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

This article presents a framework for the alignment of organizational culture and business strategy to better understand the role of HR practices in knowledge-related performance. The relationships among the knowledge-driven HR practices, corporate culture, and business strategy were tested using 132 organizations in China's high technology industry in the Pearl River Delta area. The findings support the proposition that both capability and incentive systems are significant predictors of knowledge-related performance. Significant interaction effects of HR culture and HR business strategy in knowledge-related performance were observed. The organization's commitment to quality was found to be an important determinant of organizational performance.

Knowledge-intensive industries face a dynamic and fiercely competitive environment. Products in the high technology industry are more complex, with shorter life cycles that need constant innovation in order to meet changes in market conditions and customer expectations (George, et al., 2001). In high technology firms, technological innovation becomes critical in responding to rapid changes; innovation depends heavily on acquiring new knowledge. An organization must therefore fully utilize its resources and capabilities in order to remain competitive.

Leveraging intellectual capital as a sustainable competitive advantage depends upon a firm's ability to use existing knowledge and to generate new knowledge. Human resources can be instrumental in meeting the challenges in the formalization of, and access to, experience, knowledge, and expertise that create new capacities, superior performance, and innovation (Beckman, 1999). Human resource practices can play a critical role in supporting and contributing to the creation, integration, and utilization of knowledge.

Human resource management (HRM) practices and knowledge-related outcomes appear to be associated, but the link is not fully understood and lacks some important aspects of interpretation and empirical support (Minbaeva, 2005, p. 126). This article addresses this void by examining the impact of various HR practices that support knowledge creation and utilization, which in turn influence knowledge-related outcomes. The corporate culture and business strategy could be considered as the mediating link between HRM practices and knowledge-related outcomes. Knowledge-related outcomes are defined and measured by productivity, research and development capability, products and services quality, and market share. The relationships among the knowledge-driven HR practices, corporate culture, and business strategy were investigated using 132 organizations in China's technology-intensive industry in the Pearl River Delta area. The results contribute to advancing our understanding of the complex relationships between HRM practices and organizational performance and the potential interaction effects of corporate culture and business strategy.

China's Institutional Environment and Human Resource Management

China introduced market reforms in the early 1980s. Its GDP reached US$2,225.68 billion in 2005, with a real GDP growth at 9.9 percent (Economist Intelligence Unit, Country Briefing). Despite the booming economy, China is also criticized as being highly bureaucratic, low in government efficiency, and lacking in transparency. The insufficient protection of intellectual property rights creates the fear of piracy. A challenge is the absence of well-established institutional rules. China tries to improve the business climate by providing a more favorable institutional environment, as indicated by moderate ratings (on a scale of 0 to 10) on a number of the IMD (2006) World Competitiveness rating factors:

1. Technological regulation supports business development and innovation (6.02);

2. Development and application of technology and supported by legal environment (6.12);

3. Legal environment supports scientific research (6.35).

China would move forward with the institutional reforms necessary to produce a more positive outcome. Innovation and technological progress are essential ingredients to promoting reform (Davis, 2006).

China has been strong in basic and scientific research and actively engaged in technology development. Young people are interested in science and technology as reflected by the high percentage of total first university degrees in science and engineering (73.3% in 1999 and 57.4% in 2002). Scientists, engineers, R&D personnel, and IT skills are readily available. Unit labor cost is relatively cheap and labor productivity improved significantly from 3.77 in 2001 to 5.42 in 2005 (IMD, 2006). A study by McKinsey Global Institute (2005) reveal the paradox of shortages amid plenty. In the interviews with 83 HR professionals involved in hiring local graduates, on average fewer than 10 percent of Chinese job candidates would be suitable for work in foreign companies because they lack practical and English language skills (Farrell & Grant, 2005). China's emergence in the global economy offers both opportunities and threats; thus, it provides a rich context for this study.

