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The International Journal of Human Resource Management
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Managing human resources in SMEs in a transition economy: evidence from China
Li Xue Cunningham
a a

Faculty of Management, Cass Business School, City University, London, UK Available online: 04 Oct 2010

To cite this article: Li Xue Cunningham (2010): Managing human resources in SMEs in a transition economy: evidence from China, The International Journal of Human Resource Management, 21:12, 2120-2141 To link to this article: http://dx.doi.org/10.1080/09585192.2010.509620

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The International Journal of Human Resource Management, Vol. 21, No. 12, October 2010, 2120–2141

Managing human resources in SMEs in a transition economy: evidence from China
Li Xue Cunningham*
Faculty of Management, Cass Business School, City University, London, UK

Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012

The objective of this study is to explore the changing nature of people management on the under-researched area of small and medium-sized enterprises (SMEs) in China. A mix of research methods, which combined a survey approach with in-depth, semistructured interviews, was adopted. The major characteristics of people management in China’s SMEs were then identified. Problems and difficulties that may occur during HRM take-up were illustrated. Key factors influencing the nature of people management in China’s SMEs were highlighted. People management in SMEs in China was compared and contrasted with Western HRM models. The findings indicate that a relative convergence with Western HRM practice, although one that is strongly influenced by unique ‘Chinese characteristics’, will be the trend of development of people management in China’s SMEs. The study leads to a better understanding of SMEs in China and helps fill some of the gaps in the analysis of management in China. Since, in the presence of cultural disparities, organizational practices and their effectiveness may differ from those in the West, the findings of the study contribute not only to the development of SMEs, but also to the debates of possible convergence or continuation of differences in management practice worldwide. Keywords: best practices; China; culture; human resource management; small and medium-sized enterprises; transferability

Introduction Ever since the Open Door policy, small and medium sized enterprises (SMEs) have become more and more important to China’s economic growth. Along with another 37.7 million individuals running their own household business in the country, SMEs in China account for 99.6% of the country’s total of enterprises. By and large, SMEs have become important as a source of employment and as contributors to the economy and structural reform. At the end of 2005, for example, China’s SMEs contributed 50.2% of the country’s total tax revenue and 60% of its total exports. SMEs in China also make 66% of the country’s patent applications, more than 75% of its technological innovations, and develop over 80% of its new products (on background, see China Daily 2009; Profiles 2009; Xinhuanet 2009). Although SMEs contribute 60% of the country’s gross domestic product (GDP) and over 75% of urban job opportunities, they face enormous challenges as China integrates more into the world economy (Cunningham and Rowley 2008). Data from the National Development and Reform Commission (NDRC) showed that, in the first half of 2008, 67,000 SMEs, each with sales income exceeding ¥5 million, duly collapsed, laying off more than 20 million employees. Industry officials attributed the SME difficulties mainly to the growing costs of production (materials and labour), the declining needs of overseas

*Email: x.li@city.ac.uk
ISSN 0958-5192 print/ISSN 1466-4399 online q 2010 Taylor & Francis DOI: 10.1080/09585192.2010.509620 http://www.informaworld.com

Yet. Dundon. Further. Moreover. it is debatable that a high-performance HRM. these contradictory views have been questioned (e. some researchers argue that working relationships in SMEs are much more harmonious than are those in larger firms since SMEs provide a better environment. ‘societal’ difference still remains at national and international levels. The study next draws on SME/HRM literature in China and the research gaps are identified. indeed. As Ram (1991. theoretical and empirical studies conclude that human resource management (HRM) can have an impact (see Boxall and Purcell 2003). better communication is authoritarianism and conflict is not low but expressed through more individual means (Cully. Ackers.. On the one hand. people management in SMEs may be ‘complex. which has easier communication.. Research hypotheses are then put forward. the study draws together some conclusions and offers useful possible future research perspectives for this increasingly important area. and research methodology adopted in the current study is outlined and justified. 601) notes. and policy makers so as to support the development of the SME sector in China. as these forces are mediated by different institutions with their own traditions and cultures (Warner 2009. Storey and Coates 1996). Held. While the importance of nation-states and heterogenization has been stressed because of national or local responses to global processes. is this view of HRM applicable globally? The validity of such universal beliefs in Western management practices and theories have been questioned by many scholars (e. the power and authority of nation-states are enhanced because they stipulate more centralized regulation over cross-border economic activities (Weiss 1998. . could become a vehicle for SMEs to enhance their organizational competitiveness (Storey 2004). and Grugulis 2007). Indeed.g. Literature review Human resource management in SMEs It is important to note that within the existing research there are considerable differences of opinion and interpretation regarding HRM in SMEs. business systems diverge as the setting of practices is affected strongly by the significant contextual role of the national presence. which is derived from a large firm scenario. Therefore. international researchers. Storey 2004. Wilkinson. The study proceeds as follows. For example. informal. Maurice and Sorge 2000. First. Finally. the research findings are presented and discussed.The International Journal of Human Resource Management 2121 Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 markets and the fast appreciation of the Renminbi (RMB). Here flexibility is more akin to instability. Practical implications are made for SMEs’ managers. On the other hand. it reviews the literature on HRM in SMEs and the critical role of HRM in SMEs’ development is highlighted. Hofstede 1991). O’Reilly and Dix 1999). such as the case of SMEs in China. Hence. given cultural and institutional differences. Woodlands.g. other scholars claim that HRM when applied to SMEs is a ‘bleak house’ (Bacon. Thereafter. the literature on HRM in SMEs can be located within a dichotomy of stereotypes. As these factors are escalating. and contradictory’ instead of simply either pleasant or repressive. and the nature of SMEs themselves. greater flexibility and lower levels of conflict (Wilkinson 1999). The present study thus underpins the debate on convergence and divergence in management practices with respect to China’s SMEs by investigating the extent to which Western HRM practices are relevant in non-Western SME sectors. Brewster 1994. Rowley and Benson 2004). how SMEs survive and compete successfully has become a central issue in SMEs development in China. McGrew. In this respect. Goldblatt and Perraton 1999). Harney and Dundon 2006. the notion of ‘best practice’ may not be present in enterprises or even should not be replicated in the Asian context.

