Business strategy, organizational culture, and performance outcomes in China's technology industry.

China's R&D investment was [yen] 13.6 billion in 2005, around 0.4 percent of the sales revenue (China Statistical Yearbook, 2005). Guangdong province's industrial output grew 20 percent in October 2006. R&D investment in high-tech industry accounted for 65.2 percent of the total industrial sector there. Ninety-four percent of all technology information facilities firms are in the Information Technology Corridor in the Pearl River Delta area. These firms accounted for 96.5 percent and 94.5 percent of the total assets and employment, respectively, in the region. The government gives preference to high-tech industries in the Shenzhen economic zone. The high-tech industry offers China a great avenue for growth.

Sample and Procedures

This study focuses on high-tech industries because firms in knowledge-intensive sectors generally emphasize knowledge accumulation. High-tech industries face greater uncertainty and turbulence, so such organizations require a quick response to changes in technological advancement and efficiency. In addition to technological and market uncertainty, high-tech firms in China also face ambiguity because of the evolving institutional and legal system in a transitioning economy.

High-tech industries in China consist of knowledge-intensive firms such as in microcomputers, telecommunication, and other electronic facilities. The sample consisted of 132 organizations from electronic and communication facilities, computer and software industries in Guangdong, China. The average length of establishment was 9.4 years, ranging from 1 to 35 years in operation. In terms of ownership, 22 percent were state-owned and collectively owned, 57.6 percent were Hang Kong and Taiwanese firms in China; the remainder (20.5%) were foreign invested and joint-ventures. The average number of employees per firm was 1,126, with a range of 50 to 21,000. Development of HR practices can be inferred from the status of the HR department, such as having a separate HRM department, employing specialized HR professionals, and using state-of-the-art techniques. On average, the HR department had 19.7 persons. The turnover rate for employees was 14.24 percent. The questionnaire (in Chinese) was designed based on a combination of previous research and the variables identified in the literature review. Each questionnaire was sent to the person responsible for the company's HRM by e-mail, and follow-up calls were made. The respondents were middle (67.4%) or top management (18.6%), with the remainder front-line managers.

Measures

HR practices were measured in six areas:

1. Staffing, 2. Training and development, 3. Performance appraisal, 4. Performance-based pay, 5. Information sharing, and 6. Participation.

These areas were pre-tested with practicing managers to verify their usefulness. Each area was assessed by a five-point Likert scale, with 1 being the least descriptive characteristic, 5 being the most descriptive characteristic of HR strategies for managerial and professionals in this organization. The respondents were asked to mark the number that best indicated the degree to which each statement described HRM practices employed by their organization.

HRM practices form a set of distinct but interrelated activities that are directed at attracting, developing, and motivating an organization's human resources. The grouping of HRM practices can be identified theoretically and then verified through factor analysis. Results of a factor analysis indicated the existence of two groups of HRM practices (capability and incentives) that influence positive knowledge outcomes. These two factors accounted for 59 percent of the variance explained. Examples of capability include "the annual training budget as a percentage of total payrolls," and "the proportion of vacancies filled by internal sources for key positions." An example of incentives is "linking performance outcome to compensation, training opportunity, and promotion."

Corporate culture was measured by 18 items using a five-point scale ranging from 1 (strongly disagree) to 5 (strongly agree). These items were factor analyzed to form three cultures (bureaucratic, sharing, and competitive) that accounted for 60.55 percent of the total variance explained. Following are examples of each such culture:

1. Bureaucratic: Following explicit rules, regulations, orderly operations procedure.

2. Competitive: Employees display an extremely high level of competitiveness.

3. Sharing: Emphasis on learning process, exchange, and sharing learning outcomes.

The alpha coefficients for bureaucratic, sharing, and competitive culture were .89, .86, and .89 respectively.

Business strategies included innovation and quality enhancement. The argument for focusing on these two strategies is the hypothesis that HR practices contribute more to technology-intensive organizations when they pursue quality and innovation strategies. Respondents were asked to rate each item on a 5-point scale ranging from 1 (strongly disagree) to 5 (strongly agree). These items were factor analyzed using the principal factor with varimax rotation method. The factor structure of business strategy accounted for 61.74 percent of the total variance explained. Following are examples of these types of strategies:

1. Quality enhancing: The company has strict quality management procedures.

2. Innovative: The company is usually the first to introduce new products or services in the market.

The alpha coefficients for quality and innovation were .87 and .79, respectively.

Performance Measures

Knowledge-related outcomes are defined and measured by productivity, research and development capability, products and services quality, and market share. R&D activities are often undertaken to add new knowledge to the existing knowledge base of an organization. Maintaining a strong R&D program allows the organization to attract and keep talented scientists. Past studies have used R&D spending as a measure of a firm's input into innovative activities. The number of products on the market indicates firm success in developing and introducing new products (Smith, et al., 2005). These items were measured on a five-point Likert scale ranging from 1 (very low) to 5 (very high). Responses were averaged to yield a composite index reflecting the organization's overall performance measure. The alpha coefficients were .82.

Control Variables

Because firms with superior resources can formulate and implement unique and innovative strategies, firm age, firm size, and ownership types were controlled in the prediction of organizational performance. Firm age is related to firm survival and mortality rates. Firm size was measured by the number of fulltime employees. A natural logarithmic transformation was used to normalize the distributions and made them more consistent with existing literature. Ownership structure can also influence HRM and performance. State-owned firms tend to have more institutional constraints and therefore less flexibility in adopting innovative HR practices. Ownership structure was classified into three categories:

1. Hong Kong and Taiwanese firms; 2. State-owned and collective; and 3. Foreign-invested or joint ventures.

Results

Exhibit 1 presents the descriptive statistics and correlations among the variables. As Exhibit 1 indicates, most of the study's predictions are supported by the significant correlations observed among the variables, with many of the correlations being quite large and highly significant (p<.001). Significant positive correlations exist among HR practices, corporate culture, and business strategy measures, and these measures were all significantly correlated with overall performance. Years of operation and firm size had no significant correlation with any of the HR practices and business strategy measures. In terms of ownership types, Hong Kong and Taiwanese firms show negative correlations with HR practices, corporate culture, and business strategy measures; foreign direct-invested (FDI) and joint venture (JV) firms show positive correlations with these measures. These results confirm the existing studies that FDI and JVs tend to incorporate a higher degree of market-oriented and more sophisticated HR practices than local firms do (Ding, et al., 1997).

Hierarchical multiple regression analyses were conducted to examine the relative effects of HR practices, corporate culture, business strategy and their interaction on knowledge-related outcomes. Regression results are given in Exhibit 2. Company age, size (number of employees), and type of ownership were not statistically significant in the regression equation as indicated in Exhibit 2. When the two HR factors were entered, the effect of HR on knowledge-related outcomes was positive and highly significant. Corporate culture as a whole added a significant explanatory effect on overall performance, particularly the effect of competitive culture. Firm characteristics make no difference in overall performance but human capability and incentives matter. These two factors combined explained 32 percent of the variance in overall performance, compared with 5 percent and 4 percent by corporate cultures and business strategies, respectively.