Inherited from the historical burden of the planned socialist economy, the HR function is generally underdeveloped in China. HR practices have exhibited reactive and highly operational oriented characteristics. The level of human resource management sophistication varies across joint ventures, collectives, and state-owned enterprises. Foreign-invested enterprises or joint ventures tend to have a better HR system adopted from their headquarters. Admission to the World Trade Organization has now exposed China to unprecedented competitive and dynamic environments in which more modern HRM will be crucial to meet the challenges in creating flexible and adaptable organizations. HR practices must be transformed to fit China's unique cultural and institutional context.

HR practices are in transition from a highly centralized allocation process to a more market-driven and merit-oriented system. Staffing practices are becoming more decentralized and selection criteria have focused more on technical skills and proven work experience. Facing the shortage of managerial talent, companies tend to emphasize training and development of talents, particularly technical knowledge. In order to acquire better quality managerial talent, firms utilize both internal development and external acquisition strategies. The idea of a learning organization is emphasized in high tech firms and foreign-invested enterprises. According to a survey conducted by Mercer HR Consulting (2005), employees rated training and development the least favorable. Because of the high turnover rate (averaging 20%), the process of training and development is considered time-consuming and costly. Multinational corporations often resort to poaching from each other.

Given the traditional values of a high level of collectivism, together with the need to maintain harmonious relations within the organization, compensation tends to be egalitarian; however, facing competitive pressure from the market, pay must be competitive. Organizations have adopted various policies, including bonuses, subsidies, merit pay, or pay for performance. For benevolent-authoritative employers, benefits still comprise an important part of the pay package. Pay systems based on individual performance and individual incentives are becoming more common. There is greater acceptance of wider reward disparities based on individual performance (Ding, et al., 1997). Survey results from Mercer HR Consulting (2005) reveal that only 25 percent of the respondents participated in incentive programs. The respondents are not satisfied with their organization's benefits programs. The result is alarming because reward is one of the key drivers for employee engagement.

The following sections explore the important elements that link HRM to knowledge-related performance in China's fast-growing technology sector.

Creating Knowledge-Oriented HR Systems

There is considerable interest in studying the role of knowledge-driven HRM practices that contribute to sustained competitive advantage through developing firm-specific competencies and acquiring organizational knowledge, which in turn improves the firm's ability to innovate (Keegan & Turner, 2001). The core HR practices (i.e., staffing, training and development, reward and performance management) may facilitate the diffusion of knowledge and innovation. Organizations identify the needed skills and knowledge through the staffing processes of acquiring, developing, and retaining human capital. Training or self-development programs can be an important knowledge acquisition mechanism. When properly organized, training programs are important vehicles for promoting collaboration and knowledge exchange (Lyles & Salk, 1996; Lane, et al., 2001). Comprehensive training to develop unique or firm-specific skills, socialization programs, job enrichment, and cross-functional career paths encourage employees to build knowledge. Skill-based pay systems and developmental performance appraisals may be used to facilitate the development of firm-specific knowledge and competencies (Snell, et al., 1999).

In addition, HRM practices may influence individual performance by providing incentives that elicit desirable behaviors. Performance-based pay and internal promotion systems provide incentives to secure commitment from knowledge workers. Employees' willingness to share knowledge with others is crucial in determining the contribution of HR practices to managing knowledge (Currie & Kerrin, 2003). The extensive use of training, performance management, performance-based compensation, and internal communication contribute to knowledge transfer (Minbaeva, et al., 2003); thus, both capability and incentives are regarded as being conducive to knowledge creation and utilization.

HR-Performance Link

Mostly US-based studies consistently show that HRM practices, in the form of high performance and high involvement work practices, are associated with positive performance outcomes (Appelbaum, et al, 2000; Berg, 1999) and higher financial success (Bae & Lawler, 2000; Huselid, 1995; Lawler, et al., 1995). The accumulated research evidence shows that effective human resource management can have a substantial impact on firm performance.

