Managing Human Resources in Asia-Pacific

“This book provides a solid overview of HRM practices in the Asia-Paciﬁc region.

Importantly, it delineates HRM practices in countries that often are not the location

of the majority of research done in the ﬁeld of HRM. This book is a wonderful

contribution towards a more global understanding of HRM, and should be on the

bookshelves of scholars and practitioners who work in the area of international

human resource management.”

Mark E. Mendenhall, J. Burton Frierson Chair of Excellence in

Business Leadership, University of Tennessee, Chattanooga

“This book offers an excellent overview of major HRM issues in the Asia-Paciﬁc

context. The unifying framework provides the essential theoretical framework, while

the country case studies provide valuable insights about differences and similarities

across countries and regions. An important resource for any comparative HRM

course.”

Vladimir Pucik, Professor of International Human Resources and Strategy,

International Institute for Management Development, Lausanne

“People are the key to success in business and being able to manage human

resources effectively in the most important economic growth area of the world

is crucial. This is a cutting-edge contribution that provides a real understanding of

the cross-national HRM differences created by the great cultural and institutional

variation of Asia-Paciﬁc. Foreign investors as well as students and researchers

will ﬁnd this book indispensable in ﬁnding out how to deal with the most valuable

resource of any ﬁrm.”

Professor Jan Selmer, Hong Kong Baptist University

“This book brings together some fascinating insights on the recent developments

as well as the challenges of managing people in the Asia-Paciﬁc region. In their

well-thought-out analyses, the authors have succeeded in bringing out the unique

features that characterize and shape HR practice in each country. The Asia-Paciﬁc

region is a vast and multi-layered context, one that poses huge challenges to

researchers and students of international HRM. Budhwar and his team have risen

to this challenge, and provided us with a superb piece of work.”

Ken N. Kamoche, City University of Hong Kong

Managing Human Resources

in Asia-Paciﬁc

Developments in Human Resource Management (HRM) in the west are now well

documented. In the Asia-Paciﬁc region HRM is still evolving, yet there remains an

absence of systematic analyses that comprehensively explore the dynamics of HRM in

Asia-Paciﬁc. This book ﬁlls that gap.

Managing Human Resources in Asia-Paciﬁc paints the picture of HRM in 11 Asia-Paciﬁc

countries, highlighting the challenges faced by HR professionals as well as the contextual

differences, the dynamics and the growth of HR within each of these countries. Written

by people living and working in the region, the countries covered are China, South

Korea, Japan, Hong Kong, Taiwan, India, Thailand, Vietnam, Malaysia, Singapore and

Australia. There are also chapters on the transfer of HRM to MNC afﬁliates in Asia and

the agenda for future research and policy.

A truly groundbreaking addition to the subject area, this authoritative new text will be

welcomed across the board by academics, students and practitioners in the ﬁeld of HRM.

Pawan S. Budhwar is Reader in HRM and Organizational Behaviour at Aston Business

School, UK.

Routledge Global Human Resource Management Series

Edited by Randall S. Schuler, Susan E. Jackson, Paul Sparrow and Michael Poole

Routledge Global Human Resource Management is an important new series

that examines human resources in its global context. The series is organized into

three strands: Content and issues in global Human Resource Management (HRM);

Speciﬁc HR functions in a global context; and comparative HRM. Authored by some

of the world’s leading authorities on HRM, each book in the series aims to give

readers comprehensive, indepth and accessible texts that combine essential theory

and best practice. Topics covered include cross-border alliances, global leadership,

global legal systems, HRM in Asia, Africa and the Americas, industrial relations

and global stafﬁng.

Managing Human Resources in Cross-Border Alliances

Randall S. Schuler, Susan E. Jackson and Yadong Luo

Managing Human Resources in Africa

Edited by Ken N. Kamoche, Yaw A. Debrah, Frank M. Horwitz and

Gerry Nkombo Muuka

Globalizing Human Resource Management

Paul Sparrow, Chris Brewster and Hilary Harris

Managing Human Resources in Asia-Paciﬁc

Edited by Pawan S. Budhwar

Managing Human Resources

in Asia-Paciﬁc

Edited by

Pawan S. Budhwar

First published 2004

by Routledge

11 New Fetter Lane, London EC4P 4EE

Simultaneously published in the USA and Canada

by Routledge

29 West 35th Street, New York, NY 10001

Routledge is an imprint of the Taylor & Francis Group

utilised in any form or by any electronic, mechanical, or other means,

now known or hereafter invented, including photocopying and recording,

or in any information storage or retrieval system, without permission in

writing from the publishers.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging in Publication Data

Managing human resources in Asia-Paciﬁc / edited by Pawan S. Budhwar.

p. cm.

Includes bibliographical references and index.

1. Personnel management—Asia. 2. Personnel management—Paciﬁc Area.

3. Human capital—Asia—Management. 4. Human capital—Paciﬁc

Area—Management. I. Budhwar, Pawan S.

HF5549.2.A75M36 2004

658.3′0095—dc22

ISBN 0–415–30005–3 (hbk)

ISBN 0–415–30006–1 (pbk)

This edition published in the Taylor & Francis e-Library, 2004.

ISBN 0-203-64316-X Master e-book ISBN

ISBN 0-203-67040-X (Adobe eReader Format)

To Laxmi and Gaurav with all my love.

To those who have interest in the management of human resources in

the Asia-Paciﬁc region.

Contents

List of illustrations ix

List of contributors xi

Foreword xiii

Preface xv

1 Introduction: HRM in the Asia-Paciﬁc context 1

PAWAN S. BUDHWAR

2 HRM in China 17

FANG LEE COOKE

3 HRM in South Korea 35

CHRIS ROWLEY AND JOHNGSEOK BAE

4 HRM in Japan 61

JOHN SALMON

5 HRM in Hong Kong 75

ANDREW CHAN AND STEVEN LUI

6 HRM in Taiwan 93

PEI-CHUAN WU

7 HRM in India 113

DEBI S. SAINI AND PAWAN S. BUDHWAR

8 HRM in Thailand 141

SUNUNTA SIENGTHAI AND CLEMENS BECHTER

9 HRM in Vietnam 173

TRUONG QUANG AND LE CHIEN THANG

10 HRM in Malaysia 201

KAMEL MELLAHI AND GEOFFREY T. WOOD

11 HRM in Singapore 221

NARESH KHATRI

12 HRM in Australia 239

MARGARET PATRICKSON AND WAHYU SUTIYONO

13 Transfer of HRM to MNC afﬁliates in Asia-Paciﬁc 253

INGMAR BJÖRKMAN

14 HRM challenges in the Asia-Paciﬁc region: agenda for future research and

policy 269

YAW A. DEBRAH AND PAWAN S. BUDHWAR

Index 281

viii • Contents

Illustrations

Figure

8.1 Key factors inﬂuencing HRM practices in Thailand 148

Tables

1.1 Details of aspects of national factors determining cross-national HRM 8

2.1 Employment statistics by ownership in urban and rural areas in China 19

3.1 Characteristics and paradoxes of culture and management in Korea 41–2

3.2 Recent trends in Korean employment patterns, growth and inﬂation 43

3.3 Trends in leaving by age in Korea 43

3.4 Size and businesses of the largest chaebols 44

3.5 Korean large business groups 45

3.6 Inﬂuences on HRM in Korea: traditional and new compared 47

3.7 Trends in employment status in Korea 48

3.8 Variations in Korean pay systems by size and sector 50

3.9 Comparison of annual pay systems among Korean chaebols 51

3.10 Change in perspectives on HRM in Korea 55

3.11 HRM activities expected to be outsourced in Korea 56

6.1 Selected key economic and labor market indicators in Taiwan 94

6.2 Ranking of factors that inﬂuence HRM practices in foreign subsidiaries/

joint ventures and local ﬁrms in Taiwan 100

6.3 Changes in the HRM function over the past ﬁve years 102

6.4 HRM practices of signiﬁcantly different items between foreign

subsidiaries/joint ventures and local ﬁrms in Taiwan 104

6.5 Challenges to the HRM function 108

8.1 Top management’s perception of the HRM function in Thailand 147

8.2 Thailand’s economy at a glance 153

8.3 Minimum wage of some selected provinces in Thailand 154

9.1 Vietnam’s competitiveness and human development indices 174

9.2 Sectoral composition and distribution of labor in Vietnam 177

9.3 GDP and employment by type of ownership in Vietnam, 1999 178

9.4 Characteristics of the management system before the renovation period

in Vietnam 179

9.5 HRM status across sectors in Vietnam 191

9.6 Awareness vs. actual HRM activities in Vietnamese companies 192

10.1 GLOBE social culture dimension in Malaysia 210

10.2 Number of employee trade unions and membership by gender, 1992–2000 211

10.3 Malaysia: labor force participation rates by gender, 1995–1999 213

11.1 Labor force participation rate in Singapore, 2001 229

x • Illustrations

Contributors

Johngseok Bae is Associate Professor of Management at Korea University Business

School, 5–1 Anam-Dong, Sungbuk-Gu, Seoul, 136–701, Korea.

Clemens Bechter is Associate Professor at the School of Management, PO Box 4, Klong

Luang, Pathum Thani 12120, Thailand.

Ingmar Björkman is a Professor at the Swedish School of Economics and Business

Administration, PO Box 479, 00101 Helsinki 10, Finland.

Pawan S. Budhwar is Reader in Organizational Behaviour and HRM at Aston Business

School, Aston Triangle, Birmingham, B4 7ET, UK.

Andrew Chan is Associate Professor, Ofﬁce – AC G7421 at the Department of

Management, City University of Hong Kong, Tat Chee Avenue, Hong Kong.

Fang Lee Cooke is Lecturer in Employment Studies at the Manchester School of

Management, UMIST, PO Box 88, Manchester, M60 1QD, UK.

Yaw A. Debrah is Reader at the School of Business and Management, Brunel

University, Uxbridge, Middlesex, UB8 3PH, UK.

Naresh Khatri is Assistant Professor in Health Management and Informatics at the

School of Medicine, 324 Clark Hall, University of Missouri, Columbia, MO 65211,

USA.

Steven Lui is Assistant Professor, Ofﬁce – AC G7423 at the Department of

Management, City University of Hong Kong, Tat Chee Avenue, Hong Kong.

Kamel Mellahi is Lecturer in Strategic Management at Loughborough University

Business School, Loughborough University, LE11 3TU, UK.

Margaret Patrickson is Associate Professor at the University of South Australia,

The International Graduate School Of Management, City West Campus,

Ofﬁce – WL5-33, PO Box 2471, Adelaide, South Australia 5001, Australia.

Truong Quang is Associate Professor at the School of Management, Asian Institute

of Technology, PO Box 4, Klong Luang, Pathum Thani 12120, Thailand.

Chris Rowley is Reader in Human Resource Management and Employee Relations at the

Faculty of Management, Cass Business School, City University, 106 Bunhill Row,

London, EC1 8TZ, UK.

Debi S. Saini is Professor of Human Resource Management at the Management

Development Institute Gurgaon, Haryana, India.

John Salmon is Lecturer, HRM Section at Cardiff Business School, Colum Drive,

Cardiff, CF10 3EU, UK.

Sununta Siengthai is Associate Professor at the School of Management, PO Box 4,

Klong Luang, Pathum Thani 12120, Thailand.