. Heneman et al. Storey 2004).X.g... therefore. Wang and Zang 2005. Morris and Sheehan 2004. Guest.e. preservation of ‘face’) and national institutions (i. 500 employees). With relation to HRM in SMEs specifically. Baron and Kreps 1999). Marlow 2000. are rarely in evidence in SMEs (. Cunningham Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 While the significance of HRM in organizational development is emphasized by a number of studies (e. 2000. In a study of HRM practices. Michie. Sels et al. company strategy (i. For instance. 250 employees) was not the coherent set of practices typically identified in the literature. training and incentive pay..e. Thus.. It is also evident that SMEs are recognizing the potential of HRM to add value to the firm (e. Nevertheless the possibility of adapting research on large firms to small firm implementation is a cause for concern..2122 L. research on SMEs demonstrates that not only a high performance work system (HPWS) is utilized at some small businesses (e. highly skilled workforce as being a key to the success of smaller firms (e.. They argue that as HRM is often taken as an American or Anglo-American idea.e. a number of studies have addressed the significance of a well-motivated. harmony. Bacon et al. LacoursiereFabi and Raymond 2007).. China’s SMEs and HRM In relation to HRM in China. specific SME management practices tend to disappear to be replaced by practices more closely associated with large organizations (e. 1996. the transferability of HRM practices has been challenged by many HR scholars and researchers. a number of studies have concluded that national culture and institutions have a crucial role to play. and sociocultural impacts (i. relationship. Tansky and Camp (2000) state. Nadin. such as industrial subculture (i. familial influences (i. Storey 2004. but also the linkage between HRM and organizational outcomes does exist in SMEs (e.g.g. 2006. Hornsby and Kuratko 2003. 1999... Harney and Dundon (2006) found that HRM in SMEs (. Hassard. such as recruitment and selection.. household relations in Ram 2001). Torres and Julies 2005). some studies show that firm size is superseded by other factors. Siu 2000. Chinese cultural values in Siu 2000). 272). In addition. optometry and telecommunication industries in CegarraNavarro and Dewhurst 2007). Gray and Mabey 2005).. as Heneman. Gray and Clegg (2002) similarly argue that the key HRM practices seen in large organizations. Miah and Bird 2007). Overall. HRM theory and the research being conducted may not be congruent with the actual HR issues challenging SME practitioners in the field. and the character of an SME mirrors the nature of its HRM.g. It illustrates that among all the various factors. training and development in Gray and Mabey 2005). Again. Sheehan and Conway 2000. In addition. Hornsby and Kuratko 2003.. which differs from that of large firms. as size and structure serve as boundary conditions to the theory of HRM. the state) are key aspects that affect the adoption of HRM in China. cultural factors (i. Further. Han and Han 2009).e. Cassell. since there is a great deal of institutional and organizational inertia in the Chinese employment system (e. many HR scholars state that a small firm is not a ‘scaled-down’ version of a large firm. other researchers point out that under certain circumstances.. . Walsh and Lok 2008).g. Becker and Huselid 1998. the literature seems to suggest that the differences in HRM practices between large firms and SMEs ‘are of degree – a relative rather than an absolute absence of structure’ (Cully et al. Table 1 summarizes the major empirical studies of HRM in enterprises in China since 2000.g.g. Rhodes.g. it is questionable whether the values underlying HRM are shared with managers from other countries (e.e. evidence shows that HRM is crucial to SMEs’ future development.e.

. Guanxi is a major factor in the respondents’ lives and in turn. 2002) Fu and Chow (2000) Large (5 out of 6) (SOEs and JVEs) Large (JVEs and SOEs) Large (TVEs) Ding. COEs. 200. 200–500. All organizational variables (i.e. Cultural and political processes are important within China based organizations. notably the historical legacy of SOEs and a poorly developed mgmt development system. JVEs. (2002) Large (SOEs. ‘SOEs’: state-owned enterprises. Network-based recruiting constitutes a premium strategy in contemporary China. (2004) / Part (. The underlying norms and values may reflect continuity as much as change. PEs. PEs. FOEs. (2000) Ding. regional variations. location) except firm size have impacts on managerial compensation levels. Lan and Warner (2001) Large (TVEs) Ding and Akhtar (2001) Large (JVEs and SOEs) Siu and Glover (2001) Bjorkman and Fan (2002) Part (SOEs. COEs. Size is a key determinant of formalization of HRM practices. Ownership form does have an impact on staffing practices. ‘COEs’: collective-owned enterprises. Goodall and Warner (2000. Main findings Authors (Year) Sample size (Ownership form) Benson et al. 500) (TVEs) / (SOEs) The International Journal of Human Resource Management Wang and Zang (2005) Ding et al. (2002) Large (JVEs and non-SOEs) Zhu and Dowling (2002) Wright et al. Ownership. ‘FIEs’: foreign-invested enterprises. Ownership is one of key variables in explaining an organization’s choice of HRM practices. (2008) / (various) Han and Han (2009) Part (SOEs. industry. There was a positive relationship between the size of the firm and the extent to which the HRM department played a strategic role. (2006) / (JVEs and Local firms) Part (various) Bjorkman et al. flexibility and commitment. Traditional cultural values of loyalty and personal network still play an essential role in affecting Chinese employees’ work related attitudes and behaviour. ‘TVEs’: town–village enterprises. FIEs) / Child and Warner (2003) Ding et al. Summary of the effects of contextual factors on HRM in China (2000 – 2009). Cultural –institutional context may moderate the relationship between HRM and performance. ‘JVEs’: joint-venture enterprises. employee size. Significant barriers to implementation exist. . stage of technological/product development and profitability of TVEs are the influences of the key variables shaping HRM practices. JVEs) Little evidence suggests a cultural change taking place that would facilitate consensus. 2123 Note: ‘/’: not available. Size may be an institutional factor affecting the implementation of formal HRM practices. size and location of the firm are the main factors affecting the evolution of HRM. Ownership. Culture plays a crucial role in formulating HRMPs. and firm size had a marginally positive effect on organizational performance. location. (2004) Hassard et al. age. ‘PEs’: private enterprises. ownership. as guanxi is still an important cultural element in Chinese society.Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 Table 1. that guanxi can affect work behaviour. Pes) Large (JVEs) Wong et al.