Laursen and Foss (2003) investigated the link between HR practices and innovation performance. Investment in capability to innovate can be developed through interdisciplinary work groups, quality circles, planned job rotation, delegation of responsibility, and performance-related pay. Managing human resources to achieve better knowledge-related outcomes focuses on retaining people, building their expertise through an ongoing learning process, fostering a supportive culture for sharing knowledge, and establishing mechanisms to distribute benefits arising from the utilization of this expertise (Collins & Smith, 2006; Kamoche & Muller, 1998).

Previous studies showed HRM practices applied as a coherent system had a greater effect on organizational outcomes than the sum of the individual effects from each practice separately did (Huselid, 1995; MacDuffie, 1995). Huselid (1995) and Delaney & Huselid (1996) bundled sets of HRM practices into two main categories: employees' abilities and employees' motivation. This is consistent with the literature of the role of HRM practices in the organizational "absorptive capacity." The ability to assimilate and apply the knowledge and motivation incentives was shown to determine the organization's absorptive capability (Cohen & Levinthal, 1990).

Innovation depends heavily on knowledge. Performance-based pay provides an incentive to acquire and share knowledge. Incentives aimed at promoting knowledge acquisition and sharing are increasingly prevalent ingredients in the innovation process. Hensen, et al.'s (1999), study shows that knowledge use and sharing are embedded in appraisal and reward systems. Systems can be put in place that motivate and reward knowledge creation and sharing (Bartol & Srivastava, 2002). In total, the more extensive use of HRM practices (capability and incentive) appears to be positively associated with knowledge-related outcomes.

Fostering a Culture for Creativity and Innovation

A firm's future abilities are strongly influenced by its knowledge assets and its collective learning. Organizations with highly capable and motivated employees will not be effective in recognizing new knowledge, assimilating it, and applying it if the unit is not successful in building a supportive learning environment. The personal nature of knowledge increases the need for motivation in sharing and utilizing knowledge (Alvesson, 2000). Culture is the most critical factor that influences knowledge creation, sharing, and use (DeLong & Fahey, 2000). Innovation tends to be supported by an organizational culture that encourages participation, questioning conventional wisdom, innovation, and risk taking. Historically, these have not been strengths of the Chinese business climate.

High-tech companies differ from manufacturing or service companies, particularly with regard to their people management practices. Their people are engaged in the creation and assimilation of new knowledge. Knowledge workers enjoy a highly informal, egalitarian working environment, in which they are granted significant autonomy, trust, and ample resources to facilitate knowledge creation processes. Personal growth and achievement are important to this type of worker. These characteristics pose particular challenges for managing knowledge workers.

Furthermore, knowledge sharing is critical to facilitate and sustain knowledge creation processes. Organizational cultures that promote knowledge sharing are characterized by informality, richness of communication, and openness to transfer of learning and knowledge absorption (McDermott & O'Dell, 2001). Interdisciplinary teamwork, active self-development programs, and a climate for learning are conducive to knowledge exchange and collaboration.

Knowledge-intensive organizations must develop and sustain an organizational culture that supports knowledge creation and innovation (Storey & Quintas, 2001). Vital to this is the creation of a supportive environment to facilitate trust and sharing, exchange, creativity, and innovation activities. A supportive culture for cooperation reduces competition among employees and increases their willingness to share critical information with each other (Szulansk, 1996). Corporate culture, particularly a sharing and learning culture, is associated with positive knowledge-related outcomes.

The Moderating Effects of Corporate Culture

Wallach (1983) identified three types of corporate cultures: bureaucratic, innovative, and supportive cultures.

1. A bureaucratic culture is characterized as hierarchical and compartmentalized. There are clear lines of authority. The work is organized and systematic. Bureaucratic organization is power oriented, regulated, procedural, and hierarchical. It is not suitable to attract and retain creative and ambitious people. The explicit rules and regulations are likely to inhibit idea generation and constrain employees in using various sources of knowledge for developing new products and services.