Wahyu Sutiyono is Lecturer at the International Graduate School of Management,

University of South Australia, City West Campus, North Terrace, Adelaide, SA 5006,

Australia.

Le Chien Thang is a Lecturer at the School of Industrial Management, HCMC

University of Technology, Ho Chi Minh City, Vietnam.

Geoffrey T. Wood is a Professor at Middlesex Business School, Middlesex University,

N11 1QS, UK.

Pei-Chuan Wu is Assistant Professor in Management and Organization at NUS Business

School, Ofﬁce – FBA1 B1-03E, National University of Singapore, 1 Business Link,

Singapore 117592.

xii • Contributors

Foreword

Routledge Global Human Resource Management is a series of books edited and authored

by some of the best and most well-known researchers in the ﬁeld of human resource

management. This series is aimed at offering students and practitioners accessible,

coordinated and comprehensive books in global HRM. To be used individually or

together, these books cover the main bases of comparative and international HRM.

Taking an expert look at an increasingly important and complex area of global business,

this is a groundbreaking new series that answers a real need for serious textbooks on

global HRM.

Several books in this series, Routledge Global Human Resource Management, are

devoted to human resource management policies and practices in multinational

enterprises. Some books focus on speciﬁc areas of global HRM policies and practices,

such as global leadership, global compensation, global stafﬁng and global labour

relations. Other books address special topics that arise in multinational enterprises such

as managing HR in cross-border alliances, developing strategies and structures, and

managing legal systems for multinational enterprises.

In addition to books on various HRM topics in multinational enterprises, several other

books in the series adopt a comparative approach to understanding human resource

management. These books on comparative human resource management describe the

HRM policies and practices found at the local level in selected countries in several

regions of the world. The comparative books utilize a common framework that makes it

easier for the reader to systematically understand the rationale for the existence of various

human resource management activities in different countries and easier to compare these

activities across countries. This framework considers a range of national factors including

culture, institutions, industrial sector, and dynamic changes in the environment. These

books therefore help us to both understand the factors that still lead to unique HRM

solutions in different countries around the world, the essential elements of localisation,

but also the opportunities for transfer of best practice. This book, Managing Human

Resources in Asia-Paciﬁc edited by Pawan S. Budhwar, is an excellent example of one of

these books on comparative human resource management. In this book the reader will

ﬁnd detailed descriptions of human resource management activities in eleven key

countries in the Asia-Paciﬁc. Pawan Budhwar helps surface the many complex arguments

involved in the convergence-divergence debate as it applies to the Asia-Paciﬁc region. In

this task, he has brought together a series of prestigious authors of the various country

chapters, who have been carefully selected for being experts in the subject area

in their chosen countries and for being able to write clearly and concisely. Each chapter is

complete with useful and timely references that enable the reader to delve into each

country in even more detail than provided in the chapter. Overall, Pawan Budhwar has

given the reader a very valuable book that provides information on the human resource

management activities and experiences inﬂuencing fully half the world’s population.

This Routledge series, Global Human Resource Management, is intended to serve the

growing market of global scholars and professionals who are seeking a deeper and

broader understanding of the role and importance of human resource management in

companies as they operate throughout the world. With this in mind, all books in the series

provide a thorough review of existing research and numerous examples of companies

around the world. Mini-company stories and examples are found throughout the chapters.

In addition, many of the books in the series includes at least one detailed case description

that serves as a convenient practical illustrations of topics discussed in the book.

Because a signiﬁcant number of scholars and professionals throughout the world are

involved in researching and practicing the topics examined in this series of books, the

authorship of the books and the experiences of companies cited in the books reﬂect a vast

global representation. The authors in the series bring with them exceptional knowledge of

the human resource management topics they address, and in many cases the authors have

been the pioneers for their topics. So we feel fortunate to have the involvement of such a

distinguished group of academics in this series.

The publisher and editor also have played a major role in making this series possible.

Routledge has provided its global production, marketing and reputation to make this

series feasible and affordable to academics and practitioners throughout the world. In

addition, Routledge has provided its own highly qualiﬁed professionals to make this

series a reality. In particular we want to indicate our deep appreciation for the work of

our series editor, Francesca Poynter. She, and her predecessor Catriona King, have been

behind the series from the very beginning and have been invaluable in providing the

needed support and encouragement to us and to the many authors in the series. She, along

with her staff, has helped make the process of completing this series an enjoyable one.

For everything they have done, we thank them all.

Randall S. Schuler, Rutgers University

Paul Sparrow, Manchester University

Susan E. Jackson, Rutgers University

Michael Poole, Cardiff University

xiv • Foreword

Preface

Over the last decade or so, many volumes have been written regarding the management

system(s) of Asia-Paciﬁc economies. This has been mainly in response to the dramatic

rise of Asia-Paciﬁc economies after World War II, led by Japan in the 1950s, the Tiger

nations in the 1960s, major ASEAN members in the 1970s, China and Vietnam in the

1980s and 1990s respectively and ﬁnally India in the 1990s. The main focus of such

volumes has been to understand and explain the main driving forces contributing to the

“economic miracle” of the region. The Asian economic crisis of the late 1990s raised

a number of questions regarding the suitability of the management system(s) of the

countries affected by the present crisis. On the other hand, rapid developments in the

ﬁeld of human resource management (HRM), globalization of business and the increased

acceptance of HRM function as an important contributor towards the ﬁrms’ performance

demand the need to examine HRM systems in different cross-national contexts. At

present such literature is dominated by writings on western developed nations – a region

which is economically aging very rapidly. The Asia-Paciﬁc region is now considered

to be very important for the global economy and as such, both academics and

practitioners are interested in ﬁnding out more about the nature of HRM system(s) and

the factors affecting them in this region. This will contribute both to better theory and

practice development. This book attempts to ﬁll this gap in the literature.

Due to the context speciﬁc nature of HRM, one should expect cross-national variations

between the HRM systems of Asia-Paciﬁc nations. It is important for managers to be

aware of such differences and to realize that HRM strategies vary signiﬁcantly from

country to country and that the strategies used to manage human resources (HRs) in one

country are sometimes ineffective or irrelevant in another country. They need to develop

an understanding regarding the dynamics of managing HRs in different parts of the globe.

However, students are taught what are generalizable HRM concepts and practices which

have a strong base in the Anglo-Saxon context. Similarly, multinational companies

(MNCs) tend to adopt an ethnocentric (due to control and coordination reasons amongst

others) approach towards the management of their HRs in different subsidiaries operating

in the Asia-Paciﬁc region. In the present globalized world, the applicability of such

concepts and practices to different local contexts is clearly questionable.

The challenges regarding the management of HRs in the Asia-Paciﬁc countries are

complex and demanding. Academics can play a signiﬁcant role in this regard by

providing relevant information to policy-makers and researchers. It is also important

for business students, as future business leaders, to gain an understanding of the

different issues relating to HRM in the region. An attempt has been made in this book

to highlight in detail how national HRM systems are unique and deeply rooted in the

sociocultural and institutional context of each of the countries covered.

Thus, the objective of this book is to provide the reader with an understanding of the

dynamics of HRM in eleven countries in the Asia-Paciﬁc region: China, South Korea,

Japan, Hong Kong, Taiwan, India, Thailand, Vietnam, Malaysia, Singapore and

Australia. It is intended that the reader acquires not only an understanding about the

HRM functions in these countries, but more awareness of the diverse and unique

conﬁgurations of national factors (cultural, institutional and business environment) which

dictate HRM in cross-national settings. Such awareness will enable the reader to better

understand the “context-speciﬁc” nature of HRM in these countries and the need to

acknowledge the strength of cross-national HRM differences.

To achieve this objective, all the contributions have been written around a set framework.

It highlights the historical developments of the HRM function, the inﬂuence of core

national factors (i.e. national culture, national institutions, dynamic business environment

and business sector) on HRM policies and practices, key challenges facing the HRM

function and the future of HRM function in the countries covered. This book consolidates

in a single source the dynamics of management of human resources in the Asia-Paciﬁc

countries, i.e. questions pertaining to the “what,” “why” and “how” of HRM in the

region. All the chapters in this volume are original contributions to the ﬁeld and were

specially commissioned for the book.

It is hoped that this volume will serve as a catalyst to the development of further

theoretical insights and appropriate techniques of HRM in this area. The subject area

of the book is suitable for both undergraduate and postgraduate HRM and International

Management courses. In addition, this book will be of interest to cross-national HRM

researchers and practitioners.

Two main reasons gave rise to this book. First, the scarcity of a single volume that

highlights the scenario of HRM in the Asia-Paciﬁc context which can be used on relevant

courses. Second, this is a product of long discussions with the series editors and a number

of colleagues on the need for such a book.

I would like to thank all those who have in various ways helped to make this project

a success, and extend my special gratitude to the series editors for giving me the

opportunity to work on this project. I would also like to thank all the contributors for

their enthusiasm and promptness which helped me to complete this work. My special

thanks to all the reviewers for responding readily to my requests and for providing

invaluable comments on the chapters. I would also particularly like to thank Catriona

King (formerly with Routledge), who initially commissioned this project, Francesca

Poynter and Rachel Crookes at Routledge for their help and assistance at various stages

of the production of this volume.

Pawan S. Budhwar, Aston Business School, Birmingham

xvi • Preface

Introduction: HRM in the

Asia-Paciﬁc context

PAWAN S. BUDHWAR

Introduction

Over the last couple of decades or so, a number of Asia-Paciﬁc economies have

witnessed unprecedented levels of economic growth (Japan and Korea experienced this

much earlier) and the region has been a major contributor to global prosperity and

stability. The economic crisis of the late 1990s suddenly halted this remarkable economic

run. Importantly, it highlighted a number of characteristics of the affected economies

which needed major changes so as to enable them to assimilate into the global economy

(Arndt and Hall, 1999; Yip, 2000). Already a number of efforts have been made to

achieve this (see Chen, 2002); however, several macro-level phenomena unique to each

of the economies in the region (such as their political set-up, regulatory set-up, very high

level of corruption, and family matters) are creating major hindrances in this regard (see

The Economist, 2002; Lau, 2002; Tsui-Auch and Lee, 2003). Nevertheless, at present, the

Asia-Paciﬁc region produces more goods and services than either North America or the

European Union and this trend is expected to accelerate in the years to come. Moreover,

out of the twenty-ﬁve most important emerging markets, ten or more are regularly from

the Asia-Paciﬁc region (see The Economist, 2003). Further, they attract an enormous

amount of foreign direct investment (FDI). Despite the fact that global FDI inﬂows

declined in 2002 for the second consecutive year, FDI in Asia and the Paciﬁc declined the

least in comparison to other regions of the world, and China with a record inﬂow of $53

billion became the world’s biggest host country (for more details see UNCTAD, 2003).