g.g. this has focused mainly on entrepreneurship (e. particularly the cultural and institutional heritage of Chinese organizations. it had perforce to be endowed with “Chinese characteristics”’. a few studies have been conducted by some researchers. Ge and Warner’s (2004) study of 20 TVEs (SMEs . likewise. Siu 2005) and ownership issues that are the central themes of the discussion.. the use of guanxi has increased. Schlevogt 2001. Zheng’s (1999) examination of 74 SMEs (. location and industry) have significant influences on firms’ compensation structure.g. Likewise. Cunningham While culture and institutions directly affect the HRM take-up in China. as Warner (2003. This inertia is characterized by factors that serve as barriers to organizational change in the Chinese context. For example. HRM outcomes and enterprise performance. For example. In addition..2124 L. Yeung 2002). 500 employees) reveals that size is a key determinant for the formalization of HR practices. These studies demonstrate that cultural and institutional influences also influence HR practices in SMEs. The study of 326 joint-venture enterprises (JVEs) and state-owned enterprises (SOEs) by Ding and Akhtar (2001) shows that ownership is one of the key variables in explaining an organization’s choice of HR practices in China. Zheng. Xie. the survey results by Han and Han (2009) indicate that the central planned job allocation system has a profound impact on Chinese firms’ recruitment practices even in today’s open job market. 500 employees) finds an underlying association among HRM practices. Peng. marketing (e. they also influence the process indirectly through their impacts on firm type and pattern of behaviour. Chen and Chen 2009). and government support (e.g. Empirical studies support this argument. history and location of the firm (Ding. especially for private enterprises (PEs) and foreign-invested enterprises (FIEs).. Verburg. the findings on HRM practices in 15 small PEs (. Drenth. Therefore. Dai and Liu 2009).. Han and Han (2009) argue that the marketization of Chinese economy has not lead to the decline in the use of guanxi. small business development (e.e. In a study of 97 medium-sized SOEs and JVEs. but finance (e. Child and Warner 2003. In addition. Ding. Xu and Bai 2009).g. Fu and Chow (2000) point out that the size of town – village enterprises (TVEs) may be an institutional factor affecting the implementation of formal HRM practices. Again. While little attention has been paid to the study of HRM in SMEs in China (Cunningham 2008). 150 employees) in Northern China by Wang and Qiao (2007) demonstrate that guanxi (social networking) with key stakeholders is a core determinant factor of the small private firms’ HR systems. these influences may be even greater. Liu. Warner (1999) claims that the extent to which HRM practices are implemented in the enterprises are constrained by ‘organizational inertia’. However. more Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 . Despite the fact that it is not HRM. these studies underline the importance of culture and institutions in managerial practices in China.. for example. Further. 21) points out. Ding. Shen. Morrison and O’Neill 2006).. On the contrary. reflected in the ownership. whether related to HRM or personnel. Muijen and Wang (1999) conclude that contextual boundaries with regard to cultural characteristics limit the applicability of some HRM in non-Western countries. As the importance of SMEs has increased in China’s economy. Goodall and Warner 2000). this has been accompanied by an increase in the amount of recent research attention. Koopman. Again. Tse and Zhou 2003) suggests that the change of HRM practices needs to be accompanied by a change in ownership. size.X. Similarly.g. as SMEs. she points out that this relationship was not clear in all SMEs because of distorting factors in the economy (Zheng 1999). as some researchers argue (e. Akhtar and Ge (2006) found that organizational factors (i. Nevertheless. to some extent. a survey among 3964 respondents in nine cities in China (Law. ‘whatever concept evolved in China.. Shen.

such as product market and strategy. an upper limit of up to 500 employees was adopted in the study. For the purpose of this study. up to 500 employees became one of the key criteria in selecting the companies researched. Paauwe and Richardson 2003.g. Second. Wilkinson 1999. Jiangsu plays an important role in the nation’s economy. The key to this approach is an attempt to encompass many areas of information gathering so as to establish a more realistic and holistic point of view on the nature of people management in SMEs in China. Given the diversity of ownership forms and business nature in SMEs in China the focus here is on urban SMEs of four major ownership types: domestic private enterprises (DPEs).. technology. SOEs and FIEs. Therefore. Various definitions of what constitutes an SME are applied among different countries and/or regions.9% of China’s total) in attracting foreign direct investment (FDI) (utilized amount) in 2007. Third.000 in 2002. It ranked top among all the provinces and municipalities (21. has acted as a pioneer in China’s SME development since 1979. the statistical evidence clearly shows that Jiangsu’s economy is profoundly involved with foreign investment. The famous economic development model – the Southern Jiangsu model. Nevertheless. industry characteristics. By the end of 2007. Both the survey and interviews were conducted in Jiangsu. and wholly foreign-owned enterprises. a province located along the east coast of China and on the lower reaches of the Yangze River.74 billion at the exchange rate of 6. Jiangsu had about 680.. collective-owned enterprises (COEs). contractual joint ventures.g. especially industrial development. while many researchers argue that size may be a key factor in explaining HR practices in SMEs. As the dominant mode of FDI in Jiangsu. a number of HRM studies have used 500 employees as a cut-off point to define SMEs (e.The International Journal of Human Resource Management 2125 clearly exhibit the application of Chinese cultural values to managerial behavior than do large firms.3% of the nation’s total) and it was also the third largest consumer market in China as its retail sales of consumer goods reached RMB783.8). These firms operate in a variety of industries. Cultural and institutional factors will have strong impact on HRM takeup in China’s SMEs.8% of China’s total (Jiangsu Statistical Yearbook 2008). which is mainly about private sector economic development. accounting for 8. with a strong private sector. which consider organizations with up to 250 or 500 employees as SMEs. wholly foreign-owned companies have . First.8 billion (US$114. for instance. In addition. ownership forms. This criterion is in accordance with the definition of SMEs in most parts of the world. There are several reasons to choose Jiangsu as the research site for assessing the transfer and adoption of HRM in SMEs in China. increased by 137% from just 286. Siu 2000). Thus: Hypothesis 1: Hypothesis 2: People management in China’s SMEs will be different from those practices defined in Western HRM models. by itself it is not sufficient to make generalizations for the sector as a whole since other influences affect HR practices in SMEs. Jiangsu’s GDP ranked the third in the country (producing 10. In 2007. Boselie. Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 Method A survey approach combined with in-depth.000 PEs. semi-structured interviews is adopted in the current study. is widely applied in other South-eastern provinces in China. ethnicity or cultural influence and so on (e. Jiangsu. Laursen and Foss 2003. Ram 1991). including sinoforeign equity joint ventures. Storey 2004.