2. An innovative culture is exciting and dynamic. It provides a creative place to work, filled with challenge and risk.

3. A supportive culture is described as trusting, encouraging, relationship-oriented, and collaborative. It provides an open, harmonious, and warm place to work. People are friendly and helpful to each other.

Human resource capability and organizational culture are likely to reinforce each other and enhance firm performance. Creating a supportive culture together with the appropriate HR systems could be utilized to shape the willingness of workers to share their knowledge. Thus, it is logical to posit that matching the human resource system and corporate culture will enhance firm performance.

The Contingency of Business Strategies

The strategic perspective of HRM examines the fit between HRM practices and the company's business strategies (Delery, 1998). Schuler and Jackson (1987) investigated the relationship between HR and business strategy and designated different types of employee behavior and HRM systems that are best suited to innovative and quality enhancing strategies. Innovative strategies focus on offering something new and different. The appropriate HR practices include selecting highly skilled, creative individuals, granting more discretion with minimal control and allowing a longer-term focus. HR practices for a quality enhancing strategy include high levels of participation, feedback, and cooperative teamwork. People management becomes an integral part of corporate strategy in producing high performance; thus, HR can proactively add strategic value by providing innovative products and services and improving quality.

Previous studies found that the organization's strategy moderated the effect of HR practices on performance (Hitt, et al., 2001; Huselid, 1995). Similarly, Youndt, et al. (1996), found that the business strategy and HRM practices interaction was an important factor in organizational effectiveness. This study explores the positive effect on an organization's knowledge-related outcomes from aligning HR practices and business strategies.

Methodology

High-Tech Industries in China

To sustain competitive advantage in the knowledge-based 21st century, the high-technology industry is given high strategic priority. The high-tech industry is one of the backbones of China's economy. China spent 1.5 percent of GDP on funding for technological development, expected to go up to 2.5 percent by 2020, equivalent to $115 billion a year. It ranks number five globally (Einhorn, 2006). According to the National Bureau of Statistics of China, a total of 353,807 patent applications were examined in 2004, of which 35 percent were certified.

China exports more IT products than the United States does, reaching $16.16 billion in 2005 (Einhorn, 2006). High-tech exports accounted for more than one-third of the total manufacturing exports. The major IT export categories include office machines and data processing equipment (14.5%), telecommunication products (12.4%), and electrical machinery (9.9%).

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.

A significant positive interaction effect between incentives and sharing culture was observed, but no significant interaction effect was noted for the other two types of cultures. Under a low-incentive level, a low-sharing culture is more efficient. A high-sharing culture works better under a high-incentive system. The results confirm that an incentive system works better with a sharing culture. A high-sharing culture with a high-incentive system magnifies the effect. No such effect was observed under the bureaucratic and competitive cultures because these cultures are not conducive to knowledge-related performance.

Regression results for business strategy are given in the last two columns of Exhibit 2. When two business strategy variables were entered in the regression, the quality enhancement strategy is statistically significant. When the interaction terms were entered, the interaction between incentives and quality was significant but negative. The interaction between incentive and innovation was marginally significant. A low-quality strategy is likely to benefit in overall performance, particularly for a high-incentive level. It makes no difference for a high-quality strategy in achieving overall performance under any level of incentives. The results suggest that China's high-tech organizations pursue a quality enhancing strategy rather than an innovation strategy. With high incentives in place, innovation becomes marginally significant. Incentive systems seem to induce a greater positive impact on a low-quality strategy in enhancing organizational performance.

Discussion and Conclusion

This study assessed the direct link between HR practices and firm performance, tested the interaction effect of organizational culture and HR practices on firm performance, and examined the contingent relationship between business strategy and Human Resources. HR practices had a highly significant impact in predicting overall performance. HR may influence knowledge-related outcomes by shaping the skills and attitudes of individuals. Thus, the findings support the hypothesis that both capability and incentive systems are significant predictors of knowledge-related performance. This is consistent with other studies that show investment in employees' ability and motivation contributes to higher knowledge-related performance (Cohen & Levinthal, 1990).