It is also predicted that most new members of the newly afﬂuent nations will come from

the Asia-Paciﬁc in the twenty-ﬁrst century (see Tan, 2002). Despite all this, most of the

Asia-Paciﬁc economies (excluding Japan, Australia and to some extent Korea) have a

long way to go before they can be considered on a par with their western counterparts

in both economic development and management professionalism. For example, many

Asia-Paciﬁc countries have reached a stage of development where their future source

of growth will not lie primarily with the inﬂow of FDI, but with innovation, research

and development and generating their own FDI. Moreover, many of the advanced

Asia-Paciﬁc countries (for example, Singapore, Korea and Taiwan) have lost their cheap

labor and property advantage to some of the emerging economies in the region

(such as China, India and Thailand). A possible way forward for them is to shift their

economic activities from mass production to development hubs (see Tan, 2002). Such

developments have serious implications for the human resource management (HRM)

function in the region, especially when human resources (HRs) are known to play

a signiﬁcant role in the economic development of nations (see Tayeb, 1995; Debrah

et al., 2000).

This book highlights the dynamics of HRM systems in eleven Asia-Paciﬁc countries:

China (short for People’s Republic of China), Korea (short for South Korea), Japan,

Hong Kong, Taiwan, India, Thailand, Vietnam, Malaysia, Singapore and Australia. The

remainder of this chapter is structured as follows: the next section highlights the key

issues reported in the literature related to the ﬁeld of HRM in the region. It then discusses

the framework adopted by the contributors writing their country-speciﬁc chapters for this

volume. Lastly, it presents the structure of the book and introduces each of the chapters.

Developments in Asia-Paciﬁc HRM

The developments in the ﬁeld of HRM in the west are now well documented (see

for example, Legge, 1995; Poole and Warner, 1998; Schuler and Jackson, 1999; Sisson

and Storey, 2000). In comparison, the ﬁeld of HRM is still evolving in the Asia-Paciﬁc

region. A thorough literature search highlights the absence of a systematic analysis

which can present a comprehensive picture regarding the dynamics of HRM here. Indeed,

there are a number of reliable country-speciﬁc studies which have emerged with the

economic development of a particular country in the region (Ang, 1997). For example,

there is plenty of literature on Japanese management systems (see for example, Ouchi,

1981; Sano et al., 1997) and on various aspects of management of human resources in

the Australian context (see De Cieri and Kramar, 2003). The existing literature also

highlights that, of late, much research has been conducted and published on issues

related to HRM in other advanced countries of the region such as Singapore, Hong Kong,

Taiwan and Korea (see for example, Rowley, 1998). At present, much research is being

published on different aspects of management in the Chinese context (see Brown, 1996;

Warner et al., 2002). Research publications on other important emerging markets such

as India, Malaysia, Thailand, Indonesia and the Philippines are also emerging, though

at a very slow and infrequent pace. Still, the overall balance is strongly in the favour of

HRM in advanced industrial societies in the western world (Lau, 2002).

The increased acceptance of the contribution of human resources towards the

achievement of ﬁrms’ objectives (see Schuler and Jackson, 1999) on the one hand, and

the increased interest of both academics and practitioners regarding the management

of human resources in different parts of the world (due to globalization) on the

other, stress the need for more research and publications to provide a reliable and

comprehensive picture of HRM systems relevant to different parts of the world

(Brewster et al., 1996; Dowling et al., 1999; Dowling and Welch, 2004). This certainly

2 • Pawan S. Budhwar

applies to the Asia-Paciﬁc region (see Ng and Warner, 1999) due to its signiﬁcant

contribution towards the global economy (in different ways, such as supplier of cheap

resources), and its being the largest consumer market in the world, able to attract

maximum FDI and host the operations of maximum foreign ﬁrms.

Of course there is broad information available regarding different aspects of HRM

in the region. However, in the present context, the validity of a number of established

ideal-typical management models is questionable; for example, the three pillars of the

Japanese employment system (i.e. permanent jobs, seniority pay and enterprise union)

and the management models of Singaporean Chinese and Korean business groups (see

Rowley, 1998; Tsui-Auch and Lee, 2003). To understand such changes, there is now

a need to highlight the major factors that determine HRM policies and practices in the

Asia-Paciﬁc region in the present global context. Such an evaluation will further

contribute to the development of HRM theories and relevant policies and practices

(Budhwar and Debrah, 2001a). An attempt has been made in this volume to highlight

the key determinants of HRM in the respective countries.

Academics have responded positively to the challenges raised by the globalization of

business by investigating a number of issues and problems related to HRM in the

Asia-Paciﬁc context (see El Kahal, 2001). Adopting a neo-institutional approach, Moore

and Jennings (1995) examine the pattern of HRM systems in eleven Asia-Paciﬁc Rim

countries. Neo-institutional theory focuses on the way in which innovations in behavior,

technology and structure become accepted and widely used (i.e. the process through

which innovations become recognized, formalized and then legitimized in the society).

Along with this perspective, the authors also stress the role of local culture and conditions

for HRM while studying the employment relationships in the chosen countries. Pursuing

a similar theme and emphasizing cultural values, Kao et al. (1999) stress the need to

indigenize the management practices in Asian organizations. The authors challenge the

applicability of western management and organization theories in the Asian context

(something which has been tested and conﬁrmed for many years; see for example,

Kanungo and Jaeger, 1990). Continuing with the cultural perspective, Kidd et al. (2001)

examine the key HR issues faced by western ﬁrms operating in the Asian context and the

challenges faced by the local ﬁrms in the post-Asian economic crisis of the late 1990s.

The authors assert that, due to the cultural and institutional differences, foreign ﬁrms

operating in China ﬁnd it hard to implement their headquarters’ HRM practices in their

Chinese subsidiaries. On the other hand, studies by Björkman and Lu (1999) reveal

contradictory results. They show the successful implementation of global standardized

HRM practices in foreign ﬁrms operating in the Chinese context. Similar results have

been recently reported by Budhwar and Björkman (2003) in their study of foreign ﬁrms

operating in India. Such results indicate that certain levels of standardization of HRM

systems are perhaps taking place around the globe. Still, most research ﬁndings regarding

the transfer of HRM practices from headquarters of multi-national corporations (MNCs)

to different regional subsidiaries emphasize some sort of adjustment to the local context

(see for example, Bae et al., 1998). In such conditions, it becomes important that HR

managers responsible for decisions regarding HRM practices and policies in subsidiaries

Introduction • 3

operating in the Asia-Paciﬁc region be aware of the key factors which signiﬁcantly

inﬂuence HRM systems in the respective countries.

Rowley and associates (see Rowley and Lewis, 1996; Rowley, 1998; Rowley and

Benson, 2002; Benson and Rowley, 2003; Rowley et al., forthcoming), Warner

(1998, 2002) and Amante (1998) amongst others, have examined the issues of

convergence–divergence in the Asia-Paciﬁc context. Over the last few years, research

evidence has helped to supplant the convergence view with the knowledge that

managerial attitudes, values, behaviors, and efﬁcacy differ across national cultures

(see for example, McGaughey and De Cerie, 1999); recent investigations in the

Asia-Paciﬁc region (see for example, Warner, 2000, 2002) emphasize the notion

of ‘soft convergence’ (partial impact) as an outcome of globalization. From the MNC’s

perspective, the implementation of global standardized HRM practices and policies

(with local adjustments) is also an indication of soft convergence. Globalization and

international trade and ﬁnance place pressures on ﬁrms to standardize practices

and policies (Rowley and Benson, 2002). However, considering the sheer variations

(such as population, geography, economies, economic development phase, labor

markets, sociocultural, legal and political setup, and HRM systems) in the Asia-Paciﬁc

region, it will not be sensible to talk about signiﬁcant or ‘hard convergence’ (for more

details see Hofstede, 2001; Warner, 2002). Possibly, a thorough cross-national analysis

of the key factors which form the basis of national HRM systems (such as national

culture, institutions and dynamic business environment) and the level (both depth and

acceptance) at which a given HR practice is adopted in different settings can help to

examine the convergence–divergence thesis in a more meaningful manner (see Begin,

1997; Budhwar and Sparrow, 2002).

Another important issue which has attracted the attention of both academics and

practitioners over the years has been the unique characteristics of different business

groups (such as chaebols in Korea, keiretsus in Japan or Chinese family businesses)

operating in different countries in the Asia-Paciﬁc region which have contributed a

great deal to their economic success. Details of such characteristics are provided in

individual chapters of this volume (also see Floyd, 1999, for a comparison of eastern

versus western management practices). These business groups have deep roots in the

core institutions (such as family structure, Confucianism), and sociocultural background

of their respective societies (see for example, Whitley, 1996) and accordingly have their

own HRM systems (see Begin, 1997; Rowley, 1998). The economic crisis of the late

1990s and the present competitive environment have raised questions regarding the

validity of such ideal-typical family business management models in the present context

(see Tu et al., 2002; Tsui-Auch and Lee, 2003). Before the economic crisis, such

groups, although professionalized in their management systems, retained family control

and corporate rule. However, the pressure created by the economic crisis is forcing

the groups to relinquish these by absorbing more professional managers at the top. A

similar pattern is emerging in the Indian private business houses where top positions

are being offered to the best available professionals and a more formal and rationalized

approach to HRM is being adopted (see Budhwar, 2003). However, this phenomenon

4 • Pawan S. Budhwar

is still evolving across many Asia-Paciﬁc countries and there is a scarcity of reliable

literature in this regard (White, 2002). Such information is highlighted in this

volume.

Similarly, globalization has affected the industrial/employment relations system of

Asia-Paciﬁc countries (see for example, Verma et al., 1995); most countries of the region

(like many others around the globe) have experienced a decline in union membership

(see Kuruvilla et al., 2002); changes in industrial relations in the Asian context are also

contributing to adjustment from previously salient constraints (labor peace and industrial

stability) to the new imperative of enhancing ﬁrm-level competitiveness through both

numerical and functional ﬂexibility (Kuruvilla and Erickson, 2002). A similar pattern

was observed in western industrialized nations, suggesting the possibility of convergence.

However, such indications are based on limited sources and need to be seriously

questioned. Nevertheless, it is clear that globalization and the Asian economic crisis

of the late 1990s have certainly affected the employment relations of Asia-Paciﬁc

countries in one way or the other, such as employment security (for more details see

Debrah, 2002; Hadiz, 2002).

Based on the above discussion and the existing literature (which is not reviewed here

as it is beyond the scope of this chapter and the volume), at least two conclusions can

be drawn. First, the signiﬁcant contribution of the Asia-Paciﬁc region towards global

economic development is now well acknowledged (see for example, Kim and Koo,

1997; Yip, 2000). Second, it is clearly evident that the existing HRM research in the

Asia-Paciﬁc context (probably not applicable to Australia) is both limited and not

conducted in a systematic manner within a clear framework to include those countries

which may enable a conclusive and comprehensive picture. As a result, it does not

generally provide insight into underlying processes and contribute to theory development

(see White, 2002). In the present global context, highlighting of region/country-speciﬁc

phenomenon would help to generate theory for global-relevant issues. It can also

contribute to validate region-speciﬁc constructs (for example, Chinese, Indian, or

Korean) to study local and global issues (see Lau, 2002). A possible way forward

is to conduct a systematic analysis starting from a basic level and leading to an advanced

level, thereby helping to provide a comprehensive analysis and a more reliable picture

of the scene. How this may be conducted is discussed in the next section.

Framework for analyzing cross-national HRM

Before discussing the framework adopted for developing the country-speciﬁc chapters

for this volume, it will be useful to highlight the complex context of the Asia-Paciﬁc

region which makes it difﬁcult to conduct a meaningful cross-national HRM analysis.