Ding et al. Moreover. provided no untoward claims of generalizability were made (Weiss 1994). Cooper. 698) found that ‘in China. Except unmanageable reasons (i. because of the very nature of SMEs. There were also a few open-ended questions. Walley. some translations were adjusted. it has been widely acknowledged that personal contact is very important when conducting research in China (e. (2006. Ciere and Dowling 2005. Szeto and Cheng (2002). Wright and Hoa 2001). convenience and snowball sampling were adopted in the current study. Deng. As a result. Additionally. two major non-probability sampling methods. Blenkinsop and Duberley 1994. Ding et al.g.g. Two native Chinese speakers. with knowledge in Chinese HRM and bilingual ability. checked all the translation before the questionnaire was finalized to ensure the accuracy of the original translation. (2006).. Zhu. thus. Owing to these factors. as such it is a well-tested and robust research instrument. the researcher used Jiangsu province as the research context for assessing the extent of people management development and HRM experience in SMEs in China. Further. Previous organizational studies in cross-national settings. Since the questionnaire was filled in mostly by senior managers or HR managers.X. the workloads. For example. some 43 Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 . would not be very useful in his study on Chinese small business management. The questionnaire was based partly upon the Best International Human Resource Practices Survey (Geringer. or the position being non-existent within the company). Thus. politically unwise. such as Zheng et al. Some of the questions used a 5-point Likert scale to assess the extent HRM was applied in the organization while other questions asked respondents to tick the most appropriate answers. including the majority of the firms – SMEs. 2006. such as a mail survey. some 168 questionnaires were sent out through a personal network. A number of researchers argue that the response rate of mail surveys in China is very low in general compared to personal ones. as compared to 15. 13 companies (with ‘C’ used as an abbreviation for ‘company’ in the later discussion) granted further access for semi-structured in-depth interviews.. 142 questionnaires were returned (a high 83% response rate).7% (Jiangsu Statistical Yearbook 2008). including China. Frayne and Milliman 2002).g. a number of researchers have stated that many SMEs are reluctant to participate as they see this as time consuming. Cooke 2002. leaving a valid sample of 114 (67. it is usually very difficult to collect primary data and the response rate to mail surveys tends to be relatively low’. After follow-up phone calls and reminders. the interviews tended to include informants from different levels of the organization so as to overcome the problem of using a survey. The questionnaire and administrative procedures were also pilot-tested with an effective sample size of N ¼ 10 (interviewees) with four SMEs. Among these.e. Thus. The questionnaire was translated into Chinese and then translated back into English by the researcher. As Ding and Warner (2001) conclude.85% response rate). the people management system in China may be said to ‘converge’ with international HRM practices within firms that were located in key urban areas. Likewise. Cunningham overtaken joint ventures with 83.. Returns with incomplete information were omitted. or simply because they lack interest (e. Bjorkman and Fan (2002). Menguc and Benson 2003). this approach has been used by other researchers in HRM studies in China.2126 L. as it was felt that a judgemental technique would be acceptable.1%. Duberley and Walley 1995). Siu (2000) concluded that traditional Western survey methods. Based on the definition of SMEs in this particular research.. have demonstrated the validity of this procedure (e. different timetable. Wright. the researcher assumes that the influence in the market has increased the likelihood of HRM take-up among enterprises in the region. It was formed using different types of closed-ended questions designed to make analysis and interpretation easier. in a survey on organizational differences in managerial compensation and benefits in Chinese firms.

it verifies that the interview results could provide further evidence of current HRM practices in SMEs. 7 4 11 11 10 43 % 16.6%. Most informants had earned either a degree from a professional school or a bachelor’s degree from a university (97% and 85.1% respectively). Interviewees Job title General manager Owner-manager HR manager/officer Department/Line manager Employee Total No.3% (95) survey companies had fewer than 300 employees. the Table shows that the company size.6%.7%).6 100 Average age 49 43 36 42 32 40 Age range 38 – 65 38 – 53 25 – 51 31 – 56 23 – 45 23 – 65 .2 100 Female No.7 13.4%. Less than half were directors (41. The service industry was the dominant sector (53. It is important to note that a large number of FIEs in the sample (72.6 25.8 4.4%).76 million (71.3 9. the researcher was confident that the findings from this study could be considered to not only represent a fairly good sample for the purpose of the current study but also provide empirical evidence of the current HRM practices in SMEs. 61 companies) regardless of firm size. 29 companies). The sample was divided into five sub-groups according to employment size. three companies). 1 1 6 6 7 21 % 4. face-to-face basis with a range of personnel from SMEs so as to help verify the survey findings and explore the development of people management in more detail (see Table 2).735.6 28.6 33. SOEs (31. with the majority being more than 18 years old. For instance. 45 companies).6 22. and employees (18. The remainder was composed of HR managers (17. The table exhibits that some 83. Results Descriptive statistics Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 Table 3 summarizes the structural characteristics of 114 companies researched. line managers (16. In contrast to the small portion of COEs (only 2.The International Journal of Human Resource Management 2127 semi-structured in-depth interviews were conducted on a one-to-one.4%.2 100 Male No.2%).8 28.36 years).386 units) were carried out and US$109.6 23.5%. More than 80% held a managerial position within the company. Thus.7 22. Further. 6 3 5 5 3 22 % 27. On average. Demographic information on 43 interviewees.5%. other companies were DPEs (39. The statistics also illustrate that most companies were set up after 1992 (mean firm age ¼ 13.5% of the total investment) were invested in the manufacturing sector in 2004 (China Statistical Yearbook 2004). Table 2.5%). 70% of the total foreign invested projects (30. The survey informants were in their late 30s and had worked for the current organization for more than seven years. the researcher believed that the consistency between the survey findings and interview results would give confidence in the representativeness and reliability of the overall research findings. Although there were advantages and disadvantages in each research technique. the sectors and the type of ownership structure among the 13 interviewed companies were consistent with the survey sample. which accorded with the overall picture of current FDI in China.3 13. 36 companies) and FIEs (25. firms with 151 –300 employees were the oldest companies. 21 companies) were in the manufacturing sector.3 25. In other words.

