioral theories, motivational motivations, and employee relations theory in management

Finally, managing HR needs to pay attention to health and safety issues for workers This can be considered as a workplace condition, which is a collection of environmental factors such as hygiene, psycho-physiological, social and aesthetic affecting the human body and the ability of employees to work This is so important that the Labor Code has a number of mandatory requirements for organizations such as occupational safety, occupational health, occupational disease, etc Organizations are required to comply with the regulations At the same time, there are plans to implement health and safety for workers in a concrete and effective way

In summary, HR management and staffing play a very important role in firm management in general and HRM in particular Proper placement of the right person and proper handling of all labor relations situations have positive influences on the entire organization’s performance Therefore, managers need to know rules and procedures of these activities to creating a common success for the organization

2.3 Firm’s performance

By Nash's definition (1983), the word 'performance' means the execution and completion Effective performance means performing a goal or task effectively Performance is the fulfillment of a task

Venkatraman and Ramanujam (1986) state that firm performance reflects perspective of strategic management and is a part of the concept of organizational performance It can be measured through market share, new product launch, product quality, marketing performance, increased value in the manufacturing process, and other performance measures Technology in the concept of firm performance alongside with a simple concept of financial indicators Accordingly, Dreher and Dougherty, (2005) used two different dimensions to measure performance of a company: financial performance and non-financial performance Financial performance includes profits, sales and market share Non-financial performance include employee productivity, product quality, employee performance, attitudes and behaviors such as responsibility, intent to relocate, and level of satisfaction labor However, the analysis of firm performance through financial efficiency in developing countries faces many difficulties and causes very scattered, even conflicting results (Hoskisson et al 2000) This is due to the lack of information on the financial statements of the companies, or the truthfulness of the financial statements is quite common In these countries, there is a lack of legal and regulatory frameworks and the rigorous implementation of transparent financial reporting These causes have made difficult and inaccurate to analyze the firm performance via financial indicators in developing countries (Hoskisson et al 2000) Many researchers argue that firm performance is based on non-financial indicators that are more effective and reliable than on financial indicators This factor includes labor productivity (Chang & Chen 2002, Huselid 1995; Kato 2006); the quality of products and services (MacDuffie 1995); job satisfaction (Bjo¨rkman et al 2007); the intention of leaving a job (Batt 2002); evade work (Carraher & Buckley 2008); trust in management (Cascio 2018); and responsibility for work (Tsai 2006)

Based on previous studies on firm performance, together with difficulties in accessing information about financial results of the case study company, this study will assess firm performance in terms of non-financial performance includes: productivity; the level employee of satisfaction with the work; employee responsibility for the work

2.4 A review of empirical research on the relationship between HRM and firm’s performance

Number empirical studies have been conducted to explore relationships between HRM and firm performance Research by Ahmad and Schroeder (2003) attempts to

extend the effectiveness of human resource management functions studied by Pfeffer (1998) in terms of a country and industry This study focuses only on impacts of HRM

on firm’s operational performance The seven activities of human resource management include job security, selection, group use and decentralization, salary and benefits based

on performance, extended training, state, and share information Performance considered in Pfeffer's (1998) study is in relations to cost, quality, product distribution, flexibility, and organizational responsibility The research generally confirms an exist of the relationship between human resource management and the firm performance

In 2002, Chang and Chen (2002) conducted a comprehensive study to assess the relationship between human resource management and the performance of Taiwan's high-tech companies in the Hsinchu Industrial Park They found the activities of human resource management such as training and development, teamwork, welfare, staffing plans and performance evaluations that affect employee productivity in the workplace

In addition, welfare and personnel planning have negative effects on the number of employees quitting job Corbett and Harrison (1992) in a study of employee engagement and productivity in New Zealand and Australia have identified workforce-related programs that strongly promote quality progress This study indicates that communication within an organization can help sustain accomplishments In addition, a well-trained workforce will help companies gain market share because they can produce high quality products that meet the needs of their customers

Huselid et al (1997) studied the effect of human resource management on the performance of 293 US firms They clarify human resource management into two groups The first one is effective human resource management that includes wages and benefits, recruitment and training, labor relations, selective tests to evaluate works and attitudes of employees The second group is strategic human resource management including teamwork, employee engagement and employee empowerment, communication between management and staff, developing management capacity This study’s findings show that there is a consensus between effective management strategy and firm performance, but the effectiveness of technical management is not related to the performance

Sang (2005) studies impacts of human resource management on firm performance (including production efficiency and firm performance) of firms in Cambodia and Taiwan This author selects nine aspects of human resource management: human

resource planning, recruitment, incentives, evaluation, training, teamwork, employee engagement, and job rankings and job security) to explore their relationships with perceptions of firm performance (including financial performance and non-financial performance)