A number of scholars (see for example, Rowley, 1998; Hasegawa, 2002; Warner, 2002,

among others) highlight the complex setting of the Asia-Paciﬁc region. One of the more

common mistakes committed by both academics and policy-makers is the use of terms

such as “Far-East,” “Asian” or “Asia-Paciﬁc” in a very general sense (i.e. it is applied to

Introduction • 5

a group of nations existing in the region). However, it is important to acknowledge that

each nation within the region has an independent set of socioeconomic components

differing from one another in content and arising inevitably from the interplay of social

relations unique to themselves. Hence, there is a clear need to see the management

phenomena as part and parcel of the distinctive political, socioeconomic, cultural and

institutional systems of each country (Morishima, 1995; Rowley, 1998; Hasegawa,

2002).

Further, countries in the Asia-Paciﬁc region are at different stages of industrialization

and economic development. The region covers a range of geographical, economic and

cultural spheres. Though writers (such as Leggett and Bamber, 1996; Ng and Warner,

1999; Bamber et al., 2000) divide the countries of the region into three broad categories,

i.e. advanced economies (Japan, Australia and New Zealand), newly industrialized

economies (such as Korea, Taiwan, Singapore and Hong Kong) and less developed

countries or those which are in the earliest phase of industrialization (such as China,

India, Malaysia, Thailand and the Philippines) on the basis of their economic

development. However, while analyzing HRM systems here, such a categorization

is unhelpful and should be avoided, as countries within these categories signiﬁcantly

vary on core aspects of national culture (for example, Japan and Australia), institutional

framework (such as the nature of the family business groups of Korea and Singapore or

Taiwan, which vary signiﬁcantly; see Tu et al., 2002) and core business sectors (such as

the software sector of India and the manufacturing sector of China). These are the main

national factors which signiﬁcantly determine national HRM systems (see Budhwar and

Sparrow, 2002).

In order to develop a conceptual framework for examining HRM in a cross-national

context involving both developed and developing nations (as in the case of the

Asia-Paciﬁc region), it is important to deﬁne HRM in the broadest sense. There are

some reasons for this. First, the existing literature suggests that the concept of HRM is

relatively new and possibly non-existent in some regions of the developing world.

Second, several distinctive HR models may exist within ﬁrms in a particular country,

each of which depends (along with a number of other factors, such as different

institutions and national culture) on a number of distinct “internal labour markets”

(Osterman, 1994; Boxall, 1995; Hendry, 1996). Within each labor market, HRM

incorporates a range of subfunctions and practices which include systems for workforce

governance, work organization, stafﬁng and development and reward systems

(Begin, 1992). HRM is therefore concerned with the management of all employment

relationships in the ﬁrm, incorporating the management of managers as well as

non-management labor.

In line with these views, different scholars in the ﬁeld of HRM have put forth a number

of frameworks for conducting international/cross-national HRM research (for an

extensive review, see Jackson and Schuler, 1999; Budhwar and Debrah, 2001b;

Budhwar and Sparrow, 2002; Schuler et al., 2002). Based on a critical analysis of the

existing frameworks and extensive research in the ﬁeld, Budhwar and associates (see

6 • Pawan S. Budhwar

Budhwar and Sparrow, 1998, 2002; Budhwar and Debrah, 2001a, 2001b) have proposed

a framework for examining cross-national HRM. They have identiﬁed three levels of

factors and variables which are known to inﬂuence HRM policies and practices and are

worth considering for cross-national examinations (for details see Budhwar and Sparrow,

2002). These are:

1 national factors (involving national culture, national institutions, business sectors

and dynamic business environment);

2 contingent variables (such as age, size, nature, ownership, life-cycle stage of

organization);

3 organizational strategies (such as those proposed by Miles and Snow and Porter)

and policies related to primary HR functions and internal labor markets.

However, considering the infancy stage of HRM in many Asia-Paciﬁc countries and the

argument that HRM in a cross-national context may best be analyzed by examining the

inﬂuence of national factors (Brewster et al., 1996; Budhwar and Sparrow, 1998), it is

proposed to examine the impact of the main national factors on HRM in the eleven

selected Asia-Paciﬁc countries. A similar approach was successfully adopted by Budhwar

and Debrah (2001a) to examine the HRM systems in thirteen developing countries. The

broad national factors such as culture and institutions form the macro environment of

organizations in a national context. All the contributors of country-speciﬁc chapters for

this volume have made a sincere effort to highlight the inﬂuence of the national factors

(where possible) on the national HRM system in their respective countries. For a detailed

explanation regarding the rationale for the selection of various factors and variables

included in the framework, see Budhwar and Sparrow (2002). The core aspects of each

of the four national factors are available in Table 1.1.

Plan of the book

It is difﬁcult to include all the countries of the Asia-Paciﬁc region in one volume.

However, by including a wide range of countries, it is hoped to present the reader with

a rich ﬂavor of the core aspects of HRM systems and the possible trends and patterns

that are emerging for each country and how these are shaped by key national factors.

Highlighting the scenario of HRM in the Asia-Paciﬁc region and key issues related to it,

this volume is divided into two parts. The ﬁrst part deals with country-speciﬁc chapters

(chapters 2–12) and the second part with issues related to transfer of HRM from MNC’s

headquarters to their subsidiaries in the Asia-Paciﬁc region (chapter 13) and key HRM

challenges faced by ﬁrms operating in the region (chapter 14).

Most of the contributors are either natives of the country for which they have authored

the chapter or have worked and researched for long periods in the respective country.

This helps to minimize the “western bias” in such projects and has enabled the authors

to present a more realistic picture. Each of the country-speciﬁc chapters follows a

common pattern. This has been developed keeping in mind the broad objective of the

Introduction • 7

Table 1.1 Details of aspects of national factors determining cross-national HRM

National culture Institutions Industrial sector Dynamic business environment

Socialization process National labor laws Common strategies, business Competition

Common values, norms of Trade unions logic and goals Business alliances

behavior and customs Politics Regulations and standards Changing composition of

Inﬂuence of pressure groups Educational and vocational Sector-speciﬁc knowledge workforce

Assumptions that shape training set-up Informal and formal bench Restructuring

managers perceptions, insights Labor market marking Focus on total customer

and mindset Professional bodies Cross-sector cooperation satisfaction

Management style International institutions Common developments in Facility of information

Meaning of work and values Industry by itself business operations Technological change

Personal dispositions, attitudes Employers federation Labor or skill requirements Globalization of business

and manners Consulting organizations Merger activity

Approaches to cultural diversity Placement organizations Workforce mobility

Match to the organization Trade bodies Capital mobility

culture Government institutions

Local authorities

Voluntary bodies

book, i.e. to highlight the dynamics of the HRM systems in the respective countries. All

the authors have made a reasonable attempt to structure their country-speciﬁc

contributions around the following topics:

1 historical development in HRM/IR/PM/personnel administration;

2 role and importance of, and degree of partnership in, HRM in most companies;

3 key factors determining HRM practices and policies (such as law, politics, national

culture, competitive business environment, different institutions, economy, etc.), with

a review of most of the HR practices, such as pay, stafﬁng, training, etc.;

4 present changes taking place within the HR functions (over the past ﬁve years) and the

factors responsible for the same;

5 key challenges facing HRM;

6 determine what is likely to happen to HR functions in the next ﬁve years;

7 details of websites and current references for the latest information and developments

in HRM that will provide more information to the reader over the years.

In chapter 2, Cooke highlights the profound changes which have taken place in the

Chinese traditional personnel administrative system over the last ﬁve decades or so.

She discusses how the personnel function in China remained centralized until the early

1980s and how the “three systems” reforms, along with other programs (for example,

“competing for the post,” downsizing, restructuring, early retirements) initiated

fundamental changes in the Chinese HRM policies during the mid-1990s. Cooke also

illuminates our understanding about the rapidly changing dynamics of the labor-market

in China and the movement away from harmonious management–labor relations to one

characterized by conﬂicting interests, rising disputes and increasing inequality in

contractual arrangements between management and labor. The rapidly changing business

environment in China has contributed to the movement from state-owned enterprises to

joint venture and private-owned enterprises. She succinctly highlights the main factors

responsible for such changes and highlights the role of political, legal, cultural and

economic factors in the development of HR functions in China.

Chapter 3 details the dynamics of HRM in South Korea. Here, Rowley and Bae use the

three stages (i.e. pre-1987, 1987–1997, and post-1997) and two dimensions of rewards

and evaluation and resourcing and ﬂexibility to discuss the developments in Korean

HRM. They also discuss the emergence of employee involvement and partnership in

HRM at both macro (national) and micro (ﬁrm) levels. Rowley and Bae also discuss

the historical and political background of Korea and highlight the foundations of Korean

corporations, the “chaebols,” and how they manage employment relations. In addition,

they discuss the Asian economic crisis and the problems and strains it brought to the

chaebols. Next, the chapter highlights the scenario regarding a number of HRM functions

in Korea and the changes taking place there. Finally, the future of HRM in Korean

companies is analyzed.

In chapter 4, Salmon presents the past and present scenario of HRM in Japan. He

discusses the pressures forcing changes to established Japanese management models

(i.e. lifetime employment, seniority-based promotion, HR development and the enterprise

Introduction • 9

union). Salmon then highlights the implications of the decade-long recession on the ﬁeld

of HRM in Japan and discusses the employers’ responses to the same. He also points out

the key challenges faced by HRM functions in the present-day Japanese organizations.

Chapter 5 highlights employment relations in Hong Kong over the last thirty years.

Chan and Lui have structured their discussion around three time periods – the 1970s,

1980s and 1990s (i.e. from a manufacturing base to a full service-base) – to report the

developments in HRM in Hong Kong. They also discuss the de-industrialization and

the re-commercialization processes and their impact on HRM in Hong Kong. Further,

Chan and Lui highlight the post-1997 restructuring phase and its implications for the

HRM functions. Next, they discuss the core pattern of HRM in small and medium

enterprises; local Chinese family businesses; and multinational corporations. The chapter

then highlights the inﬂuence of different institutions and globalization on the HRM

system in Hong Kong. Finally, the authors discuss the future of HRM in Hong Kong.

In chapter 6 Wu adopts a historical perspective to present the dynamics of the HRM

system in Taiwan. She asserts that Confucian work principles still dominate working

relationships in Taiwan. Wu discusses the three stages of development of HRM in

Taiwan (i.e. pre-mid-1960s, 1965–1985, and post-mid-1980s). Wu’s chapter reveals that,

in comparison to China and Korea, Taiwan seems to have a more formal and established

HRM function. She also indicates the growing strategic nature of Taiwanese HRM.

Further, Wu has enriched her discussion by providing the support of empirical studies

and important statistics regarding the inﬂuence of environmental factors on HRM;

changes in the Taiwanese HRM functions over the last ﬁve years; and key challenges

facing HRM. Lastly, she discusses the scenario of the main HRM functions in selected

Taiwanese ﬁrms.

Chapter 7 is concerned with HRM in India. Here, Saini and Budhwar present an overview

of the socioeconomic environment of India and its impact on Indian HRM. The authors

highlight the roots of HRM functions in India and how they have evolved over the last

eight decades or so. The discussion then focuses on the debate regarding differences in

personnel management, HRM and HR development. Using the framework introduced

in this chapter, the authors highlight the inﬂuence of national culture, national institutions

supporting industrial relations, legal framework, vocational educational and training

setup, and other factors on Indian HRM. Later in the chapter, the discussion is focused

on the possible direction for HRM in India from different perspectives (organizational,

individual and national).