Corporate culture also showed a direct effect. The study further explored the interacting effect of HR and culture to understand fully the role of HR practices in knowledge-related performance.

The results show significant interaction effects of having a sharing culture on performance.

The study results reveal that an emphasis on the traditional control system (bureaucratic culture) and competitive culture creates no significant benefit for organizational performance. The control culture is not compatible with the needs of innovation and technological development. Fierce competition creates barriers for resource and knowledge sharing. The results support the hypothesis that a sharing culture and supportive reward system promotes knowledge-related performance (Hensen, et al., 1999). The study results offer significant implications for HR system design. Incentives along with the appropriate cultural environment provide a strong management tool to reward employees. The implication is that managers can better develop reward systems and motivational schemes for their employees. HR systems should be based on collaboration to support the development of exchange programs and group-based rewards in knowledge-intensive organizations. The current literature suggests that building a supportive and sharing corporate culture (including informality and openness) enhances knowledge sharing. It is important to create a sharing culture that supports HR activities and the business strategy to enhance organizational performance.

In terms of business strategy, innovation is less important for knowledge-related outcomes in China's technology-intensive firms: Up to now China's technology has not yet achieved the status of technological innovation hub. The quality enhancement strategy is statistically significant. The firm's commitment to quality is an important determinant of organizational performance. When the interaction term between quality and incentives entered the regression equation, the coefficient became significant but negative. A low-quality strategy is related to a substantial increase in operating efficiency as the incentive level increases; a high-quality strategy shows no improvement in performance as incentives increase. Incentive systems work better for a low-quality strategy than a high-quality strategy in enhancing organizational performance. These organizations seem to focus on a low-end, mass production strategy, using incentives to raise productivity.

The findings provide some research-guided insights into the design of HRM systems. It is important to link HR to a specific business strategy and to create the appropriate culture for executing these business strategies more effectively to gain a competitive advantage (Barney, 1986). The implications of HR practices for management of knowledge and innovation are profound. HR capability and incentives are the most critical drivers for organizational performance. Organizations should aggressively strive to retain their employees by offering competitive pay and nurturing a sharing culture (Grant, 2006). Incentive system matching with a supportive corporate culture is positively related to higher levels of organizational performance. It also highlights the need to align HRM with the business strategy of the organization to enhance performance.

These data should be interpreted with caution because of the study's limitations. The data were assessed using perceptual, self-reported measures. Subjective measures of organizational performance are widely used in the literature; in the absence of objective data, self-reported measures can constitute an acceptable substitute and can be equally reliable (Delaney & Huselid, 1996). Prior research by Dollinger and Golden (1992) showed that organizational performance rated by self-reported measures was positively correlated with objective performance indicators.

In addition to self-reported perceptual measures of performance outcomes, the potential problem of common method variance cannot be avoided if all variables are collected from the same respondents in the same survey. Following Podsakoff and Organ (2003), we checked for the presence of common method bias by conducting Harman's one factor test in our data. A principal components factor analysis with an unrotated solution showed no single factor accounted for a majority of the covariance in the variables, so common method variance is unlikely to be a serious problem.

Causality is difficult to establish using cross-sectional data. Future research should collect data from multiple sources and longitudinally to minimize the risk of common method variance and enhance causal interpretations. More research should be done using larger samples and well-defined, objective performance criteria.

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Irene Hau-Siu Chow, Department of Management, The Chinese University of Hong Kong; Shan S. Liu, Department of Business Management, School of Management, South China University of Technology

BIOGRAPHICAL SKETCHES

Irene Hau-Siu Chow is a professor in the Department of Management at The Chinese University of Hong Kong. Dr. Chow earned her BBA at The Chinese University of Hong Kong, an MBA and PhD from Georgia State University. Her academic experience includes appointments in Hong Kong, Singapore, Taiwan, and the United States. She published widely in international journals. Her current research interests include gender studies, cultural issues in Chinese societies, Chinese networks, and comparative human resources management practices.