allocating employees to departments. One of .3 2. the activities of the HR/personnel department in the sample companies remain closer to those of the old pattern. the terminology. of firms 0 1 1 9 2 13 4 7 2 0 13 5 4 3 1 13 13 % of the sample 0 7. For instance.6 12. who was applying personnel rules and regulations to control employee behaviour.6 100 39. the current research findings demonstrate that to some extent. The role of the HR/personnel managers in the SMEs was underlined as that of being ‘supportive’ of the business objectives of the company rather than acting as ‘the policeman’ of the organization. especially relating to the administration of personnel.6 25. the study found differences in the HR/personnel function between the companies researched and the old PA system. such as ‘human resource’ rather than ‘personnel’ was often used by the senior managers.7 100 100 Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 The role of the HR/personnel function Goodall and Warner (1997. The survey sample Groupings Employment size .7 7. recording clock-in.8 53. and arranging training and promotion.8 21. controlling and punishing’. the findings seem to suggest that the role of the HR/personnel function in SMEs still remains partly the same as in the old system.5 31. Cunningham Table 3. HR practitioners and line managers during the interviews. In addition to the similarities.5 30. In contrast to the activities described in the traditional Chinese personal administration (PA) (renshi guanli). The importance of the personnel function in the organizations was emphasized by senior managers.7 100 53.9 16.22 15.8 15. participating in employee recruitment and selection. Indeed. organizing induction courses.38 100 30. the range of powers of the HR/personnel department in the SMEs has moved away from the old form of PM practices (PA).4 2. 587).8 15. 589) stated that the role of the personnel department in the old ‘iron rice-bowl’ system was mainly one of ‘monitoring.7 69. Moreover.5 31.4 0 100 38. HR practitioners and line managers as being to ‘convey company policies and principles to employees so as to ensure no misunderstanding occurs’ (as quoted by the HR manager in C4) rather than ‘acting as a vehicle for ensuring conformity for the Party’ (Goodall and Warner 1997. Table 4 shows that personnel managers in the interviewed companies mostly dealt with payroll and social benefits. of firms 34 18 18 25 19 114 61 36 14 3 114 45 36 29 3 1 114 % of the sample 29.2128 L.6 0.0 7.9 100 The interviewed companies No. 50 50 – 100 101– 150 151– 300 301– 500 Total Sector Service Manufacturing Others Non-profit Total Type of ownership DPE SOE FIE COE Not known Total No. For example.8 23. Characteristics of sample of 114 SMEs.X.8 15.

HR practitioners. training. line managers were key decision-makers in terms of HR issues. policy training resourcing. performance appraisal Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 C6 C7 C8 C9 C10 C11 C12 C13 the major responsibilities of the PA department in terms of managing personnel files. For instance. Furthermore. this study also implies that the attempt by HR managers to shift from an operational to a strategic role is obstructed. legal regulations initial recruitment. contracts. the development of the HR/personnel function in SMEs. Company C1 C2 C3 C4 C5 Do you have an HR/Personnel Department? (Alternative department) Yes Yes No (Admin Office) No (Personnel & Admin) No (Admin & Personnel) No (Admin & Personnel) No (Admin Office) No (Admin & Personnel) Yes No (Personnel Dept) No (Finance & Personnel) No (Logistic Dept) No (Personnel & Admin) 2129 Role of personnel function (HRM practices) resourcing. notably the nature of an SME itself. development. training and rewards’. although there is a noticeable difference from the role played by personnel in the traditional PA system. filing payroll payroll recruitment. reactive and short-term in outlook. filing recruitment.The International Journal of Human Resource Management Table 4. trivial matters rather than decision-making processes (Table 4). In addition. . For example. rewards. evidence shows that the role of the HR/personnel function in the companies researched is still far from that of ‘a strategic partner’ as defined in the Western HRM concepts. Overall. Hence. C12 and C13). C4. involvement payroll. C6. the operational role is reinforced by a perception among interviewed senior managers. and the old habits and mindsets of a traditional Chinese management style. may result in a negligible rather than a crucial role for the HR/personnel function from both administrative and strategic perspectives. which can be characterized as halfway between the old PA system and the HRM approach. rewards. HR/personnel function in 13 interviewed companies. such as recruitment. the current findings support hypothesis 1 by demonstrating that the role of the HR/personnel function in SMEs is still very different from the Western HRM concept. Further. development. the survey findings demonstrate that the top three functions of the HR/personnel department are recruitment. that is. line managers and employees that there is insufficient HR talent available to fulfil the strategic role (as in C1. the position of the personnel department in the company is being weakened by the devolution of HR responsibilities to line managers. insurance. has become increasingly insignificant as employees’ mobility has been enhanced in recent years. payroll. rewards. whereas top management involvement is one of the least common functions (Table 5). insurance payroll. informal. for instance. ‘in reality. C7. development. involvement resourcing. training payroll. involvement payroll. Further. the owner of an advertising company (C4) claimed that. clock-in. training and development and labour relations. Although it is clear that the HR/personnel function in the SMEs is different from that in the traditional Chinese PA. C3. involvement front-line employee recruitment. C11. the findings show that significant barriers to implementation exist. In addition. the research exemplifies that the HR/personnel specialists in the interviewed companies are mostly involved with day-to-day.

