Strategic Human Resource Management in China: East Meets West

Author(s): Xiaoya Liang, Janet H. Marler and Zhiyu Cui

Source: Academy of Management Perspectives , May 2012, Vol. 26, No. 2 (May 2012), pp.
55-70
Published by: Academy of Management

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2012 Liang, Marler, and Cui 55

SYMPOSIUM

Strategie Human Reso

East Meets West

by Xiaoya Liang, Janet H. Marler, and Zhiyu Cui

Executive Overview
This paper outlines important ideological, inst
human resource management practices are pos
of the high-performance work systems model
socioeconomic and political context, the cost-b
resource management practices is different from
strategic human resource management resea
high-performance work systems and organizat
conclude with a case example to illustrate how
high-performance work system model to bette

concerning SHRM practices in China over the

agement (SHRM) emerged out of research past 30 years.
Theers'study
interests inof strategic
understanding human resource man
the relation Beginning in the 1980s, as part of economic
ship between human resource management and liberalization policies, the Chinese government
organizational performance (Delery & Doty, initiated and legitimized substantial economic
1996; Kaufman, 2007). Since the late 1980s, and social reforms. As a consequence, China
most research evidence in this vein has been
represents an opportunity for researchers to ex
collected from firms located in the United amine the contingent effect of external envi
States (see Combs, Liu, Hall, & Ketchen,ronmental
2006; change on firm-level choice of hu
Huselid &. Becker, 2011; Kaufman & Miller, man resource management (HRM) practices.
2011; Lepak &. Shaw, 2009; Lengnick-Hall, How and to what extent are HRM practices in
Lengnick-Hall, Andrale, & Drake, 2009). In China changing in the face of significant
the last decade, however, researchers have ex
changes in economic and political policies?
panded their scope of inquiry to examine With greater liberalization and greater accep
SHRM practices in other national contexts. tance of a capitalist-based business model, is
Such research is now at the forefront of SHRM there evidence that Chinese firms are adopting/
converging toward a set of "universal" best
research, and evidence is still accumulating. In
this paper, we review the state of knowledgeSHRM practices (Delery & Doty, 1996; Oster

Xiaoya Liang (xyliang@fudan.edu.cn) is Associate Professor of Management in the School of Management, Fudan University, Shanghai,
P.R. China.
* Janet H. Marler (jmarler@albany.edu) is Associate Professor in the School of Business, University at Albany, State University of
New York.

Zhiyu Cui (082025069@fudan.edu.cn) is a PhD candidate in the School of Management, Fudan University, Shanghai, P.R. China.

Copyright of the Academy of Management, all rights reserved. Contents may not be copied, emailed, posted to a listserv, or otherwise transmitted without the copyright holder's express written permission.

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 56 Academy of Management Perspectives May

of Chinese dynasties (Sun,

man, 1994; Pfeffer, 1998)—the 2002; Zhu, 2005).
high-commit
ment, high-performance work
Identifying system
this tacitly held and valued(HCWS/
association
HPWS)1 model—or between
is there evidence
social status and of
standing in the govern
variation depending onmental
key hierarchy, Chen, Li, and Liang
contextual (2011)
differ
ences at the national called
(cultural
this implicit biasand legal
the Government insti
Official
tutions) and organizational
Standard (GOS)levels (ownership
value orientation. This was par
and strategy)? ticularly reinforced in 1955 when the Communist
Party
In addressing the topic, thisintroduced
paper the cadre
firstsystem, an employ
outlines
ment classification system and
important ideological, institutional, that categorized
culturalpeople
into different
contexts that shape what SHRM employment levels. For every
practices are
possible and therefore have "cadre" (employee)
a bearing who worked onin the
the govern
emer
gence, and possible convergence, ment bureaucratic system, toward
the cadre systema spec
U.S.
derived HPWS model. Next we review recent ified levels and unified salary standards as well as
China-based SHRM research to summarize the particular employment benefits (housing, trans
empirical evidence concerning the emergenceportation,
of health benefits, etc.). During the
HPWS in companies operating in China. height
We of the Communist regime in China, the
conclude with a case example to illustrate how
cadre system determined an employee's status and
Chinese firms appear to be both adopting and
wealth because it represented an employee's only
adapting the HPWS model. access to scarce goods and services that wages
could not buy at that time.
The Chinese Context The cadre system also represented the de facto
Chinese strategic HRM, a system of HRM prac
tices that was consistent with the Chinese gov
gic HRM in China, we begin by tracing how
To thesetpolitical
up the policiescontexts for understanding strate
of the Chinese govern
ernment's "iron rice bowl"2 employment policy
and political objectives. Although the unified
ment shape individual attitudes toward organiza
wage standards and associated distributive benefits
tional careers. We then describe key features of
were abandoned in the 1980s, the cadre system is
the newly enacted Labor Contract Law that
still in effect in many state-owned enterprises
changed the legal framework governing HRM
(SOEs) and other public institutions and still un
practices and the nature of the employment rela
derpins the process that many Chinese organiza
tionship in China beginning in 2008. We finish
tions and professions use to determine job hierar
with an overview of the complex and changing
chies and status. The cadre system is an example
composition of industrial ownership over the past
of strategic HRM that is uniquely Chinese as it
30 years and its relationship to what HRM prac
exemplifies an institutionalized notion of "best
tices are adopted in China.
practice" HRM in China that emerged out of
unique historical circumstances and continues to
Social Changes
affect current configurations of human resource
Individuals in China have come to associate their
management practices.
status and sense of self-worth with their role and
Current Chinese economic reforms have also
standing in the government bureaucratic system, a
played a crucial role in shaping the social values
vestige of the feudal system that existed in China held by managers and employees (Walder, 1996).
thousands of years ago and was subsequently rein
Signaling for the first time a sharp departure from
forced by similar systems across many generations the taken-for-granted Communist norm of equal
ity, Deng Xiaoping, in the early reform era, en
couraged
1 We use HPWS, HCWS, and universal best HRM practices inter a new ideology in which "some people
changeably to represent the same concept, the idea that there is a bundle
of HRM practices that are associated with better financial performance in
all firms, despite contextual differences—hence the word "universal" (Del2 "Iron rice bowl" is a Chinese term used to refer to occupations that
ery & Doty, 1996). have guaranteed job security, steady income, and benefits.