In chapter 8 Siengthai and Bechter present the evolution and development of HRM

functions in Thailand. They contend that over the years the role of HRM has changed

from a traditional payroll function to a business partner. While discussing these changes,

the authors highlight the inﬂuence of key factors such as the Thai national culture and the

economic environment on the Thai HRM system. This is followed by a critical analysis

on HRM in Thailand before and after the economic crisis of the late 1990s. Later in the

chapter, results from a number of empirical studies are presented to highlight the scenario

of HRM in both Thai and multinational ﬁrms. A separate section is devoted to labor

10 • Pawan S. Budhwar

management relations in Thailand. Like most chapters, this also highlights the main

challenges facing HRM functions and the possible way forward in the Thai context.

Chapter 9 provides a critical analysis of HRM systems and practices in Vietnam. Quang

and Thang show how a mixture of different cultural and political institutions and the

economic structure of the country impact Vietnamese HRM. The authors discuss the

scenario of HRM both before and after the renovation period of 1986 (before which

Vietnam followed a centrally planned economic model). Next, the current status of HRM

functions in Vietnam is analyzed. A special emphasis is laid on industrial relations in the

country. Finally, the chapter highlights the changing role of HRM and the key challenges

before it in the new economic environment.

In chapter 10 Mellahi and Wood discuss the dynamics of HRM in Malaysia. They

highlight the roles of political setup, sociocultural context and government initiatives in

the development of a national HRM system. The authors discuss the signiﬁcant impact

of both Islamic and Chinese Malaysian work-related values on Malaysian employment

policies and practices. Mellahi and Wood also highlight the scenario of industrial

relations and labor markets in the Malaysian context. The chapter then discusses

the national HR development strategy (Vision 2020) and the present state of HRM

functions.

Chapter 11 is about HRM in Singapore. Khatri highlights the impact of economic

development strategy, national administrative systems, multinationals and various

cultural aspects on Singaporean HRM policies and practices. While doing so, he

highlights a number of signiﬁcant differences between various categories of employees

(such as local versus foreign). The author highlights issues such as labor turnover,

participation of both females and older employees in the workforce and management

of Singaporean expatriates as the main challenges facing Singaporean HRM functions.

Next, the chapter presents the current state of HRM policies and practices in both local

and foreign ﬁrms operating in Singapore. Finally, the possible direction of Singaporean

HRM is discussed.

Patrickson and Sutiyono detail in chapter 12 the scene of HRM in Australia. They

initially present an overview of Australian HRM systems in the context of the changing

economic and technological business environment. Then they highlight the main

characteristics of the Australian workforce and the recent contextual changes (such as

the legal) and their implications for HRM policies and practices. The changing context of

Australia is also contributing to a decline in the number of unions, making HRM more

formal, and with an increased emphasis on diversity management. The authors

then discuss the core HRM functions and the possible changes taking place in the same.

Some useful references to small enterprises (which are dominant in the Australian

context) are also made in the chapter. Finally, they highlight the main challenges facing

HRM in Australia in the 2000s.

Chapter 13 is devoted to discussion on the theme of transfer of HRM from MNC’s

headquarters to their Asia-Paciﬁc subsidiaries. This chapter is mainly included in the

Introduction • 11

volume because of the interest of many MNCs in the region. Moreover, the topics

covered in this chapter form part of current debates and a clear consensus on the same is

still not reached. Björkman highlights a number of conceptual and theoretical issues

related to the topic. He then presents a concise review of the existing literature related to

the characteristics of MNC HRM practices and determinants of HRM policies and

practices in MNC afﬁliates. Later, in the chapter, Björkman sketches out the possible

direction in the ﬁeld with a special reference to the Asia-Paciﬁc context.

In the last chapter, Debrah and Budhwar discuss the current HRM challenges in the

Asia-Paciﬁc region. It is believed that these issues will be the focus of future research

and will help to further enhance our understanding of HRM in the Asia-Paciﬁc.

Acknowledgment

I thank Chris Rowley and Yaw Debrah for their useful comments on an earlier version of

this chapter.

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Introduction • 15

HRM in China

FANG LEE COOKE

Introduction

HRM in China is as new as its market economy, with its traditional personnel

administrative system undergoing a period of profound change. This chapter ﬁrst

outlines the historical development in personnel management and the role of trade unions

and the Workers’ Congress in China. It then analyzes the legislative, social, cultural

and business factors that shape the HRM practices in terms of recruitment, training,

working-time arrangements and pay. This is followed by a discussion of the major

changes in recent years in the HR functions such as recruitment and performance

appraisal. The chapter then contemplates key challenges facing HRM in China, notably

the thorny issue of motivation-performance-reward, skill shortage and its associated

problems of recruitment, retention and training, and the absence of strategic HRM.

The chapter ﬁnally explores the implications of all these for HRM functions in the near

future.

Throughout the chapter, relatively heavy references are made to state-owned enterprises

(SOEs) and public sector organizations, although the private sector will also be discussed

as much as possible. This is because the state has been a major employer in the past and

because SOEs and public sector organizations are the areas where HRM has experienced

the most radical changes in recent years under the economic and social (welfare) reforms.

This chapter will also use the term HRM in a broad sense, although the term “personnel

management” is used to describe personnel administrative policies prior to the 1980s

when radical economic reforms started, leading to the proliferation of business ownership

in addition to the state sector. It must be noted here that, while the concept of HRM has

grown in popularity in recent years, there is considerable divergence in the ways in which

“human resource management” is interpreted and understood in China. However, the

scope of this chapter does not warrant the space to debate the origin and various versions

of the concept in detail, a task made more difﬁcult due to the lack of such a debate among

academics and practitioners in China, who tend to accept the concept uncritically as a

progressive given.

Historical development in personnel management in China

Personnel management in China has a 50-year history following the founding of the

“New China” in 1949 under the Communist Party. For the ﬁrst three decades until

the end of the Cultural Revolution, the personnel management system was highly

centralized by the state under the planned economy regime. Personnel management

during this period exhibited two major features in terms of its governance structure

and content of the personnel policy.

First, the personnel policies and practices of organizations were strictly under the control

of the state through regional/local labor departments. Centralization, formalization

and standardization of the personnel policies and practices were the primary tasks

of the Ministry of Labor (for blue-collar workers) and the Ministry of Personnel (for

white-collar and managerial staff). The state not only determined the number of people

to be employed and sources of recruitment, but also unilaterally set the pay scales for

different categories of workers. State intervention also extended to the structure and

obligations of the personnel functions at organizational level and managers of all levels

were only involved in the administrative function and policy implementation under rigid

policy guidelines (Child, 1994; Cooke, 2003a).

Second, for most people, entering employment was a “once-in-a-lifetime” event with

“lifelong” job security. Wages were typically low but compensated by a broad range of

workplace welfare provisions, including housing, pension, health, children’s schooling,

transportation to and from work, employment for spouses and school-leaving children,

as part of the responsibility of the “nanny” employer (Warner, 1996a; Cooke, 2000).

These characteristics were once dominant in the personnel management system of the

country because, until the 1980s, the vast majority of the Chinese employing

organizations were state-owned, with a minority being collectively-owned and even

fewer, privately-owned (see Table 2.1).

Today, four broad types of business ownership coexist in China’s economic regime with

the latter three rapidly gaining larger proportions:

1 state-owned enterprises;

2 collectively-owned enterprises in cities, townships and rural areas;

3 privately-owned ﬁrms and self-employed businesses;

4 foreign businesses, Sino-foreign joint ventures, and Sino-foreign cooperative

enterprises (including investment from Hong Kong, Macao and Taiwan).

The changing composition structure of business ownership since the 1980s with the

shrinking share of state ownership and the rapid growth of private and foreign-related

ﬁrms undoubtedly has major implications for the patterns of personnel management and

industrial relations at a macro level (see discussion below). In addition, the state sector

has witnessed radical changes in its personnel policy and practice in the last two decades,

as part of the Economic Reforms and the Enterprise Reforms beginning in the early

1980s. One of the major changes has been the rolling back of direct state control and the

18 • Fang Lee Cooke

Table 2.1 Employment statistics by ownership in urban and rural areas in China* (ﬁgures in 100,000)

Ownership 1978 1980 1985 1990 1995 1998 2001

Number of employed in urban areas 951.4 1052.5 1280.8 1661.6 1909.3 2067.8 2394.0

State-owned units 745.1 801.9 899.0 1034.6 1126.1 905.8 764.0

Collectively-owned units 204.8 242.5 332.4 354.9 314.7 196.3 129.1

Cooperative units — — — — — 13.6 15.3

Joint ownership units — — 3.8 9.6 5.3 4.8 4.5

Limited liability corporations — — — — — 48.4 84.1

Share-holding corporations — — — — 31.7 41.0 48.3

Private enterprises — — — 5.7 48.5 97.3 152.7

Units with funds from Hong Kong, Macao and Taiwan — — — 0.4 27.2 29.4 32.6

Foreign funded units — — 0.6 6.2 24.1 29.3 34.5

Self-employed individuals 1.5 8.1 45.0 61.4 156.0 225.9 213.1

Number of employed in rural areas 3063.8 3183.6 3706.5 4729.3 4885.4 4927.9 4908.5

Township and village enterprises 282.7 300.0 697.9 926.5 1286.2 1253.7 1308.6

Private enterprises — — — 11.3 47.1 73.7 118.7

Self-employed individuals — — — 149.1 305.4 385.5 262.9

Sources: ﬁgures for 1978–1998 come from China Statistical Abstract (2000), Beijing: China Statistics Press, p. 37; ﬁgures for 2001 come from China

Statistical Yearbook (2002), Beijing: China Statistics Press, p. 117.

* Since 1990, data on economically active population, the total employed persons and the sub-total of employed persons in urban and rural areas have been

adjusted in accordance with the data obtained from the 5th National Population Census. As a result, the sum of the data by region, by ownership or by sector

is not equal to the total (original note from China Statistical Yearbook, 2002, p. 117).

consequent increase of autonomy and responsibility at enterprise level in major aspects of

their personnel management practice. This change was accompanied by a series of state-

driven personnel initiatives which sent shock waves to individual employees as well as to

the country’s economy as a whole.

The objective of these initiatives was to bring to an end the planned state economy

characterized by “high employment rate,” “high welfare,” “low wage” and “low

productivity” and to introduce the market economy “with Chinese characteristics” in

which competition and incentive were two major ingredients. As a result, rapid and

fundamental changes in the Chinese HRM policies have taken place during the 1980s

and especially 1990s (Easterby-Smith et al., 1995).

In particular, the “three systems” reforms have been implemented in most (state-owned)

organizations since the mid-1990s. These include: ﬁxed duration individual and

collective labor contracts instead of jobs-for-life; new remuneration systems to reﬂect

performance, post and skill levels; and new welfare schemes in which all employers and

employees are required by law to make a contribution to ﬁve separate funds: pension,

industrial accident, maternity, unemployment and medical insurance (Warner, 1996a,

1999). The new welfare system is intended to shift the huge welfare burden from the

(state) employers towards individual employees.