Cutcher-Gershenfeld (1991) studies effects of different types of labor relations on firm performance in 25 different work areas which have unions The author points out three main types of labor relations: tradition, transforming, and completed transformation The traditional form reflects a management style with emergence of high frequency disputes and slow-paced solutions, less effort to address informal complaints, less problem-solving efforts, and less information sharing and employee autonomy The pattern of completed transformation in labor relations is strongly expressed in problem solving, worker autonomy, information sharing, and conflict resolution The form of industrial relations undergoing transformation is characterized

by the mixing of traditional and completed transformation forms Research by Gershenfeld (1991) indicates that traditional forms of labor relations have a high cost because there many working hours lost due to the unsolved disputes, and labor productivity variations are much higher than this of the other two types

Cutcher-These empirical studies suggest that studying relationships between human resource management and firm performance has been interested by both academia and practices However, most studies are conducted in developed countries and some others

in developing countries These issues have studied in Vietnam are still limited Vietnam's economic and political characteristics are relatively typical: this is a socialist country, and the economy is in the process of transition from central planning to an orientated socialist market economy Given these unique characteristics, it requires studies on relationships between human resource management and firm performance in the unique context of Vietnam

2.5 Characteristics of HRM in Vietnam

Human resource management in Vietnam is deeply influenced by economic reform process at the macro level Before Doi Moi started in 1986, the economy fully operated under a centralized and subsidized management mechanism The state controlled and managed all economic activities from production to distribution and organization of personnel Under the centralized mechanism, there was no market exists; Enterprises are

only the government’s tools that did not have authorities to decide on their own production and human resources After Doi Moi, the economy has gradually shifted to market economy, state-owned enterprises gradually become autonomy These changes have had a huge impact on human resource management in enterprises Due to this context of transforming process, human resource management in Vietnam has different perspectives in the two periods: before and after the reform In this chapter, the thesis will clarify the characteristics of human resource management in enterprises in Vietnam before and after the economic reform

2.5.1 Human resource management in Vietnam before 1986

Before Doi Moi, Vietnam economic model was similar to the model created by the former Soviet Union Accordingly, the economy was under a centralized and planned state management State plans were the highest authority that decides the allocation of resources across the country Production strategies and plans for the entire country were determined by the state administrative orders During this period, workers in state-owned enterprises enjoyed a lifetime employment This is a typical example of traditional human resource management in former socialist countries Accordingly, when an employee is employed by the state, he or she will work until retirement regardless of their performance, and it is very difficult for enterprises to be laid them off Characteristics and dominance of human resource management in this period are strictly to obey state policies and plans Employees are employed and paid directly by the state There is no concept of labor market, Accordingly, all workers have jobs, no unemployment (Collins 2009)

In addition, the organizational and managerial structure followed a top-down administrative order that led all managers at enterprises level have no opportunity to practice their leadership skill The responsibility of managers under this management mechanism is just to follow orders from the superiors A study by Quang & Vuong (2002) on labor relations in Vietnam during the transition reveals characteristics of management under the centralized and planned economy as shown in Table 1 below Management of human resource before Doi Moi was inefficiency Labor productivity in the state-owned enterprises were low, the state often had to compensate for these enterprises In 1986, the Vietnam’s economy was in a very difficult situation,

in addition to the collapse of the socialist bloc led by the Soviet Union The

disadvantages of the socialist countries caused a dramatically reduce in aid resources to the country Consequently, the state budget could not be enough to subsidize enterprises and to pay employees’ compensation Thus, the sixth National Congress of the Vietnamese communist party in 1986 officially announced that Vietnam started to build

a socialist-oriented market economy (Dao 2000) Since 1987, new personnel management practices under labor contracts have begun to implement for state-owned enterprises and employees’ wages have also separated from the government budget The economic renovation in 1986 marked a turning point in the economic management at macro level in general and management of state-owned enterprises in particular, in which management of human resources in state-owned enterprises had great changes

Table 1 Characteristics of traditional personnel management

Planning Short-term planning (1-2 years)

Control method Checking working time; Regularly monitoring Quantity control A number of quality control activities

Management responsibilities Not clear; on a collective basis

Level of decentralization Low

Leadership style Patriarchal-dictatorial

Trust and trust of subordinates Average level; ‘human belongs to organization’ Human resources policy Not mentioned; not transparent

Communication Top-down communication style

Training Programs A lot but not work-related and ineffective

Motivation to work Material and spirit

Workers’ commitment Not always high

Constantly evade work From low to medium

Labor productivity Low

Source: Quang & Vương (2002)