The findings illustrate a contradictory labour – management relationship in the SMEs researched.0 52. the research demonstrates that some changes have been made in people management practices in SMEs. HR/personnel function in 114 survey SMEs. By comparing HRM practices in Chinese SMEs with Western HRM models. For employee development.5 54. the interview results reveal that the content of training programmes is more about general knowledge than about sophisticated and specialized practices.4 23. However. Although most interviewees. HR function Recruitment Training and development Labour relation Compensation Performance appraisal Safety and health Selection Top management involvement Career planning Collective bargaining Number of firms 90 75 73 65 61 59 49 31 26 12 Percentage of the sample 79. while the techniques of recruiting and selecting a suitable candidate in the SMEs are still simple. especially in improving employees’ technical abilities. informality in employee relations in the companies researched does not disguise or smooth away the power relationships that shape the management process.0 10. including managers and employees. the level of employee involvement in decision-making remains low. it is clear that people management in the companies researched is significantly different from past personnel practices. In relation to employee rewards. but in the meantime. claimed their boss was friendly and caring.X. the importance of the HR/personnel function in business was acknowledged by senior managers and line managers.2130 L. For example. unified job allocation and cradle-to-grave welfare.4 64. . it is also reported that the reward system in SMEs has increased tensions among different interest groups and has impaired employees’ legal rights. In terms of employee resourcing. for instance. although there are problems in translating awareness into action. which are defined by various researchers as a system of guaranteed lifelong employment. In addition. Table 6 summarizes the major characteristics of four key categories of HRM practices and the role of the HR/personnel function in the companies researched. As Ram et al. again.6 Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 The extent of HRM practices Based on the survey and interviews. the limited rates of dismissal among the companies are largely owing to a desire to avoid the negative consequences that may result from the action rather than to the strong position of employees at the negotiating table.6 57.4 27.6 66.2 43. The table also illustrates that problems and difficulties may occur during HRM take-up in those companies. although the progress is slow and the effects on business performance are minor. evidence shows that companies can source potential employees from a more diverse labour market in contrast to the one in the pre-reform period. While the current study demonstrates that the implementation of HRM practices in SMEs is still at an initial stage of development in comparison with Western management concepts. the research findings indicate that the need for an egalitarian pay reward is weakening in most SMEs as individual and/or group performance becomes the major focus in pay and reward schemes. the survey demonstrates that most companies have made an effort to improve training. Cunningham Table 5. (2001) argue.

Positional and seniority wages. loyalty to the firm as part of reward criteria. – A recognition of the importance of HR. – Little interaction among departments. One-way. Narrow and task-related training content. – Personal connections lead to selection bias. Technical training is addressed. Monetary reward is the most important means. Resourcing – Lack of highly skilled HR professionals. Non-management training is informal ‘on the job’. Development – – – – – – – – Rewards – – – – – The International Journal of Human Resource Management Relations – – – – – – – Lack of involvement at strategic level. 2131 . – Simple and basic tasks. Insignificant roles of Trade Union and Workers’ Congress. Reward system becomes more sophisticated and diverse. – Conflict between reward strategy and employees’ legal rights. Minimal employee benefits. – Contradictory labour – management relationship. – Internal recruitment policy. Participation is confined to operational issues. Widespread performance-related reward scheme. Management trainings are to benefit from formal external courses and study. downward communication. – Reluctant to engage in sustained investment in the process. More market-driven Limited training opportunities. – Tensions among different interest groups. – Difficulties in finding highly qualified employees. – Gaps between HRM theory and reality. – Inconsistency in understanding HR role among different interest groups.Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 Table 6. Problems and difficulties HRM Key features The role of the HR function – Functional and operational. More diverse labour force. Most DPE are non-union firms and have no plan for recognition. Workplace attitude and behaviour. employees and managers. – Conflict planning. – Training planning is mainly based on personal perceptions and expectations of senior managers. Importance of informal ‘grapevine’ methods. Informal dismissal and termination procedures. HR function and key HRM practices in the researched SMEs.

Hence. For instance. still had a strong bearing on employee motivation. a structural wage system combined with a performance-related and finance-driven reward scheme. one of the key cultural factors.. Traditional Chinese culture and national institutions not only affect the take-up of HRM in SMEs as they shape the national environment in which SMEs are operating. determined SMEs’ pay structure. some reservations about Chinese characteristics exist in a subtle way. In line with the conclusions made by some HRM scholars in their studies of Chinese large enterprises (e. Ding. 2009) has noted that the role of national culture and institutions weighs heavily in the balance in the study of HRM in China. However. an insurance system for employee’ benefits. this study concludes that Chinese characteristics will persist in people management in SMEs. Although the interviewed firms had different ownership forms and were from different industry sectors. industrial sector and pervasion of personal connections in the workplace. the current study on the extent of HRM practices in SMEs also supports hypothesis 1. more market-driven management model compared to the traditional Chinese PA system. the role of the state) have insightful impacts on the adoption of HRM in SMEs. it is not the same as the HRM model in the West. a hierarchical.e. The impacts of institutional and cultural factors Warner (2001. Therefore. Further. while cultural values. Again.. working attitudes and behaviours.2132 L. institutional factors (i..e. downward and one-way communication in employee relations was encouraged by traditional Chinese cultural values.g. In agreement with Warner and Zhu’s (2004) review on Chinese management. but also influence the process directly through their impacts on firm type and patterns of behaviour. The results illustrate that people management in SMEs in China have emerged with a new. Moreover. Goodall and Warner 2002). . Table 7 summarizes the impacts of key contextual factors on the adoption of HRM in the companies researched. relationships. therefore. the findings also reveal that the influences of cultural and institutional factors have remained surprisingly resilient. such as a great concern for relationship. In employee reward. that the role of the HR/personnel function in the sample companies was influenced by ownership. the findings demonstrate that personal connections (guanxi). still play an important role in today’s market in China. Cunningham Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 Moreover.. harmony. especially in the recruitment and selection processes. The research findings confirm his argument by showing that traditional Chinese culture (i. personal connections still had an effect on employee resourcing practices. the results confirm that types of ownership and firm size are two key variables in explaining an organization’s choice of HRM practices in SMEs. The evidence shows. moreover. the findings show that the main features of people management in SMEs are similar to those defined in the ‘newer’ PM in China in that all companies had labour contracts with their employees. Ding and Akhtar 2001. the interview results illustrate that the development of all companies is greatly influenced by economic reforms. harmony and preservation of face) and national institutions (i. While exploring the causes behind the differences experienced in the SMEs. beneath the surface. preservation of face. In addition.e. although there is a slow convergence towards Western HRM practices in SMEs in China. the evidence shows that the influence of these factors grows as development progresses. market uncertainty) rather than the firm’s needs.X. the features of training programmes were influenced by the companies’ type of ownership. for example. a hierarchical and centralized organizational structure with the trade union having only a weak role. external courses for management training.