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2012 Liang, Marler, and Cui 57

get rich first." The government proceeded to issue through its control over ownership, personnel,
a series of policies to stimulate entrepreneurship, and capital resources. What Lin has observed over
loosen the constraints of wealth accumulation, the past two decades of China's reform is a "fur
and, consequently, support the emergence of a ther consolidation of state power over politics and
new class of entrepreneurs who became conspicu economy rather than decline" (Lin, 2011, p. 92).
ously wealthy. These new social models of success During the 1990s and early 2000s, the Chinese
encouraged a greater desire for money and mate government gave business enterprises a great deal
rial goods (Jin, 2008) and made it highly fashion of discretion over their employment practices. As
able to become an entrepreneur and to start a a consequence, labor regulations were rarely en
business, invest in stock markets, or change jobs as forced. The business-friendly labor environment
a way to get rich quickly. Such economic devel helped enterprises to maintain low labor costs,
opment brought about a new group of managerial and as a result, privately owned Chinese busi
elites who legitimized the importance of wealth in nesses grew rapidly in the 1990s. This policy
the minds of the Chinese (Walder, 2011). This changed in 2008 with the introduction and en
new Western (particularly American) view of forcement of a new national labor law, the Chi
wealth, combined with Deng's pragmatic ideol nese Labor Contract Law, which compels compa
ogy, gradually replaced socialist egalitarian values. nies to adopt more uniform HRM practices—yet
Over this period of economic reform from the another change in the government's economic
late 1980s to the early 21st century, employees' policy.
preferred employer of choice shifted away from The new law emphasizes greater employee
SOEs to foreign joint ventures. Interestingly, this rights and participative labor relations that are
shift has reversed itself recently, as the 2008 global supposed to emulate the German labor model. For
financial crisis saw many small privately owned example, similar to Germany's codetermination
Chinese firms go out of business, returning more rules, the new labor legislation encourages em
stable SOEs such as China Mobile and the Bank ployee involvement in policy making through
of China to preferred-employer status (see Table company unions and employee councils. The law
1, which tracks "the best employer ranking"requires in employers to consult employee represen
China from 2003 to 2011). This shift also indi tatives on important decisions and policies con
cates that many still value the social status thatcerning
is employees' well-being. The new law also
associated with standing or job level in the gov compels firms to establish formalized HRM poli
ernment bureaucracy. cies, processes, and systems, shifting from informal
and perhaps more arbitrary management to formal
Politics and Legislation rule-based management. To avoid lawsuits, firms
Organizational theorists have made various pre now need to build consistent HRM systems—for
dictions concerning the outcome of the Chinese example, linking performance and compensation
transition from state socialism to a market econ based on quantifiable measures that are formally
documented. To ensure compliance, the new law
omy, including a power shift from the state to the
market, increased reward for human capital (Nee, details penalty terms and provides channels for
1989), and co-evolution of markets and politics potential employment disputes.
(Zhou, 2000). Although no single accepted expla The new law also replaces "employment at
nation has emerged (Keister & Zhang, 2009),will" with a required formal contract for all full
accumulating empirical evidence suggests thattime jobs. This is aimed at promoting long-term
state power has not changed much during theemployment stability by specifying the duration of
transition. The government is still in control anda labor contract. Employers can no longer termi
state employment still widespread. Lin (2011) re nate a labor contract at their discretion. Instead,
cently described China's development path as they must meet mandated conditions before re
centrally managed capitalism in which the state
voking a contract. If a contract ends and is not
plays a crucial role in every aspect of the economy
renewed, employers are required to pay severance

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 58 Academy of Management Perspectives May

Table 1
Best Employer Rankings in China (2003-2011 )
Year Top 10 in order
2003 Haier, IBM, Microsoft, Lenovo, P&G, GE, Motorola, Huawei, China Mobile, Siemens

2004 Haier, IBM, P&G, China Mobile, Microsoft, Lenovo, Huawei, GE, Siemens, China Telecom

2005 Haier, IBM, P&G, Lenovo, Huawei, China Mobile, Microsoft, LG, Siemens, GE

2006 Lenovo, P&G, Huawei, IBM, Haier, China Mobile, Microsoft, Tencent, Siemens, GE

2007 Lenovo, China Mobile, Haier, Huawei, P&G, IBM, Microsoft, CNPC, Alibaba, Baidu

2008 China Mobile, Huawei, P&G, Lenovo, Haier, IBM, Microsoft, CNPC, BOC, Google

2009 China Mobile, P&G, Haier, Huawei, BOC, Google, CNPC, Lenovo, Alibaba, Baidu

2010 China Mobile, Alibaba, Haier, Microsoft, BOC, Google, Lenovo, P&G, ICBC, China Telecom

2011 China Mobile, BOC, Alibaba, Microsoft, ICBC, P&G, CNPC, Huawei, Baidu, Google

Source: www.chinahrd.net annual survey results combined by the authors.