2.5.2 Human resource management in Vietnam since Doi Moi 1986

Human resource management in Vietnam since Doi Moi started has significantly changed The Labor Code 1994 is the first law that formally regulate in detail labor relations between employees and employers in a market economy The law covers areas

of human resource management such as training, labor contracts, collective bargaining agreements, holidays, recruitment and dismissal, union, wages and benefits, female workers Changes in the legal system of labor relations has created a precondition for the change of human resource management practices After more than 30 years of the Doi Moi, recently, human resource management in enterprises has some common features as follows

Human resources planning

At the present, there have few enterprises planning human resources in the long term According to statistics, up to 85% of the total enterprises forecast their labor demand based on the number of employees who need to be replaced Only about 15%

of these enterprises based scientific evidence to plan their human resources In addition, the determination of surplus or shortage of labor is determined by each department based on their current workload Human resource department only functions to receive labor quotas and recruit Many Vietnamese business owners also identify the need for human resources in the short term or even based on the present time to make a decision Only companies with 50-300 employees are interested in human resource strategies, but these strategies are very sketchy (Financial Magazine 2014)

Recruitment

Each company has its own recruitment method, but there has been a common process of recruitment that most of the companies carry out The selection process includes stages as followings: receiving dossiers and research; select qualified candidates for interview When conducting interviews, the interviewees are interviewed

by the directors, the head of the human resources department and the personnel interviewer Candidates who pass the interview will be accepted to start a working trial within 3-6 months If the candidates meet requirements for a the trial works, then the company will sign a formal contract After that, very few companies conduct performance evaluations of the recruitments to investigate reasons for the recruitment success or failure

There are two human resource for recruitment: internal and external human resource For internal recruitment, if it has a need for recruitment, the organizational administration office will inform the units in the organization and other professional departments to find suitable candidates Each department then consider their current staff to find persons who meet the recruitment requirement and suggest them to the

recruitment center The internal recruitment is convenient for both the enterprises and employees as they are familiar each other However, it is limited the quantity and quality of the selected candidates because the human resources in enterprises are often small

For external recruitment, enterprises have a number of choice for recruitment new staffs Chances to choose good and suitable employees are much more than the internal recruitment Enterprises might through employment agencies or advertisement via mass media for ensuring to get the right people to work This form is mainly applied in enterprises with a size of 50 laborers or more, in which the recruitment via the internet and the press According to statistics, 25% of enterprises recruited through the media, this figure is very low compared to developed countries as well as some countries in the region (Financial Magazine 2014)

Job analysis

Most Vietnamese companies carry out job analysis, especially those with 50 employees or more However this activity has not done properly Vietnamese companies normally do not offer a formal procedure to conduct job analysis It is only conducted when there is a need to recruit employees for vacancies in the enterprise Job analysis is mainly done by an approved individual and then sent down to the HR department Even though the contents of job analysis reports are quite similar to the current international standard, that include job title; name of the department responsible for work; name of supervisor; a brief description of the work; standards of completion, working conditions However, the process is not really scientific The sources of data to conduct job analysis are very subjective that depends on the approved person who is allowed to do this

Appraisals

Companies use the point-based assessment method to conduct appraisals However, the criteria are often subjective because they are not based on the job description They are mainly based on the attendance of the employees The assessment of employees is a very few companies apply, especially in the state companies

Training

Most enterprises do not have training and career development strategies for employees, which associated with their specific vision and objectives Another fact is that many Vietnamese companies are more interested in training managers and senior

experts For technical specialists, workers, the form of training is mainly self-training or the workers have to improve their skills by themselves

Compensation and benefits

Recently, enterprises build their own compensation systems depending on their business conditions They are autonomy to decide their employees’ salary and benefits

In practice, compensation system in Vietnam enterprises has been criticized not effective because it is not based on employees’ performance and contributions

To establish the remuneration system, organizations use one of the two following approaches or use a combination of these two ways The first one is to follow the system of wage scales of the Decrees There are two decrees guiding wage scales and wage tables systems have been employed by state enterprises recently:Decree No 204/2004 / ND-CP, and Decree No 205/2004 / ND-CP Decree No 204/2004 /ND-CP dated on December 14, 2004 by the Vietnamese Government on the salary regime for cadres, civil servants and employees Decree No 205/2004 / ND-CP dated on December 14, 2004 by the Vietnamese Government on prescribing the system of wage scales and tables as well as salary allowances in state companies

The second approach is to build the system of payroll scales by themselves The enterprises build their compensation system based on their business results, employees’ performance and the market conditions To have an effective compensation system, enterprises need to create an appropriate job evaluation system Job evaluation is a management tool to manage employees’ performance and the efficiency of organization Job evaluation is a vital function of a HRM system

2.6 Introduction to machicon company and its human resoure

management system

2.6.1 Introduction to Machicon

Mechanical and Construction Joint Stock Company A (MACHICON) is a member

of Vietnam Automobile Industry Corporation, operating in the field of construction of traffic, irrigation, civil, industrial, electrical, mechanical, mechanical engineering, metal structures; trading, and importing and exporting Over a quarter of century of development it was transformed from a state-owned enterprise into a joint stock

company It is now rename as Mechanical and Construction Joint Stock Company A (MACHICON) that the Vietnamese government holds dominant shares (51%)