Employment contracts were introduced for both managerial workers and ordinary

workers to replace the old system in which managers were appointed by their superiors

and workers were employed for life. The rationale of this contract system was to allow

greater freedom for both organizations and individuals in entering and/or terminating

their employment relationship. It also reduced the job security of individuals so that they

would be more motivated to work and to update their skill. It should be pointed out here

that all employers are now required by the Labor Law of China (1995) to sign an

employment contract with their workers, by adapting a standardized employment contract

provided by the local labor authority to each speciﬁc post. While the initial intention of

introducing the employment contract in SOEs was to increase motivation by removing

job security, the purpose of signing employment contracts in the private ﬁrms is primarily

to protect individual workers against irresponsible employers who may try to evade their

responsibilities as employers. Many of these workers come from rural areas and have

little knowledge of their employment rights. According to the Labor Law (1995), the

employment contract should include: length of contract, work content, health and safety

protection and working conditions, remuneration, discipline, conditions for termination

of contract, and liability for violating the employment contract.

In SOEs and public sector organizations, a system called “competing for the post” was

also introduced in the mid-1990s in which employees would be assessed (through tests)

once a year on their competence to work (Cooke, 2000, forthcoming, 2004b). Those who

came last would be laid off and further training would be given to increase their

competence while they were waiting for a post. This system has effectively injected an

element of job insecurity which serves as an incentive for the employees to become more

competitive by “up-skilling” themselves.

20 • Fang Lee Cooke

The State Economy Commission issued a document in 2001 (No. [2001] 230) which

required SOEs to deepen the above “three systems” reforms by placing them as their top

priority. The document reasserts that SOEs are required to establish a system in which

managerial workers should compete for their posts with both upward and downward

mobility. SOEs are also required to establish an independent employment system without

interference from other bodies. Employment contracts are signed and employees need to

compete for their post through competency tests. Finally, SOEs are required to establish

a reward system which provides greater links between (individual) performance and

reward as a motivational mechanism.

Many of the above changes in the state-owned sectors were initiated by the state and

carried out at organizational level from the top down, with little involvement from trade

unions and employees. These changes also took place alongside the most radical change

in the SOEs in the last decade: downsizing. Started in the early 1990s as part of the

program of restructuring and revitalizing the outmoded SOEs, this initiative reached its

peak in the late 1990s after Premier Zhu Rongji’s announcement of his SOE reform plan

in 1997. This reform program included plans to make 10 million workers redundant

within three years through early retirement and performance review. Laid-off workers

were expected to receive re-training for re-employment, a process in which the trade

union was able to play a more visible role.

Partnership in HRM

Only one trade union – the All China Federation of Trade Unions (ACFTU) – is

recognized in China, with its formal national union structure dating back to the early

1920s in support of the Communist Party revolution. The current structure of the

Chinese trade union organization has not changed drastically since 1949 (Warner, 1990),

although there has been an expansion of union membership as urbanization has drawn

more workers into industry (Ng and Warner, 1998). Drawing their membership from all

sorts of occupations and sectors including manual and non-manual workers in factories,

hospitals, schools and universities, the trade unions do not have any distinctive “trade”

characteristics, as they all belong to the same “father” – ACFTU. Two major pieces of

legislation provide the legal framework for the role of the union: the Trade Union Law

(1950), which was replaced by the recently amended Trade Union Law (2001) in

response to the rapid growth of the private sector, and the Labor Law (1995).

Traditionally, SOEs in China, which employ the majority of the workforce, have been

the patron of the workers’ welfare, as mentioned above. In the communist system in

which labor and capital are perceived to share the same interests, trade unions in the

SOEs in China play only a welfare role under the leadership of the Communist Party.

They carry out this function effectively by acting as a “conveyor belt” between the

Communist Party and the workers (Hoffman, 1981). Although union membership level is

generally high, people join trade unions by default (to be seen as supportive to the Party

and to enjoy the welfare beneﬁts) rather than by desire. In some ways, it is a form of

HRM in China • 21

social exclusion not to be a union member in the state sector. For example, temporary

workers (many of them from rural areas) who carry out laborious and tedious work

unwanted by urban workers are usually non-union members and do not share the same

level of workplace beneﬁts as permanent workers.

In theory, trade unions have been given a newly regulated monitoring role. According

to the Labor Law (1995), they are to “represent and protect the legal rights and interests

of workers independently and autonomously and develop their activities according to

the law” and to “monitor that employing units abide by labor disciplines and

regulations.” In practice, this proposition rarely materialized. Past and contemporary

empirical evidence hardly supports the notion of trade union autonomy in China, whether

it is for trade unions in large SOEs or in private- or foreign-owned enterprises (Warner,

1995; Ng and Warner, 1998; Warner, 2001; Cooke, 2002; Ding et al., 2002). Although

union organizations have a relatively strong presence in some traditional state-owned

industries, such as the railway industry (Cooke, 2000), union ofﬁcials in China have

generally been considered unfamiliar with the western style of collective bargaining,

“with their serious lack of the necessary back-up bargaining resources, skills and

capacities” (Warner and Ng, 1999: 307). Moreover, trade union ofﬁcials in China are

often in their post not because they are the best candidates for the job, but because they

have appeared to be, for various reasons, “unsuccessful” in their previous managerial

posts (Cooke, 2002).

Under the new ownership forms as a result of the privatization of SOEs in the 1990s, the

welfare role of the state has largely disappeared. The seemingly harmonious

management–labor relationship has been replaced with one characterized by conﬂicting

interests, rising disputes and increasing inequality in contractual arrangements between

management and labor. However, the role of the trade unions, or more speciﬁcally, the

union ofﬁcials’ perception of their duties, remains little changed. They still continue to

carry out their traditional functions such as organizing social events, taking care of

workers’ welfare, helping management to implement operational decisions, and co-

ordinating relations between management and workers (Verma and Yan, 1995).

In the private sectors, union membership levels are far lower than those in the state sector

and union activities are less popular (see Ding and Warner, 1999). Many ﬁrms do not

recognize trade unions, claiming that the union’s (welfare) functions are still carried out

by the ﬁrm despite the absence of union organization. While labor ofﬁcials often confuse

the role of trade unions with that of a welfare function, demand from workers to establish

a trade union may be low in part because they are unfamiliar with the concept of

workplace representation but more so because of their perceived ineffectiveness of such

an organization (Cooke, 2002).

According to the Labor Law (1995), the formal “representative function” of the unions is

supplemented by the trade union guided Workers’ Congress which is a format of

workers’ representation in the workplace. Initially introduced in the late 1940s, the

Workers’ Congress has been given an enhanced role since the 1980s as a result of the

marketization programs. It has the legal right to:

22 • Fang Lee Cooke

Deliberate such major issues as the policy of operations, annual and long-term plans and

programmes, contract and leasing responsibility systems of management; it may approve

or reject plans on wage reforms and bonus distribution as well as on important rules and

regulations; it may decide on major issues concerning workers’ conditions and welfare;

it may appraise and supervise the leading administrative cadres at various levels and put

forward suggestions for awards and punishments and their appointment and approval;

and it democratically elects the director.

(Liu, 1989: 5–6)

Again, in reality, the role of the Workers’ Congress remains less than effective (Benson

and Zhu, 2000). The Workers’ Congress is required by law to hold an annual meeting in

which workers can raise issues of concerns. This, however, does not often happen. Even

when it is held, it is mostly a symbolic gesture and an opportunity for a banquet party for

everybody involved.

In short, there is no real “partnership” between management and the trade union or

“employee voice” in the management–labor relations in China. However, the dominance

of state inﬂuence in the state-owned sectors and the weak presence of trade unions in

employment relations in China as a whole do not mean unilateral determination of HRM

practices by the (state) employers.

Key factors determining HRM practices

Like those in other countries, HRM practices in both the state and the private sectors in

China are, to a greater or lesser extent, shaped by a range of political, legal, cultural and

economic factors. Major labor laws include: The Labor Law (1995), the Trade Union

Law (1950, 2001), and the Provisions Concerning the Administration of the Labor

Market (2000), which set out China’s basic philosophy for the governance of the Labor

Market. In spite of the perceived ineffectiveness of the employment regulations in China

(Warner, 1996b; Cooke, 2001; Cooke and Rubery, 2002), these regulations do, at least in

principle, provide a legal framework under which HRM practices, such as recruitment,

training, working time and pay, should be carried out.

Regulations in recruitment are often aimed at removing gender discrimination. In recent

years, external labor markets have been playing an increasingly important role in the

(re)distribution of the labor resource as a result of the emergence of a market economy,

sectoral restructuring, the decreasing role of the state as an employer and the consequent

downsizing of its workforce. Instead of being assigned to a designated employing

organization by the state when they enter employment, individuals are more likely to seek

their jobs in a labor market inundated with candidates. This new way of recruitment and

employment has on the one hand introduced dynamics to the country’s employment

system, and on the other hand brought new problems and conﬂicts to the system in

general but more speciﬁcally to women’s employment.

Although women (mostly full-time workers) make up nearly 40 percent of China’s total

workforce, recruitment is perhaps the most difﬁcult barrier that women face in

HRM in China • 23

employment because of the current downsizing of SOEs, the mass migration of rural

labor and the high unemployment rate (Cooke, 2001). Traditionally, male workers are

considered to be more capable than female workers with higher participation rates,

stronger adaptability, better mobility and attendance records, and a longer working life.

Many employers are unwilling to recruit women because they are “inferior” to men and

because of the “fuss” and cost associated with women’s physiological conditions (e.g.

child-bearing and caring). In order to eliminate gender discrimination, the state has issued

a number of laws. These include the more recent laws such as the PRC Law on Protecting

Women’s Rights and Interests (1992) and the Labor Law (1995). These laws assert that

men and women share the same labor rights. However, discrimination in different forms

widely exists, often overtly, in the recruitment process against women who are at the

higher end of the labor market as well as those who are sought for their low-cost and

low-skill (Cooke, 2003a). Many job advertisements (including those issued by the public

sector organizations) specify gender requirements and age limits even though the posts

are suitable for both men and women, while the age limit is an attempt to avoid women

job seekers of child-bearing age.

In terms of working-time arrangements, the Labor Law (1995) also speciﬁes the number

of hours (no more than 44) workers should work for in a normal working week and the

number of hours of overtime they should be expected to undertake (no more than 36 per

month). It needs to be pointed out here that the vast majority of workers work full time

in China, as part-time working is still a relatively new concept with insufﬁcient interest

from both the employers and the workers. While these working-time regulations are

followed by most state sector organizations and many large private enterprises (Zhang et

al., 2002), they are often not adhered to by small business employers or township and

village enterprises (TVEs). In general, workers in the private service sector such as retail

and catering businesses work much longer hours than the norm, a situation compounded

by the low level of rest days and holidays that are given to the workers. For example,

Cooke’s study (forthcoming) of small retail shops found that few shops gave their

workers one day per week for their rest days. Instead, the majority of shops gave their

workers 2 or 3 days of rest per calendar month. Most owners did not allow their workers

to take their statutory holidays, such as the Chinese New Year, because they were the

busiest periods for the businesses.