Note: BOC = Bank of China, ICBC = Industrial and Commercial Bank of China, CNPC = China National Petroleum Corporation.

pay. In addition, after an employee has worked for industrial production was state owned. Table 2
an employer for 10 years or completed two short lists the different ownership types in China today
term contracts, the employer must grant the em along with the distribution of employees across
ployee an open-ended employment contract. As a the different ownership types. As shown, POEs
consequence, terminating employment is now employ the most (over a third of the workforce),
harder and more costly. In addition, compensa and represent more than half the number of firms
tion practices must be formalized and documented in China. Foreign-invested enterprises (FIEs) are
so that employees can enforce their rights. the next most predominant employer and repre
The new law suggests that the government is sent about 10% of the total number of business
interested in encouraging more European-style enterprises operating in China. Together POEs
HRM policies, which focus more on employees as and FIEs represent more than two thirds of the
long-term stakeholders. (Although whether em number of firms operating in China and employ
ployees, as stakeholders, are equal to business more than 45% of the labor force. Interestingly,
owners, such as the state, is not clear.) however, although SOEs represent only 2.4% of
With the introduction of this new legislation, the number of firms in China, they still employ
the government may also be imposing constraints more than 10% of the labor force.
on the degree to which Chinese firms can align
their HRM models with business strategies that Evidence of Strategic HRM Practices
are cost-focused because employment contracts
limit employers' ability to lay off employees or China, we searched major leading HRM jour
deny them severance pay when business volume To nalsdiscover how(Journal
written in English strategic HRM is practiced in
of International
declines.
Business Studies, International Journal of Human
Resource Management, Human Resource Manage
Business Ownership ment, Journal of Applied Psychology, Academy of
The evolution of industrial ownership represents Management Journal, and Management and Organi
another important change in China's economic zation Review) from 2002 through 2011 for empir
transition, marked by the rise of collective-owned ical SHRM studies in the Chinese context. We
enterprises (COEs) in the 1980s and the rapid also searched Strategic Management Journal, Per
growth of privately owned enterprises (POEs) in sonnel Psychology, and Journal of Management, but
the 1990s. The expansion and diversification of no relevant studies were found. We limited our
private firms has created a national competitive search to the period from 2002 onward because
external labor market that did not exist when all Kim, Wright, and Su (2010) conducted a similar

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2012 Liang, Marler, and Cui 59

Table 2
Chinese Firm Ownership Forms and Distribution

%of % of %of
Total Industrial Total

Ownership Type Definition Firms Output Employees

State-owned enterprises (SOE) Enterprises in which the state has the controlling 2.4% 12.3% 11.1%
stake

Collective-owned enterprises (COE) Enterprises owned by the local government (i.e., 2.4% 1.7% 2.3%
township and village enterprises)

Foreign-invested enterprises (FIE) Enterprises funded by foreign investors 9.4% 18.3% 14.8%

Private-owned enterprises (POE) Enterprises owned by domestic individuals 58.9% 29.5% 33.7%
Others 26.9% 38.4% 38.1%
Source: Chinese Statistical Yearbook, 2010.

literature search and found no China-based gency perspective is taken, the adoption levels of
SHRM articles before 2002. Our database search HPWS were lower in SOEs than in FIEs and POEs
revealed only 19 empirical studies on China-based
(Gong, Law, &. Xin, 2006; Ngo, Lau, & Foley,
SHRM, compared to more than 300 empirical 2008). The Chinese government's strong influ
studies on SHRM conducted mostly in developed ence in SOEs' staffing levels and hiring practices
countries (Huselid & Becker, 2011). (Wang, Brüning, &. Peng, 2007) to some extent
Of the 19 studies, seven appear to examine constrains the possible HRM practices SOEs are
strategic HRM based on a contingency perspec able to adopt.
tive. The remaining 12 studies focused on exam
ining the extent to which the practice of HRM in HPWS in China
Chinese companies mirrors universal best-practice
As in the pattern observed in U.S.-based empiri
HRM practices—the HPWS model—and as such
cal studies of SHRM, there is a great deal of
can be expected to replicate a positive relation variance in the measurement of strategic HRM
ship with firm-level performance. Based on these
across studies in China, which makes comparison
sample results, scholars studying strategic HRM in problematic.5 Table 3 summarizes the measures of
China appear biased toward defining strategic strategic human resource practices and of firm
HRM in terms of a universalistic model rather
performance for the quantitative empirical stud
than taking a contingency perspective. This is ies. Despite substantial measurement variation, we
surprising given the enormous environmental
discuss our review of this empirical evidence by
changes Chinese firms have faced in the last taking a more detailed look at these studies to see
30 years and the growing literature in Europe what we can learn about possible convergence to
demonstrating the contingent effects of cultural,
a universalistic HPWS HRM configuration
legal, and historical contexts (Brewster, 2004; in China.
Festing & Sahakiants, 2010; Gooderham, Nord
As already noted, Western SHRM researchers
haug, & Ringdal, 1999).
disagree on the exact content of SHRM best prac
By contrast, evidence of covariation of HRM
tices. In a literature review, Delery and Doty
practices with environmental changes can be (1996) identified seven SHRM practices compris
gleaned by examining evidence of diffusion over
ing an HRM configuration associated with a uni
time of universal best-practice HRM models. In
versal HRM strategy. These included employment
this regard, Zhu, Cooper, Cieri, and Dowling
(2005) compared two surveys seven years apart
that revealed an increase in Western-style HRM 3 The SHRM literature still has not converged on a measurement of
HPWS; therefore, studies vary in the number and type of HRM practices
practices in China across all ownership types (Zhu that are measured. See Lepak, Liao, Chung, and Harden (2006) and
et al., 2005). As would be expected if a contin Lengnick-Hall et al. (2009) for more discussion.

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 60 Academy of Management Perspectives May

Table 3
Human Resource Management (HRM) Practices Studied in the Literature

Sample Measures of

SHRM Study Ownership HPWS Measures Performance Relationship

Akhtar et al. (2008) SOE, publicly listed, Adapted from Delery and Doty (1996); (1) Subjective ratings on (1) Except for profit sharing, all other strategic

FIE internal career opportunities, (2) formal product/service HRM practices have significantly positive

training systems, (3) results-oriented performance, and (2) effects on product/service performance.

appraisals, (4) employment security, (5) financial performance Except for employment security and job

participation, (6) job descriptions, and (7) profit descriptions,all other SHRM practices

sharing have significantly positive effects on

financial performance.