Shan S. Liu is professor and chairman of the Department of Business Management, South China University of Technology. His research focuses on strategic human resource management. He has completed 10 funded projects from the provincial and national projects. Dr. Liu's publications include 10 books and 50 academic journal papers. He also consults for more than 20 large corporations. EXHIBIT 1 Descriptive Statistics and Correlations

Mean S.D. 1 2 3 1. Overall

Performance 3.86 .56 2. Years of

Operation 9.41 6.19 .14 3. Size (log) 6.68 1.20 .10 .38 ** 4. HKTW .58 .50 -.10 .20 * .24 * 5. FDIJV .20 .40 .23 ** -.03 .05 6. Capability 2.80 .86 .45 *** .09 .05 7. Incentives 3.44 .69 .55 *** .08 -.01 8. Quality 3.83 .77 .48 *** .12 .21 * 9. Innovation 3.54 .81 .40 *** .09 .08 10. Bureaucratic 3.68 .69 .40 *** -.003 -.02 11. Sharing 3.35 .70 .44 *** .11 .04 12. Competitive 3.28 .66 .53 *** .10 .02

4 5 6 7 8 1. Overall

Performance 2. Years of

Operation 3. Size (log) 4. HKTW 5. FDIJV -.59 *** 6. Capability -.16 (+) -.01 7. Incentives -.18 * .14 .37 *** 8. Quality -.14 .27 ** .23 *** .44 *** 9. Innovation -.16 (+) .20 * .42 *** .51 *** .49 *** 10. Bureaucratic -.02 .14 .30 *** .49 *** .65 *** 11. Sharing -.10 .11 .44 *** .52 *** .49 *** 12. Competitive -.23 ** .21 ** .46 *** .48 *** .55 ***

9 10 11 1. Overall

Performance 2. Years of

Operation 3. Size (log) 4. HKTW 5. FDIJV 6. Capability 7. Incentives 8. Quality 9. Innovation 10. Bureaucratic .63 *** 11. Sharing .62 *** .70 *** 12. Competitive .65 *** .68 *** .72 *** (+) p < .1, * p < 0.05 level; ** p<0.01; *** Significant at p<.001 Exhibit 2 Results of Regression Analysis

Overall Performance Control 1 2 3 Year .16 (+) .08 .07 Logsize .02 .00 .08 HK&TW -.02 .13 .12 FDI&JV .15 .21 * .17 (+) HR Practices HR Capability .26 ** .20 ** Incentives .44 *** .35 *** Corporate Culture Bureaucratic .10 Sharing -.10 Competitive .25 * Interaction Incentives * Bureaucratic Incentives * Sharing Incentives * Competitive Business Strategy Quality Enhancement Innovation Interaction Incentives * Quality Incentives * Innovation [R.sup.2] .06 .38 .43 [ALPHA][R.sup.2] .06 .32 ** .05 * F 1.67 11.40 *** 9.2 ***

Overall Performance Control 4 5 6 Year .06 .06 .09 Logsize .08 -.03 -.002 HK&TW .08 .13 .14 FDI&JV .12 .16 .17 HR Practices HR Capability .16+ .26 ** .23 ** Incentives .33 *** .31 *** .28 ** Corporate Culture Bureaucratic .04 Sharing -.06 Competitive .30 * Interaction Incentives * Bureaucratic -.18 Incentives * Sharing .22 * Incentives * Competitive -.12 Business Strategy Quality Enhancement .21 * .10 Innovation .06 .16 (+) Interaction Incentives * Quality -.27 * Incentives * Innovation .15 (+) [R.sup.2] .47 .42 .47 [ALPHA][R.sup.2] .04 * .04 * .05 F 7.99 *** 9.76 *** 9.54 *** The numbers are [beta] coefficients. (+) p < .1; . * p<.05; ** p<.01; *** p<.001