So far, MACHICON has made many big projects and became one of the strongest companies in the construction field MACHICON has participated in all key projects of the State, the transportation sector, such as Song Moi bridge - Tien Lang district - Hai Phong, National Highway 5, Hai Duong; Ho Chi Minh Road, Lam La - Nghia Trung section, project QL 6 package 3, package 13; construction of Highway No.3 through Bac Kan town Besides these key projects, MACHICON also participates in many other civil construction of houses and roads in many provinces and cities such as Phu Tho, Hai Duong, Hai Phong, Tra Vinh

With outstanding achievements in production and business from 1996 to 2000, MACHICON was awarded the Third Labor Medal granted by the Vietnamese Government in October 2001 This award was the pride of the company's employees, and marked a historic milestone in the company's development In the coming time, MACHICON will continue to carry out traffic constructions, irrigation, advanced civil and industrial projects for the electricity industry, electric control and automation, investing on projects of manufacturing mechanical products and developing many other business fields and services

Table 2 The main products of the Company

experiences

Construction of traffic and irrigation projects 34 years Construction of civil, industrial projects 28 years Construction, fabrication and installation of mechanical products 28 years Trade, materials and equipment supplies 07 years

The company’s business outcomes

Summary of the Company’s business outcomes over the three latest years is in the following Table 3

Table 3 The Company’s business outcomes 2015, 2016, 2017

6 Profit before tax 4.594.838 5.115.814 5.727.396

7 Profit after tax 3.790.741 4.220.547 4.467.396

8 Owners’ equity 4.400.000 4.400.000 4.400.000

(Source: Financial capacity profile of the Company)

Table 4 The Company’s planned business outcomes from 2015 to 2019

Civil construction Trade

(Source: Financial capacity profile of the Company)

The Company's Report shows that the Company's performance has increased over the years Labor productivity of the Company increases annually The Company’s reports show that the number of employees has remained constant over the past three years (with 250 employees), while its revenue have increased every year Summary of the Company productivity is presented in Figure 1, as follows

Figure 1 Average labor productivity

Source: Author’s calculation based on the Company’s business outcomes 2102, 2016, and 2017

The rate of return on equity of the Company increases consistently over years in Figure 2, as follows:

Figure 2 Rate of return on equity

(Source: Author’s calculation based on the Company’s business outcomes 2102, 2016, and 2017)

2.6.2 The company’s management structure and human resources

The organizational structure

MACHICON is a joint stock company, thus its management model follows a management model of a joint stock company as shown in Graph 1 below The Company's management structure includes the General Meeting of Shareholders, the Board of Directors, the Director and the Supervisory Board Accordingly, the General Assembly of Shareholders is the highest decision-making body of the Company Resolutions of the General Meeting of Shareholders are valid only when they are approved by shareholders and shareholders' representatives hold at least 65% of the total voting shares attending the General Meeting of Shareholders The Board of Directors has the right to make decisions on issues related to the Company's objectives and interests in accordance with the law, except for matters falling under the authority

of the General Meeting of Shareholders In terms of personnel, the Board of Directors has appointed and dismissed the director, deputy director, chief accountant of the company, approved the organizational plan and personnel of the subsidiary companies The Board of Directors decides on salaries, bonuses and other incomes for employees working at the company Besides, the Board of Directors also decides on the regulation

on recruitment and dismissal of employees in compliance with the relevant laws Levels

of responsibility allowance for the members of the Board of Directors and the Supervisory Board are decided by the General Meeting of Shareholders The Board of Supervisors is the organization on behalf of shareholders to control all business activities, governance of the company

Graph 1 The company management structure

GYMNASTIC MECHANICAL ENTERPRISE A

MECHANICAL AND CONSTRUCTION B ENTERPRISES

BUILDING AND CONSTRUCTION COMPANY

Human resource

MACHICON currently has young and skilled labor force Skilled levels of the company human resources are presented in Table 5 as follows:

Table 5 MACHICON’s labor force statistical report 2017

I Bachelor and college degrees 60

II High skill technique workers 150

The direct labor force is accounted for 76% of the Company's labor force They are all trained before taking their jobs The number of skilled workers at levels of 3/7 and 4/7 are the highest numbers, then followed by the number of laborers at skill level of 2/7 These statistical numbers show that although trained laborers, the majority of workers are still at low skill levels Statistical summary and statistical details of the skill levels of the direct workforce are shown in Table 6 and Table 7 as follows

Table 6 Statistical summary of direct employees by skill levels

Table 7 Statistical details of direct employees by skill levels