Bjorkman and Fan Sino-Western JV and Adapted from Becker and Huselid (1998); 11 Subjective ratings on parents' There is a positive relationship between the

(2002) whole-owned items filled out during interview with HR satisfaction with profitability extent to which firms use a high

subsidiaries managers: (1) selective hiring, (2) extensive and overall performance performance HRM system and firm

training, (3) merit-based promotion, (4) performance.

performance appraisal, (5) job analysis, (6)

attitude survey, and (7) information sharing

Chow etal. (2008) SOE, COE, FIE/JV Similar to Lepak and Snell's (2002) HR Subjective ratings on overall Commitment HR has a positive significant

configurations: (1) commitment, (2) market, performance and manager's effect on overall outcome. Compliance

(3) compliance, and (4) collaboration self-report on (1) sales HR has a marginal negative effect on

growth, (2) profit growth, overall outcome and profit growth, and a

and (3) turnover rate marginal positive effect on turnover. The

interaction of particular HR

configurations with business strategy has

synergistic effects on performance.

Gong etal. (2009) POE, FOE, JV, SOE Self-developed items on eight HR practices (further Subjective ratings on Maintenance-oriented HR subsystem is

classified into two subsystems): (1) performance; affective/ positively related to continuance OC. The

maintenance-oriented HR subsystem and (2) continuance organizational positive relationship between

performance-oriented HR subsystem commitment (0C) performance-oriented HR subsystem and

firm performance is mediated by

affective OC.

Li (2003) MNE Objective HRM policy measure: Objective data on (1) turnover Long-term employment and proportion of

portion of managers, portion of long-term rate, (2) productivity (sales university graduates reduce turnover

employees, average income, portion of per employee), and (3) rate. Proportion of managers has a

university graduates profitability (ROA) negative effect on firms' productivity.

Average income and the proportion of

university graduates have positive effects

on productivity. Employees' average

income is positively related to

profitability.

Li etal. (2011) POE Adapted from Sun et al. (2007); Employee outcomes: Perceived distinctiveness, consistency, and

17-item scale covering five HR practices: (1) (1) work satisfaction, (2) consensus of HPWS contribute to

training, (2) internal promotion, (3) vigor, and (3) intention employees' work satisfaction and vigor

employee participation, (4) results-oriented to quit and reduce turnover intention. The

pay, and (5) job security relationship between consensus and

employee outcomes is stronger in a

strong HPWS climate.

Ngo etal. (2008) FIE, SOE, POE (1) selective hiring, (2) result/behavior-based Subjective ratings on firm HR practices have direct and positive effects

appraisal, (3) job rotation, (4) extensive financial performance and on financial performance and

training, (5) competitive pay, (6) performance operational performance operational performance. The

based pay, and (7) turnover minimization moderating effect of ownership type is

significant for financial performance.

(Continues)

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2012 Liang, Marler, and Cui 61

Table 3
(Continued)

Sample Measures of

SHRM Study Ownership HPWS Measures Performance Relationship

Qiao et al. (2009) SOE, JV Adapted from Guthrie (2001) and Datta el al. Employee outcome: A HPWS positively correlates with

(2005); an 18-item HPWS measure (not organizational commitment employees' organizational commitment.

specified) Employees' age and gender moderate

the relationship.

Sun etal. (2007) Public firms; non Self-developed 27-item scales: (1) selective Manager's self-report on (1) Service-oriented OCB mediates the

public firms staffing, (2) extensive training, (3) internal turnover rate and (2) relationship between high-performance

mobility, (4) employment security, (5) clear job productivity (sales per human resource practices and turnover/

description, (6) result-oriented appraisal, (7) employee) productivity. Labor market conditions

incentive reward, and (8) participation moderate the service-oriented OCB—

turnover relationship. Business strategy

moderates the service-oriented OCB—

productivity relationship.

Wang etal. (2011) SOE, POE Different scales to measure three aspects of HPWSs Employee outcomes: (1) HPWSs enhance organizational commitment

respectively: (1) empowerment, (2) training, organizational commitment, and reduce work withdrawal behaviors

and (3) teamwork (2) turnover intentions, and and turnover intentions. SOEs and POEs

(3) work withdrawal demonstrate different paths for these

relationships.

Wei etal. (2008) SOE, FIE, POE, Adapted from Huselid (1995) and Zhao (2001 ); Subjective ratings on firm SHRM has a positive effect on firm

shareholding 11 -item instrument focusing on to what extent performance performance. SHRM serves as a full

firms, and others various HR practices (e.g., HR planning, mediator between group culture and

evaluation, compensation) are strategic firm performance and a partial mediator

oriented. between developmental culture and firm

performance.

Wei and Lau (2008) SOE, POE, FIE, and Adapted from Huselid (1995) and Zhao (2001); Subjective ratings on firm SHRM is positively related to firm

others 12-item instrument focusing on to what extent performance, and manager's performance. SHRM serves as a mediator

various HR practices (e.g., HR planning, self-report on ROA between market orientation and firm

evaluation, compensation) are strategic performance. Positive relationship

oriented. between SHRM and performance is

weaker in POEs and stronger in firms

with higher staffing autonomy.

Wei etal. (2011) SOE, FIE, POE, and Adapted from Huselid (1995) and Wang and Subjective rating on firm's SHRM has a positive impact on firms'

others (mixed Zhang (2005); eight-item instrument (not product innovativeness product innovation, and this

types) specified) relationship is stronger for firms with a

developmental culture. And the SHRM

developmental culture interaction is

strongest for firms with a flat

structure.