although it is evident that some core concepts in the Chinese cultural value system have been challenged as people management in SMEs moves towards a more market-driven system (i. national institutions and traditional culture provide support for the development of HRM in SMEs. the research indicates that to a certain extent. However. there is a great amount of literature on HRM in China. (1999) that there are strong cultural and institutional factors that limit the adoption of many features of HRM in SMEs.. 2002). the main purpose of the current study is to help fill the gap. this study supports hypothesis 2.. harmony vs the emphasis of individual skill development). For example. The current study confirms the findings on the importance of Chinese culture. Mok and Lee (2002). TVEs or SOEs (see Cunningham 2008). In sum. Schlevogt 2001). Major contextual factors HRM The role of the HR function Employee resourcing Employee development Employee rewards Employee relations Cultural values 2 þ /2 2 þ /2 2 Institution / 2 þ þ / Ownership forms 2 / þ /2 þ /2 2 2133 Employee size / 2 2 / 2 Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 Notes: ‘2 ’ ¼ ‘negative effects. Wright et al. In other words. Malina and LU (1995) and Verburg et al. ‘/’ ¼ ‘negligible effects’.The International Journal of Human Resource Management Table 7. reducing operational costs and creating favourable working environments. Thus. It supports institutional theory. Whitley 1992. Effects of major contextual factors on the take-up of HRM in SMEs. less work has been done on HRM in SMEs. ‘þ ’ ¼ ‘positive effects’. 2000. the current study illustrates that to a reasonable extent.g. so as to benefit management. On the one hand. The cultural factors act as an incentive mechanism to inspire employees’ inner enthusiasm. Pauuwe and Boselie 2005). Wong. nevertheless. conversely. is a further issue to be considered. in the HRM take-up in Chinese enterprises by Warner (2009. the research implies that Chinese characteristics may not be as negative as has been claimed in the HRM take-up in Chinese enterprises (e.g. such as Confucianism. which emphasises that dominant institutions have an important influence on the kind of HRM practices that are adopted by organizations and are the key to the explanation of their characteristics (DiMaggio and Powell 1983. Chinese cultural values and national institutions do appear to have a positive effect on people management in SMEs. By saying this. 2001). The research demonstrates that cultural and institutional factors still play an essential role in people management in SMEs. the findings support the argument of Easterby-Smith.. Similar as the arguments made by some HRM scholars (e. Thus. Discussion Currently. and Child and Warner (2003). rather than allow them to form barriers. Government policies and regulations have encouraged SMEs to invest in their employee development and secure basic social benefits for their employees. the research shows that the effects of contextual factors on the development of people management in SMEs is mixed and complicated. Siu and Glover 2001. . handling contextual factors. such as institutional and cultural forces. guanxi in employee resourcing facilitates the development of SMEs by expanding a business network. On the other hand.e. Ding et al. mostly drawn from largesized enterprises (1000 employees plus) and the major focus is on JVEs.

Implications The current study has a number of practical implications for Chinese SMEs’ managers. this study reveals that people management in SMEs in China displays some resemblances to such management practices in SMEs in the West.e. the current study in particular presents further crucial empirical evidence for the specific roles to be played by culture and institutions in the transition of HRM in SMEs in China. such as a belief in the importance of HR but lacking any formality (i.. dismissal and termination procedures) (Ram 2001.. 2002. the findings of this study provide the reader with a better understanding of the nature of people management in SMEs in China and the possibility of the HRM take-up in a different institutional and cultural setting. HR practitioners and policy makers. the historical development of the 13 interviewed SMEs confirms the argument made by Edwards and Ram (2006) that the survival of SMEs relies on the dynamic use of resources and the context of changing economic and regulatory conditions. evidence shows that informal approaches to employee resourcing (i. a more systematic approach to recruitment and selection in employee resourcing practices should be encouraged so as to reduce bias and errors. the current study reinforces the argument made by Ding. . ‘sitting by Nellie’) (Marlow 2000. line managers and HR practitioners in people management in SMEs in China. Gray and Mabey 2005). recruitment and selection becomes ‘part of the broader process of socialization rather than isolated episodes of choice’ (Sue 2005. Consequently. While the research demonstrates that differences remain between people management in SMEs in China and Western HRM concepts owing to deep-rooted cultural and institutional factors. For example. the whole management team/line manager undertakes the role of HR). those firms should be called medium-sized enterprises. this study supports the findings by Storey and Westhead (1996) and Hill and Stewart (2000) on external uncertainty as one of the key characteristics of SMEs. the aims of recruitment and selection for SMEs’ managers and HR practitioners are not only to find the right person to fit a specific job. Earnshaw and Taylor 1999). ‘word-of-mouth’) (Cassell et al. the role of the HR function in these SMEs appears to follow a pattern similar to the one described by Marlow (2000) in her study of 64 small firms (. though more precisely. no personnel or HRM manager in post. Lan and Warner (2001) and by Ding and Akhtar (2001) that ownership and firm size are key determinants in shaping HR practices in an organization. Marchington. Wilkinson 1999) are the most common methods applied in the companies researched. but also to help build a long-term commitment to the organization by allowing new employees to gain a realistic understanding of the job and organizational culture. Further.e. as well as for foreign managers and companies who are doing or intending to do business in the Chinese market. Thus. Similar to other studies of SMEs in other countries (Hornsby and Kuratko 2003.X. 210 employees) in the UK.. In this sense. Carrol. facing the most common problem relating to retaining highly qualified employees within the company. firstly.e. finding and retaining highly qualified employees is the major problem mentioned by most interviewed senior managers. informal discussions. Cunningham Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 Further. some traditional. moreover. training (i. a problem in respect of translating awareness to action. Looking at the four main HRM categories.e. Additionally. Harry 1999) and employee relations (i. On the whole. additionally. informal approaches.2134 L.. and that the HR decision-making process is concentrated mainly in the hands of owner-managers or the management team. Overall. such as ‘word-of-mouth’ and personal connections. Again. 143).