In terms of training, there has always been a high level of state involvement/intervention

in the training policies and practices of SOEs and public sector organizations (Cooke,

forthcoming, 2004b). Since the start of economic reforms in 1979, a national network of

Cadre Management Training Institutes has been established providing compulsory

training courses for all (potential) managers (Warner, 1992). In 1981, the State Council of

China stipulated that enterprises should allocate a minimum of 1.5 percent of the total

wage bill as funding for employee education and training (Lu, 1987). In 1990, The

Ministry of Labor issued another statutory requirement: “The Regulations for Worker’s

Technical Grade Examination.” The examination content includes work attitude,

performance and level of skill/competence. The regulations establish a system that links

training, testing, deployment and remuneration together. In 1995, the “Temporary

24 • Fang Lee Cooke

Regulations on Continuous Education for Professional and Technical Personnel in China”

was introduced by the state. This is seen as an important policy document for the national

continuous training, which marks the beginning of the formalization of continuous

training for professional and technical staff. It speciﬁes that all senior and middle-ranking

professionals and technical staff should receive at least 40 hours of off-the-job training

per year, and junior ranking staff no less than 32 hours. While these regulations provide

a major momentum for (state-owned) workplace training, training provisions remain

generally low and are unevenly distributed across different industries (see further

discussion below).

Another factor that drives training provisions is the competitive business environment.

For example, the increasing globalization of business in China has brought organizations

to the recognition of the need to converge with international norms/practice. We have

seen, in the last few years, a heat wave of applications of ISO 9000 quality series

accreditation by many business organizations in China. This has led to an increase

in training in some enterprises in order to fulﬁl the accreditation requirements. The

accession to WTO likewise brought a tidal wave of training. One of the main reasons

for the increase in the training provision in the last two years has been to do with the

WTO-related legal framework. However, this training is far from sufﬁcient for the

Chinese organizations to deal with the surge of demand for WTO-related knowledge.

The pay system in China demonstrates a number of unique characteristics which differ

from that in other societies, characteristics such as the egalitarian culture, the relatively

heavy proportion of bonus in the total package of pay, and the signiﬁcant role of workers

in controlling the bonus. In Mao’s era, the distribution principle was based on the

equality norm which was “expected to lead to the best group harmony and stability” (Yu,

1998: 304). The espoused policy for employee motivation was based on moral teaching

and the doctrine of “serve the people.” During the Deng and now post-Deng period,

bonus and perks have become the driving force. However, the basic wage is still based

largely on the seniority-based egalitarian wage structure which does not reﬂect

competence, and egalitarianism in the bonus distribution remains a key characteristic in

order to maintain stability and harmonization.

Pay is perhaps the only aspect of HRM in China in which grass-root workers exert

extensive control in its (even) distribution. It has been noted that the most noteworthy

characteristic of the Chinese perspective on distributive fairness is one of egalitarianism.

Chinese workers are said to be very sensitive and to have low tolerance toward income

gaps between individuals or between different groups in the same company (Shirk, 1981;

Easterby-Smith et al., 1995). They regard this as potentially disruptive in collective social

systems that put group harmony and social adhesion as the top priority (Yu, 1998; Cooke,

2002; Taylor, 2002).

A main feature of the pay system in the state sectors is the tension between the lack of

employee input in establishing the formal wage set by the state, on the one hand, and

their role in maintaining the low-earning differentials among themselves, on the other

(Cooke, forthcoming, 2004a). While employees have little room to oppose the formal

HRM in China • 25

wage structure, they play a fundamental role in preserving the egalitarian and seniority

culture in the distribution of bonuses and other material incentives, regardless of the

relative efﬁciency of individuals. Attempts from the top to increase wage differentials

between individuals according to performance may be mediated during implementation at

the operational level.

In the private sectors, seniority and egalitarianism still remain characteristic in

employees’ attitude towards pay, albeit being diluted by employers’ constant attempts

to introduce performance-based pay and pay conﬁdentiality, especially in joint ventures

(JVs) and foreign ﬁrms. For example, Chen’s Sino-American study (1995) found that

Confucian values were still evident in the continued emphasis on the social hierarchy,

with a higher ranking for differential rewards according to rank and seniority in the

Chinese sample. While management’s attempt to keep workers’ bonuses conﬁdential has

been met with workforce resistance in Cooke’s study (2002), resentment to widening pay

differentials was felt by workers in Taylor’s study (2002). However, Braun and Warner’s

small-scale study (2002) of multinationals in China found that the wide implementation

of bonus pay systems seemed to be more accepted in Sino-western JVs. It appears that

the new emphasis of Chinese employees towards an economic logic and rejection of

equality-based rules is more a product of recent environmental pressure and institutional

practice than any shift in underlying cultural values (Sparrow, 2000).

In short, the HRM practices are shaped, to varying degrees, by political, legal, economic

and cultural factors speciﬁc to China. While there is a trend of the legal protection being

extended to cover the private and informal sectors, there are also signs that the rapid

growth of private businesses and joint ventures are adding forces for change in the SOEs

and public sector, especially in areas such as recruitment, reward and performance

management (see further discussion below).

Present changes within the HR functions

Existing studies on HRM in China suggest that personnel practices are in transition

(Warner, 1998) from a highly centralized allocation process to a more market-oriented

and merit-based system. This transition has strong implications for SOEs because of

previous heavy inﬂuence of the state and current pressure from market competition (Zhu

and Dowling, 2002). Until quite recently, the personnel function in SOEs was conﬁned to

job allocation, personnel record ﬁling, and the provision of welfare beneﬁts. The primary

task for personnel management was to keep the employees politically and ideologically

sound (Ding and Warner, 1999). Many of the HR functions which are familiar to their

western counterparts were beyond the experience of personnel staff in China. However,

economic reform and decentralization of decision-making in SOEs from the state have

brought considerable changes to the HR functions in the state sectors. For example, Ding

and Warner’s study (1999) of twenty-four SOEs and JVs in four major cities found that

the role of personnel managers has changed dramatically in both the SOEs and JVs. They

were involved in making decisions in a range of HRM issues such as recruitment and

26 • Fang Lee Cooke

selection, training, promotion, dismissal, reward and discipline. However, personnel

management in the JVs exhibited more of the HRM characteristics than that in the SOEs.

While personnel departments in both SOEs and JVs had extensive involvement in

training, the former still had less power than the latter in the determination of reward and

disciplinary actions.

Similarly, Zhu and Dowling’s study (2002) found that many traditional HR policies in

China have changed and that there was clear evidence that a more complex and hybrid

management model was emerging as a result of increasing level of marketization and

enterprise autonomy (Warner, 1998). For example, over half of the enterprises surveyed

in Zhu and Dowling’s study (2002) had written job analyses which were used for other

HR activities such as HR planning, recruitment and selection and performance

management. In addition, enterprises with different types of ownership all placed an

emphasis on job-speciﬁc information for selection criteria, which demonstrated positive

correlation with perceived effectiveness of stafﬁng practices. Different external sources,

such as advertising and the labor market, were used for recruitment purposes and more

employees were hired on contractual basis. These ﬁndings all indicate some resemblance

to HR practices used in advanced economies.

Recruitment and performance appraisal are perhaps the two aspects of HRM that have

affected the personnel functions the most in governmental organizations as a result of the

state-driven initiatives to modernize the workforce (Cooke, 2003b). There is a renewed

emphasis on examination as a recruitment assessment mechanism in an attempt to block

the inﬂux of nepotism that has been a longstanding recruitment practice in governmental

organizations in the past. The recruitment procedures speciﬁed by the state in the

Provisional Regulations for State Civil Servants (1993) require that the whole

examination and recruitment process be made public, including the exam content,

procedure and result, so that the public can monitor its fairness. This is a bid for a fair

and efﬁcient system of recruitment and promotion that is transparent and competitive.

Job applicants have to go through a competitive recruitment process that is ensured by

intensive entrance examinations, coupled with other selection mechanisms, such as

interviews and assessment centers. The regulations further specify that civil servants

are required to have a formal annual assessment which includes written exams and

performance record inspection. The assessment results are graded and referred to for

promotion and reward. These new procedures of recruitment and performance appraisal

create a considerable amount of planning and administrative work with which the

recruitment personnel may not yet be familiar.

Key challenges facing HRM in China

HRM in China faces several challenges. First, Chinese enterprises in general do not

have a systematic approach to HRM that is consistent with their enterprise business

strategy. Second, despite the oversupply of labor, many employers are experiencing

recruitment and retention problems. Third, there is a lack of an effective system which

HRM in China • 27

links long-term motivation and performance with reward. Fourth, there is a lack of

coherence and continuity in enterprise training. The growth of human capital is obviously

lagging behind that of enterprise proﬁt. However, these problems are not encountered

by the public and private sectors to the same degree. While some problems are generic

to both sectors, others are more speciﬁc to the public or private sectors.

In terms of approaches to HRM, domestic private ﬁrms (many of which are very young)

in China share a considerable level of similarities in the development of their HR

functions. They source their HRs primarily from the labor markets, especially at the start-

up of their businesses. They lack a comprehensive HR strategy that provides skill training

and career structure. They have not developed an organizational culture to elicit their

employees’ commitment and loyalty. By comparison, the state-sector organizations have

a more established HR system due to the fact that they have a much longer history and

have been subject to much state inﬂuence. However, many elements in their HR system

have become outmoded and incompatible with recent developments in the economic

environment and the labor markets. The rigidity of the HR system is also a major source

of disadvantage of SOEs and public sector organizations which are faced with two major

problems in their HRM: how to retain and attract talent and how to motivate existing

employees.

Retention of key technical staff has been a tough perennial problem encountered by

many SOEs and public sector organizations in recent years. SOE workers are now much

more likely to seek high wages in non-state ﬁrms (Ding et al., 2001). It is believed that

foreign ﬁrms and JVs have been poaching key technical personnel from SOEs. For

example, an investigation by Beijing City Economy Commission of 150 large and

medium-sized enterprises in Beijing on their HR composition revealed that SOEs had lost

64 percent of their university graduates since 1982 while high-tech private ﬁrms had lost

18.5 percent (Chu, 2002). It is also reported that the four major state-owned banks have

lost many of their talented people to foreign banks in China in the last few years since

China relaxed its policy for foreign banks to operate there (Chu, 2002). Wang and Fang

(2001) found in their study of multinational companies (MNCs) in China that the vast

majority of employees in these MNCs were no more than 30 years of age and over 95

percent of them possessed at least advanced diploma educational qualiﬁcations. Over

64 percent of the Chinese employees surveyed said that the most important reason for

them to join MNCs was that they felt that they could utilize their talent and realize their

own value. High income was the second most important reason (62.5 percent).

In the past, many SOEs and public sector organizations tried to retain their (key) staff by

imposing a penalty clause in their employment contract. Those who wished to leave their

employer before the prescribed number of years was fulﬁlled were often faced with a

heavy ﬁnancial penalty and their personnel ﬁle would not be released by their deﬁant

employer. An increasingly popular method now used to retain staff is that of “negotiated

wage” on an individual basis. This involves the abandoning of the conventional wage

structure that does not differentiate performance in a real sense to a more tailored

package for each individual worker based on his/her competence and market value. This

28 • Fang Lee Cooke

often results in a general wage increase for the individuals concerned (Chen, 2002). It

needs to be pointed out here that in recent years, there is a reverse trend of talent

“returning” to the better managed SOEs which offer more attractive salaries and

individualized reward packages.