Zhang and Li (2009) SOE, public firms, Adopted from Delery and Doty (1996); (1) Subjective ratings on firm High-performance work practices have a

private firms, training, (2) participation, (3) job definition, (4) performance positive association with firms'

foreign firms performance appraisal, (5) internal career performance. Innovation strategy

opportunities, (6) profit sharing. weakens the positive impact of the HRM

system on performance.

Zheng et al. (2006) SOEs, FIEs, COEs, POEs Coded using information from interviews: (1) free Whether firm has achieved (1) Use of HRM practices improves employee

market selection, (2) performance-based pay, increased production and outcomes, which in turn leads to

(3) social security provision, (4) training and sales, (2) market improved firm performance. But not all

development, (5) performance evaluation, (6) competitiveness, and (3) of the HRM practice variables are

employee involvement, and (7) a role for expected growth relevant in terms of improving

unions performance.

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 62 Academy of Management Perspectives May

security, work designsocial

(jobcontract was broken, when even
description andSOEs em
laid
ployee voice/participation),
off employeesemployee develop
in the 1990s, employees no longer
ment (internal career opportunities,
believed that employmenttraining, and
security was actually
result-based appraisals), beneficial
and compensation (profit
to them. Indeed, over the past 10 years
sharing). Pfeffer (1998) in Chinaalso identified
the estimated seven
average turnover rate has
HRM practices that comprised a universal strate
ranged from 20% to 40%,5 and white-collar pro
gic HRM configuration.fessionals
Similar change their jobs every two
to Delery and to
Doty (1996), these HRMthreebest practices
years (Schmidt, 2011). are clus
tered around HRM policies concerning
Consistent with this turnover data,employ
several em
ment security, work design (decentralization,
pirical studies have shown that in the Chinese
teams, and status equality), employee
context employment develop
security is often not a feature
ment (selective hiring, training, and
of HRM best-practice information
configurations (Gong, Law,
Chang, (high
sharing), and compensation & Xin, 2009; Xiao &
pay Björkman, 2006;
contingent
on firm performance).ZhangWe base
& Li, 2009). our examination
In addition, several studies
of universal best-practice
have shownHRM on these
that the provision two
of employment
widely cited studies. Our listdoes
security contains employment
not relate positively to firm perfor
mance (Akhtar, Ding,
security, employee participation, & Ge, 2008; Gong
employee &
selec
Chang, 2008).
tion, employee development Thus, the empirical
(training, promotionevidence
from within, and result-based
points to little appraisal), and com
use of employment security.
pensation (high pay contingent on organizational
By contrast, recently enacted labor law requires
performance).4 that employers provide employment contracts,
and thus employers have limited choice in this
Employment Security regard going forward.

The practice of providing employment security

Employee Participation
is consistent with the lifelong employment that
SOEs had in the pre-reform
Many caseiron
studies inrice
Americabowl
and Japanmandoc
agement system. Furthermore, long-term
ument that decentralized employ
and participative deci
ment and merging work anddrives
sion making nonwork
innovation andrelation
quality im
ships are key features of firms
provement (cf. Applebaum in collective
& Batt, 1994). Several
societies such as Japan Chinese and cases China (Chua,
suggest that Morris,
it works in China as
& Ingram, 2009). However, what
well, in the is contexts.
right cultural observed to
day in China is a paradox to this
Two cultural cultural
issues may and
hinder participative
historical inclination. Once the iron rice bowl management practices. First, delegating decision
rights to frontline employees may not work well in
a high-power-distance society such as China (Kim
4 Three practices differentiate Pfeffer (1998) and Delery and Doty
(1996). These are performance appraisals, job descriptions, and use ofet al., 2010), where status equality may be consid
teams. The differences represent the different origins of these two models.ered culturally inappropriate in some situations.
Pfeffers model is based on an adaptation of the Japanese management
practices based largely on total quality management and lean manufactur
Chinese are expected to show respect to elders
ing approaches to human resource management, which also greatly influ and superiors by following orders and keeping
distance as a mark of respect. In work settings,
enced the industrial relations scholarship at the time. Delery and Doty's list
is more U.S.-based in that it represents the influence of the human
relations school and internal labor market job-based practices that evolved pointing out a manager's mistakes or judging the
after the Second World War (Dyer & Burdick, 1999). Job descriptions and performance of one's manager is so culturally awk
performance appraisals point to greater focus on individual performance in
organizations, whereas teams and information sharing versus performance
ward that many Chinese employees will try to
appraisals emphasizes the importance of groups and group performance. Jobavoid it. Therefore, the cost of encouraging tradi
tion-bound
descriptions, derived from job analyses, underpin all standard HRM prac employees to adopt a participative
tices in the United States. In Japan, HRM practices are people based rather
than job based; hence work is more easily conducted in teams. Interestingly,
in China job descriptions are the centerpiece for the "post-wage system" 5 The turnover data were compiled by the first author based on annual
(Ding & Warner, 2001). survey by 51job.com, a Chinese recruiting service company.