With regard to employee relations. as new institutionalism suggests.The International Journal of Human Resource Management 2135 which may have limited the HRM take-up. it would be unwise for policy makers to assume that economic pressures will force all firms to upskill their workforce. Second. In a way. and consequently. Thus. it is evident that recruiting an Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 . employee involvement. on the one hand. For instance. For instance. a total reward scheme may be a better choice by the SMEs’ managers and HR practitioners in order to allow rewards to be offered that meet diverse needs. the main approach adopted in SMEs. foreign managers can learn from the best practices of certain successful Chinese enterprises. In contrast. This finding implies that Western HRM experience does not necessarily prepare a company or individual for the Chinese market. Therefore. For example. most senior managers (including owner-managers and general managers) during the interviews showed satisfaction with their companies’ current situation and had no plans to change. particularly the achievement of qualifications. the widely adopted performance related pay schemes in SMEs in China might have nothing to do directly with the pursuit of business success but to aim ensure conformity within social. In other words. In addition. which may not reflect the importance of informal learning in the workplace. the state still can alter the relationship by raising the awareness of individual employee rights. how to address informal training. the organization may well conform not because practices are proven to contribute to improved business performance but because they are encouraged to copy what others are doing (DiMaggio and Powell 1983). the current study implies that there is not a universal movement towards higher skills as a key component of organizational strategy. Further. merely reinforces authority and management control through more sophisticated means (Marchington and Wilkinson 2005). Thus. such as direct participation and team working. On the other hand. for instance. especially in SMEs. especially in SMEs in China. the government monitors progress towards the upskilling of the national workforce by means of measuring formalized training. Additionally. for employee rewards. In doing so. some scholars argue that encouragement of employee involvement in the organization does not fundamentally challenge existing labour–management relations. is a further issue for consideration. Practical implications for foreign companies in doing business in China are also abundant. Thus. In terms of employee development. since ‘guanxi’ personalises human relations in formal business operations. the extent to which HRs can contribute to the company’s competitive advantage may not have been fully captured by the previous research conducted largely from a Western perspective. the current study demonstrates that HRM in SMEs in China is different from that of the West. However. some support will be given to employees where they are weak and uncertain of their formal rights. In addition. labour was a cost to be minimized. political and cultural expectations. Accordingly. finding a way to develop and use ‘guanxi’ rather than diminish it may provide better opportunities for foreign companies when dealing with Chinese partners or doing business in the Chinese market. through unfair dismissal protection. are useful as they enable candidates to develop an accurate picture of what to expect if they join the company. price leadership rather than skilled employees was addressed by those senior managers as the key to their business strategy. this study has shown that different types of employees value different types of reward. although they admitted that the business was competing at a low margin with limited differentiation and relatively low specification offerings. foreign managers and companies should realise that it is not impossible but difficult to be impersonal in China. furthermore. cultural and institutional impacts should be taken into account by foreign companies when anticipating how their Chinese employees may interpret and react to their HR practices.

development. and gain competitive advantages to a certain extent. In addition. Second. such as the Confucian value-system.g. the evidence illustrates that traditional mindsets. merit and performance) and a certain flexibility to cope with the Chinese cultural and institutional environment.2136 L. In order to gain as much information as possible from different sources. Though triangulation was used to minimize the problems in both the survey and semi-structured interview research methods. Since the gathered data should not be taken as being representative in the statistical sense of all SMEs in China. a more comprehensive investigation of HRM practices in SMEs in China would require the involvement of enterprises from different regions and perspectives. still have a strong impact on people’s behaviour and. In line with the argument made by Becker and Gerhart (1996). could not be avoided. managerial and employee levels) and the degrees vary among different practices (e. Conclusion Although the evidence shows that it is questionable to presume HRM is effectively embedded as a Chinese practice. Downloaded by [University of Santiago de Compostela] at 10:47 01 February 2012 Limitations and future research The focus of the current study is on urban SMEs with fewer than 500 employees in Jiangsu province. the current research has demonstrated that a change of people management has taken place in SMEs in China. With this in mind. Foley. the current data set is a little bit too thin for a quantitative data analysis. moreover. the finding suggests that foreign managers and HR practitioners may reconsider their HRM policies and practices in the Chinese market with special reference to ‘guanxi’ competencies and skills. the current study can claim only to be exploratory. prudence is necessary when interpreting the results. In other words. Overall. although HRM is playing an important role in helping SMEs to become more efficient. influence the extent of the adoption of HRM practices in companies. Although the discussions were supported by reference to other published studies. Overall. Young and Chan 2005).X. HRM in SMEs in China is still at its initial stage. the nature of both methods. the ‘iron rice bowl’ work culture.g. the key for foreign companies to operate successfully in the Chinese market is to find a balance between the company’s principles (for example. In the meantime. which provide only a snap shot of one point of the development of HRM in these firms. Conversion from a traditional Chinese PA towards Western HRM practices is in process. The transition appears at different levels within organizations (e. the researcher adopted a mixed method approach. the current study implies that the notion of ‘best practice’ should be understood as a shifting and . therefore. and relationshiporientation vs rules-based institutions (Ahlstrom. a longitudinal and participating study in the future would be the ideal way to offset the weaknesses of the current method. Also. but this may not be such a bad result within the unique Chinese context. sectors and countries.. but the progress is slow. No inference is made with regard to SMEs from rural and/or other regions in China. a systematic comparative study is encouraged across regions. such as the legacy of command economy. employee resourcing. Therefore. These contextual factors may hinder the movement towards purely ‘Westernized’ HRM practices. A much larger database could provide more reliable evidence. the sample was chosen through loose personal connections rather than a random selection. third. rewards and relations). Cunningham employee who has ‘guanxi’ may help the company in building effective business relationships with other interest groups in the Chinese market.. Eastern China.

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