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2012 Liang, Marler, and Cui 63

practice may be higher in a Chinese context than smaller domestic Chinese firms (POEs), which
in the United States. lack GE's resources to make this level of invest
The second and more intriguing cultural issue ment in formal training, offer informal training
is trust. High trust is a critical contextual condi instead. For example, POEs use paired master
tion to successfully implement HCWS (Kim & apprentice mentoring programs as a way to help
Wright, 2011). The overall level of trust amongemployees develop. Employees, especially younger
business partners in China and between employers newcomers, appreciate the personal connections
and employees within Chinese organizations iswith the senior-level employees who train and
much lower compared with the United States,watch out for them.
Germany, and Japan. This may be because inter High levels of investment in training can be
personal trusting relationships among Chinese arecostly if the trained employees leave too soon for
confined to family and friends. companies to derive productivity benefits. Re
China so far has a very limited history of de cently, GE's Asia Pacific CEO expressed reserva
mocracy; therefore, flattening the organization, tions about continuing its high level of training
giving up decision power to employees, and rely given the increasingly high turnover rate in China
ing on reciprocal trust between employee and (Zhang, 2010). In China's context of economic
management invokes a level of discomfort andexpansion, most firms find that demand for em
uncertainty that, in general, makes these practicesployees exceeds their internal supply, often result
difficult to implement and therefore costly for ing in poaching and employee turnover. Thus,
Chinese firms. even if companies offer extensive training and
career tracks, this does not help with retention.
Selective Hiring
The external labor market, therefore, dictates
According to the universalist view of strategicwhat HRM practices are used. In this sense, such
HRM, if long-term employment is provided, firmssensitivity to the external market is evidence of
need to be very careful about who gets hired. Wei convergence to a U.S.-based labor market con
and Lau (2008) pointed out that government con text, where companies have little control over
trol over personnel recruitment and termination istheir employees and have to let the external labor
prevalent in Chinese firms and still constrains a and external product markets dictate HRM prac
firm's autonomy in hiring and firing employees. tice (Cappelli, 1999). By contrast, this evidence
Labor market conditions also constrain a firm's also supports taking a contingency perspective of
staffing practices. Currently in China there is astrategic HRM in that it indicates that a firm's
large surplus of entry-level workers of varyingchoice of HRM practices depends on external
quality, allowing firms to be extremely selective.environmental forces.
Only about 25% of college graduates found jobs Again, in China as in the United States, the
after graduation in 2010. At the same time, in influence of the external labor market impinges
relation to demand, there is a huge shortage of on the ability of firms to sustain a universal best
senior talent. practice strategic human resource model.

Extensive Training Internal Mobility

If firms do a good job in selecting entry-level Under the pre-reform cadre system, career mo
employees and a good job of training them to bility was very limited. Today, people change jobs
or even leave their hometowns for better oppor
move into more senior positions, current shortages
tunities. With a rapidly expanding economy, how
of senior talent should eventually abate. With this
outcome in mind, General Electric (GE) puts a lotever, many fast-growing Chinese firms find that
of emphasis on formal employee training and deinternally developing a supply of managerial tal
velopment, earning a reputation in China as ent a is too slow and costly to meet their demand.
training camp for Chinese professional managers. Indeed, Cheng and Zhao (2006) suggested that
To be competitive with FIEs such as GE, many firms in such dynamic environments need to rely

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64 Academy of Management Perspectives May

more on the external labor market than on the mance, although with lots of variance in measure
internal one. ment of both the dependent and independent vari
ables. As documented in Table 3, most studies
Performance Appraisals
involve self-reported financial performance.
In the iron rice bowl era, SOEs evaluated Björkman and Fan (2002) reported a positive
relationship between HPWS and firm perfor
employees' \york performance according to in
dividual trait characteristics that included vir mance in a sample of 62 manufacturing interna
tue (de), ability (neng), and diligence (qing).tional joint ventures. Adoption of a HPWS was
Actual performance (ji) (i.e., results) came lastpositively related to employees' commitment in
in the assessment. This emphasis reflects tradiQiao, Khilji, and Wang's (2009) investigation of
tional Chinese culture, which values taking aone SOE and four FIEs. Gong et al. (2009) con
long-term orientation and holds in high esteemducted surveys of middle managers and HR man
individual effort and positive attitudes. Givenagers from various firms in China and found that
this cultural influence, one would expect thatHPWSs contributed to managerial self-reports of
Chinese employees would prefer attitude/behavfirm performance mediated by employees' affec
ior-based appraisals over result-based appraisals.tive commitment. Unfortunately, the mix of firm
Ironically, however, not only does a result-based ownership was not reported.
approach dominate performance evaluations At the aggregated level, Ngo and colleagues
among Chinese firms, but many SHRM studies (2008) reported a direct, positive relationship be
empirically indicate a positive relationship be tween HPWS and firm performance and employee
tween the use of result-based appraisals and firmrelations in a sample of 600 enterprises with mixed
performance. In fact, in a survey of employees,ownership types. Similarly, Wei, Lui, Zhang, and
Xiao and Björkman (2006) found that employChiu (2008) reported that their aggregated mea
ees do not consider behavioral appraisal to be asure of HPWS was positively associated with firm
good HRM practice. performance.
Training, participation, performance evalua
High Pay Contingent on Firm Performance
tion, and internal career opportunities all show
Pay equality used to be a key component inpositive relationships to firm performance in a
socialist pay systems (Wang et al., 2007) and still study of 465 Chinese firms (Akhtar et al., 2008).
serves as the guiding principle for setting up pay in Finally, there were a few studies showing rela
SOEs. On the surface, the idea of sharing comtionships between HRM practices and turnover or
pany success with employees is aligned with colemployee attitudes, which are often considered
lectivistic values and socialist ideology; consemediators of the SHRM-performance relation
quently, one would expect that Chinese ship. Drawing on multilevel data from 82 hotels in
employees would respond positively to this payChina, Sun, Aryee, and Law (2007) demonstrated
policy. Findings from Chen (1995) indicated that that an HPWS reduces turnover and increases
Chinese employees prefer differential reward allo employee productivity and that this relationship is
cations rather than equal allocations. Surprisingly, partially mediated by service-oriented organiza
however, there are few studies of Chinese compa tional citizenship behavior. Li, Frenkel, and Sand
nies implementing organizational-level pay-for ers (2011) conducted employee surveys at three
performance programs. This may reflect the lin POE hotels in China and showed that employees'
gering influence of the cadre system and therefore perceptions about HPWS practices reinforced
is an opportunity for future research. positive work attitudes and reduced turnover in
tentions. Zheng, Morrison, and O'Neill (2006)
Strategic HRM and Chinese Firm Performance interviewed managers from 74 Chinese SMEs and
As with the Western literature, there is evidence infound that free market selection, performance
Chinese firms of a positive relationship between evaluation, performance-based pay, and participa
universal best SHRM practices and firm perfor tive decision making had positive associations

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2012 Liang, Marler, and Cui 65

with increased employee commitment and that Business Strategy

employee commitment was related to sales pro Li (2003) used 1996 Chinese industry census
ductivity, market competitiveness, and expected data from firms in soft drinks and electronics in
growth. dustries to show that a low-cost business strategy is
These empirical results showing a positive re related to control-based HR policies including
lationship between firm performance and strategic short-term employment, low pay, a less-educated
HRM have several limitations. First, as summa workforce, and higher proportion of managers.
rized in Table 3, a drawback to these studies is the These control-based HR policies were also related
self-reported measures of all types of firm perfor to higher turnover and lower employee
mance, which are affected by social desirability productivity.
and perceptual and common method variance Zhang and Li (2009) studied Chinese pharma
bias. Second, these studies are cross-sectional, and ceutical firms (2009) and found that firm strategy
therefore causality is not established. In cross moderated the relationship between HPWS and
sectional studies, it is also possible that high firm performance such that firms pursuing an in
performing firms are those that are able to invest novation strategy an HPWS strategy experienced
in HRM practices that include careful selection, lower performance, contrary to theoretical predic
more employee development, employee evalua tions. The authors suggested that smaller, pri
tion, and pay bonuses. Third, the measures of vately owned firms investing heavily in employees
SHRM practices vary significantly, making it very and relying on low turnover and commitment
difficult to draw conclusions about the value of a
were possibly disadvantaged when lower turnover
universal HPWS. It may be that a few practices was not achieved. In the turbulent economic con
and not all are related in some way to text in which these firms operated, small and
performance. privately owned firms could not afford to invest in
Much of the performance evidence is tied to HPWS and an innovation strategy. Choosing to
employee development and compensation prac rely on the innovation strategy alone appeared to
tices and less to the nature of the employment be a better choice.
relationship (e.g., offering employment security) Chow, Huang, and Liu (2008) adopted a con
or work design (teams, employment empower figuration approach to test the interaction effect
ment, participation). The lack of evidence for the of HR configurations and strategy on firm perfor
benefits of employment security may be because mance with a sample of 241 Chinese firms. Draw
the strong economy and demand for employees ing on Lepak and Snell (2002), Chow and col
provides limited marginal benefit to offering em leagues (2008) grouped HR practices into four
ployment security, and work design is not consis distinct HR subsystems labeled commitment
tent with Chinese cultural norms. based, market-based, compliance-based, and col
laborative-based HR systems. They reported that a
commitment-based HR system had a stronger pos
Contingent Strategic HRM in China
itive effect on firm performance than did a mar
Is there evidence that there are important contin ket-based or collaborative-based HR configura
gencies that moderate the relationship between tion. Since commitment-based configurations are
firm performance and strategic HRM in China? similar to an HPWS, these findings reinforce the
According to the contingency perspective ofexpected positive relationship with firm perfor
SHRM, good HRM practices depend on external mance. Interestingly, however, Chow et al. also
and internal firm contingencies, such as fit with showed an interaction between commitment
firm strategy, structure, and culture. The few stud based HR and a low-cost strategy such that firms
ies adopting this strategic HRM theoretical per pursuing a low-cost strategy with a commitment
spective have focused primarily on business strat based HR configuration performed better than
egy and ownership. when this HR configuration was combined with

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66 Academy of Management Perspectives May

business strategies based on providing value such from four organizations (two SOEs and two POEs)
as quality or innovation. Similar to Li (2003), and found that HPWSs enhance organizational
they found that compliance-based HR systems commitment and reduce work withdrawal behav
were negatively related to firm performance, sug iors and turnover intentions but that SOEs and
gesting that control-based management is not as POEs have different paths for these relationships.
sociated with employee productivity and may lead Our review suggests that ownership appears to
to negative employee behaviors. be related to variation in the effectiveness of
This admittedly limited empirical evidence in HRM practices, but more research is needed to
dicates that a "low-cost" HRM strategy, even substantiate and explain these findings. Most of
when aligned with a low-cost business strategy in the Chinese studies control for ownership rather
China, does not necessarily produce better perfor than considering it a potential boundary condi
mance. However, a high-commitment HRM con tion. Thus, with few studies specifically comparing
figuration used in conjunction with low-cost strat strategic HRM practices across types of ownership,
egy appears to have synergistic effects in China. A there is room for more research.
study by Su and Wright (in press) reinforces these
findings. Based on interviews with Chinese man Discussion
agers about what constitutes good practice, the
pair found that in addition to typical HPWS items context provides a unique opportunity to ex
there seemed to be an added dimension of "con China's
amine therapidly changing
theoretical and economic and political
empirical founda
troP'-oriented practices. When these practices tions of SHRM knowledge. In this paper we have
were added to the regular HPWS items, they reviewed the substantial social, political, and eco
nomic changes that have occurred in China over
explained additional variation in performance be
yond the HPWS items. Clearly, China's macro the past 30 years and examined the available
economic context introduces the possibility that
empirical literature to gauge to what extent HRM
new contingencies may be needed to enrichpractices
or in China provide evidence of a conver
establish the boundary conditions for existing
gence to a universal HPWS or whether choice of
SHRM models. HRM practices is contingent on China's changing
environment. We found evidence for convergence
Ownership
to a type of HPWS but also enough divergence to
Two China-based studies explicitly tested the suggest that a contingent perspective is important
moderating effect of ownership type on the as well.
SHRM-firm performance linkage. Based on sur A detailed review of the main components of
veys of CEOs in 600 enterprises, Wei and Lau the HPWS model indicates that when they are
(2008) showed that SHRM (HR-strategy align introduced into the Chinese socioeconomic and
ment) was positively related to return on assets, political context the cost-benefit calculus for each
net profit, and return on sales. Although their of these practices appears different from in the
results indicate no consistent moderating effect of U.S. context. When critically examined, each
ownership types on the SHRM-firm performance HPWS practice requires adaptation to fit the Chi
relationship, SHRM-net profit and SHRM-re nese context. However, many of the reviewed
turn on sales relationships were weaker for POEs. studies reported positive relationships between
Utilizing the same data source, Ngo and col adopting these practices and firm performance.
leagues (2008) reported a positive SHRM-perfor Such evidence supports the idea that convergence
mance relationship overall, with ownership type toward HPWS practices is economically efficient
moderating the relationship between SHRM and or perhaps institutionally legitimized by FIEs.
financial performance (but not operational perfor From economic and institutional theoretical
mance). The SHRM-financial performance rela perspectives, there are greater arguments for adop
tionship is negative in POEs. Wang, Yi, Lawler, tion of fewer practices or different practices, par
and Zhang (2011) used a sample of 633 employees ticularly for SOEs and POEs. SOEs are still bound

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2012 Liang, Marler, and Cui 67

by old social contracts and the "old" China HRM executives were promoted from the bottom and at
model based on the iron rice bowl employment one time were themselves unskilled migrant work
policies and the cadre system. Moreover, our re ers. Their success and work behavior serve as
view of the literature reveals several obstacles that powerful role models.
make the U.S.-based universal best-practice HRM Haidilao offers very little formal training to its
model more costly to adopt without some employees; however, it assigns every new em
adaptation. ployee to a mentor (master). The master teaches
Consequently, consistent with the contextual every aspect of the business, from values and ser
ist paradigm developed in European research on vice philosophy to problem-solving techniques.
strategic HRM (Brewster, 2004), Chinese strate This mentorship also fosters close family-like con
gic HRM practices exhibit some directional con nections. To reinforce the mentorship relation
vergence toward a U.S.-based HPWS model, but ship and nurture a relational culture, Haidilao also
overall there is more evidence for divergence bases its internal promotion criteria on the extent
when viewed cross-nationally. Recent case studies to which one is able to develop qualified talent.
of successful Chinese firms provide descriptive The more qualified subordinates one can develop,
evidence of both convergence and divergence the faster one can be promoted. Unlike other
from conceptions of universal best-practice service chains, Haidilao divides districts by devel
SHRM. In China, an HPWS needs to be seen as opmental relationships. For example, if one dis
not only treating employees as valued long-term trict manager develops four store managers, he or
assets, consistent with a Western-based economic she oversees these four stores even if the stores are
ideology of profit maximization, but also as trying geographically dispersed.
to meet employees' need for personal treatment Although the national culture in China is
and honoring family ties and obligations. In this characterized in Hofstede's (1980) cultural dimen
way, Chinese firms adopting this type of relational sions as exhibiting tendencies toward low trust
perspective are better able to achieve high com among individuals and having a high degree of
mitment and high performance. formality and distance in hierarchically differen
A Chinese POE, Haidilao, provides an exam tiated jobs, Haidilao's owners empower customer
ple of a distinctive Chinese version of an HCWS/ facing employees to make decisions on site, such
HPWS. This relational HRM model represents an as giving customer discounts and offering free
adaptation of the universal HPWS model to bet dishes to customers without consulting the store
ter fit China's current cultural and economic con manager. Haidilao demonstrates respect for em
text. Haidilao is a medium-size restaurant chain in ployees' ideas by implementing them. For exam
a highly competitive and labor-intensive service ple, giving customers small gifts such as headbands
industry (Huang, Liang, & Pan, 2009). Many res (for those with long hair), cleaning cloths (for
taurants just like Haidilao do not survive beyond those wearing glasses), and manicure services in
their third year. Haidilao has lasted for 17 years, the waiting area are all employee-generated ideas.
and in 2011 had a 30% return on assets. At the In listening to employee suggestions, Haidilao
core of its success is the superior service provided
benefits and employees are more likely to feel they
by frontline employees, who are basically un are trusted and reciprocate with more effort and
skilled young migrant workers. Rather than rely
greater loyalty.
ing on the external labor market, firms like Hai In its compensation practices, Haidilao contin
dilao that adopt the relational perspective draw
ues to treat its employees like family members. For
example, in addition to paying above-market
candidates from their employees' personal net
works. The company encourages employees wages,
to Haidilao builds boarding schools for em
ployees' children back home, and every month the
bring their relatives and countrymen (people from
the same hometown) to work at Haidilao because company wires a portion of its outstanding em
they feel more attached when they work withployees' bonuses to their parents at home. For
people they know. At Haidilao, almost all the
Chinese employees this action signifies the em

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 Academy of Management Perspectives May

adoptionEvery
ployer's respect for them and their families. of particular HRM practices, and how
year, the company invites the parents of that
does outstand
compare to a U.S. context? Studying th
ing employees for a company-organized emergence and practice of HRM in China pre
vacation.
The founder of Haidilao does not believe in ents an enormous opportunity to better unde
formal performance evaluation based on quantifi stand the role of contextual contingencies
able financial measures. Store managers are not in SHRM.
responsible for financial outcomes like sales reve The changes that are taking place in China at
nues or profitability. Instead, Haidilao pays close the national level provide an opportunity to con
attention to employee initiatives, customer satis duct research, develop theory, and answer many
faction, and employee development at each store.questions concerning how to manage employees
Managing these three key aspects well results in in a rapidly changing political, social, and eco
outstanding financial performance. Finally, alnomic environment.

though firms do not formally guarantee employ

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