There is a great scarcity of high-performing Chinese managerial and professional staff in

China (Wong and Law, 1999). While foreign ﬁrms and JVs operating at the high end of

the product markets are able to recruit good quality university and polytechnic graduates

as technicians and skilled workers, many domestic companies are facing recruitment

problems. Graduates are unwilling to go to or stay with enterprises that offer relatively

low pay and have unhealthy prospects. While the increasing ﬂuidity of the labor market

may be beneﬁcial for individuals who are in advantageous positions, organizations may

ﬁnd it difﬁcult to establish a long-term employment relationship with key workers

conducive to the organization’s competitiveness. Keen competition for talent also tends

to drive wages upward disproportionally (thus widening the wage gap and social

inequality) and encourages opportunistic behaviors.

Foreign and domestic private ﬁrms also face the dilemma of whether to train up their

employees for the key skills required at the risk of having them poached or to recruit

from the market with attractive employment packages. Firms that provide training may

have to readjust their training plan in order to reduce the cost associated with staff

turnover. For example, Motorola (China) Ltd had to reduce its training period from

6–12 months to 3 months in order to stop trainee employees (who were sent to the USA

for training) from abandoning the ﬁrm to stay in the United States (Editorial Team of

Development and Management of Human Resources, 2001). Hence, ﬁrms that

successfully recruit, develop and motivate their skilled employees may have signiﬁcant

competitive advantages (Björkman and Fan, 2002).

Another major challenge in HRM in China is the need to change the ideology of reward,

distribution and performance, as discussed earlier in this chapter. Pay has not been an

effective mechanism in China to reﬂect workers’ performance or to motivate workers

(Cooke, forthcoming, 2004a) and poor performance has always been a problem haunting

the SOEs (Korzec, 1992; Chiu, 2002), if less so the private ﬁrms. However, Chinese

workers have often been criticized by the managers of JVs, foreign and domestic private

ﬁrms for a lack of motivation and pride in their work, and for showing little interest in

advancing themselves. Therefore, a difﬁcult task for HRM is to change the behavioral

patterns of workers, to make them more motivated, to make them take greater ownership

and responsibility for their own work and take greater pride in their organization. This

will lead to a greater level of organizational congruence and ultimately productivity.

Perhaps the most severe challenge facing HRM in China at the national level is that of the

skills shortage and the insufﬁciency of training provision, an intertwined problem that has

been touched upon several times so far in this chapter. One characteristic of the training

system in China is the considerable variation of training provision between different

forms of enterprise ownership and in different regions (Cooke, forthcoming, 2004b). In

general, foreign ﬁrms, JVs and the state sector provide more training than other forms of

HRM in China • 29

business, with small private and self-employed business perhaps providing the least

training. Firms located in the more developed east and southeast regions of the country

provide more training in general than those in the north and west. Employees in

manufacturing and public sector organizations also receive more training in general than

those in the private-service sectors.

At the enterprise level, training practice displays a number of problems characterized by

the lack of strategic planning and the low priority of training in organizational activities.

Enterprises often carry out training without any strategic planning, costing or taking into

account what the training needs of the enterprises are. Employee training is often seen as

part of the non-core business for companies and the training department is often used to

accommodate cadres who are deemed unsuitable for the front line of production. Training

departments usually operate in a reactive mode. They are there to “fulﬁl the task given

by the higher authority.” While training ofﬁcers complain that senior management of the

company neglect training, criticisms often leveled at the training provision are that it is

irrelevant, out-of-touch, a formality to tick the training box and an opportunity for

individuals to gold plate their qualiﬁcations (Xu, 2000). Borgonjon and Vanhonacker

(1994) also pointed out that the Chinese SOEs were mostly concerned about technical

training, and did not yet have the capability to run management training courses.

The future of the HR functions in China

The above key challenges facing HRM in China have profound implications for the HR

functions at individual, organizational and national level. At the individual level, there

is an urgent need to professionalize the HR functions. Human resource management

as a discipline in higher education did not make its appearance until the mid-1990s,

although it has been expanding rapidly since. In 1999, there were only thirty higher

educational institutions that provided undergraduate degree courses on HRM. By July

2001, there were over ninety universities that recruited HRM undergraduates (Liao and

Chen, 2002). The vast majority of HR ofﬁcers in enterprises have therefore never

received any formal training on HRM. Many of them came from a non-personnel

background. Moreover, the nature of the personnel functions is experiencing signiﬁcant

changes from the reactive administrative role of the planned economy era to a more

proactive and strategic role of the market economy. This is accompanied by an increasing

level of labor mobility, more overt labor–management disputes, more complex reward

systems, and the introduction of more labor regulations. HR personnel therefore need to

equip themselves with the understanding of HR theories and labor regulations and their

practical implications. They also need to understand the strategic role of HRM in relation

to other functions of the organization.

At the organizational level, it is likely that in the next few years, the HR function in many

Chinese organizations will continue to share its administrative and welfare roles with the

trade unions. While the rapid expansion of the private sector and the recent amendment

of the Trade Union Law are unlikely to change the power base (or the lack of it) of the

30 • Fang Lee Cooke

union dramatically, the HR function has yet to develop to be part of the business strategy.

The majority of entrepreneurs and CEOs in China have insufﬁcient understanding of the

strategic importance of HRM to organizational competitiveness and tend to underestimate

the technicality of HRM. According to Xu (2001), their ideology of employment

relationship is still largely of the transactional nature. A common mindset is that: “I have

the money, I employ you, therefore you should do a good job for me.” Much work needs

to be done to convince them of the added value of human resources and the importance

of winning employees’ commitment for the success of the organization.

At the industry and national level, there is a need to establish industrial and national

networks to share information of HR, to coordinate the HR functions such as skill

training and recruitment, and to monitor the labor market trends and the conformity of

labor regulations. Equally importantly, national professional bodies for HR professionals

should be set up to link HR professionals and to facilitate the sharing of “best practices”

in HRM. To date, no professional HR body exists at the national level. However, there

are signs that some best practice sharing is taking place beyond the workplace level,

albeit often in an unorganized manner. For example, blue-chip foreign ﬁrms and JVs are

considered to have a sophisticated HR system, many elements of which are western

practices transferred and adapted to suit the Chinese environment. Their HR policy and

practice are often hailed by the media as good models to be followed by domestic ﬁrms in

China. Delegate teams are sometimes organized by local governments or ﬁrms to visit

these model companies in order to disseminate good practices.

Conclusion

This chapter has provided an overview of HRM in China, covering most aspects of

HRM and its characteristics in different types of organizations such as SOEs, public

sector organizations, foreign ﬁrms, JVs, TVEs and domestic private ﬁrms. It highlighted

the most unique aspects of HRM practices in China. These include: gender inequality

in recruitment and selection; the weak presence of trade unions and the absence of true

workers’ voices; the unofﬁcial role of grass-root workers in maintaining the egalitarian

distribution system; problems of skills shortage, training, recruitment and retention; and

the need to professionalize the HR functions. While the current state of HRM in China is

characterized by the withdrawal of state intervention at enterprise level and a trend

towards greater diversity and marketization, these are taking place in parallel with the

introduction of more statutory labor regulations and the radical reforms of workplace

welfare and social security provisions. In short, the emerging HRM in China presents

not only exciting opportunities but also severe challenges for the role of HR at all

levels. Above all, HRM in China shares similar characteristics, to some extent, with that

found in other economies, but at the same time displays its own strong national

characteristics.

HRM in China • 31

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34 • Fang Lee Cooke

HRM in South Korea

CHRIS ROWLEY AND JOHNGSEOK BAE

Introduction

This chapter is concerned with human resource management (HRM) in South Korea

(hereafter just “Korea”), the third largest economy in Asia and the thirteenth (2002) in the

world (the eleventh largest just before the 1997 Asian ﬁnancial crisis). While at ﬁrst sight

it may be assumed to be a “typical” Asian country in terms of its HRM, the reality is less

clear-cut, with many particular practices. The key characteristics in Korean HRM revolve

around practices based on “seniority” and regulation versus more ﬂexibility in labor

markets; with easier job shedding, remuneration, and greater focus on performance

elements. Paradoxically, some inﬂuences (such as the Asian crisis and globalization)

have generated a less homogenous HRM system in Korea.

This chapter is written around the framework and analytical structure common to others

in this collection and are thus detailed as follows: ﬁrst, the historical development of

HRM; second, partnership in HRM; third, the key factors determining HRM practices,

such as politics, national culture, the economy, business environment and different

institutions along with a review of HRM practices such as stafﬁng, pay, training and

unions; fourth, changes taking place within the HRM function recently and currently,

and the reasons for them; ﬁfth, some key challenges facing HRM; sixth, what is likely to

happen to the HR function; and lastly, some websites and current references for the latest

information and developments in HRM.

Historical development of HRM

The “management of people” has a long and diverse history in Korea. This needs to

be set within Korea’s sometimes traumatic history. Here we delineate the more

contemporary HRM system (see Kim and Bae, forthcoming, for earlier periods). HRM’s

evolution can be analyzed within a three-dimensional framework. In this there are two

critical historical incidents: the great labor struggle in 1987 and the Asian ﬁnancial crisis

of 1997 (Bae and Rowley, 2003; Kim and Bae, forthcoming). This produces three stages:

pre-1987; 1987–1997; post-1997, each with different HRM conﬁgurations. The HRM

system can be conceptualized on two dimensions: (a) rewards and evaluation; (b)

resourcing and ﬂexibility. The ﬁrst dimension indicates the basis of remuneration and

appraisal, i.e. seniority versus ability/performance; the second represents labor market

choices, i.e. internal labor markets and long-term attachment versus numerical ﬂexibility.

Simultaneously, we can also use Rousseau’s (1995) threefold typology of psychological

contracts: (i) “relational,” with high mutual (affective) commitment, high integration and

identiﬁcation, continuity and stability; (ii) “transitional,” with ambiguity, uncertainty,

high turnover and termination and instability; (iii) “balanced,” with high member

commitment and integration, ongoing development, mutual support and dynamics.

The ﬁrst stage, pre-1987, was a “seniority-based relational”-type HRM. “Seniorityism”

was pivotal for various HRM practices such as recruitment, evaluation, training,

promotion, pay and termination. In addition, ﬁrms generally had long-term attachment

to employees, who were rarely laid off. However, the ﬁrst critical incident, the great labor

struggle, resulted in sudden wage increases, which partly reduced competitive advantage

in this dimension. This led to the second stage.

The second stage was an “exploratory performance-based”-type HRM. Firms started

to specify performance terms. The fulcrum of the HRM system began changing from

seniority more towards performance. From the early 1990s ﬁrms started to adopt “new

HRM” (sininsa) systems to enhance fairness, rationalization and efﬁciency (Bae, 1997).

Many ﬁrms revamped performance evaluation systems to make them actually function.

However, adjustment on the resourcing and ﬂexibility dimension was more rarely

touched.

Finally, post-1997 a “ﬂexibility-based transitional”-type HRM developed. With the Asian

crisis, large corporations launched massive restructuring efforts, for example, mergers

and acquisitions, management buyouts, spin-offs, outsourcing, debt for equity swaps,

downsizing and early retirement programs. Under these circumstances both public and

private policies focused more on labor market ﬂexibility. On the other hand, the

performance orientation adopted from the previous stage was consolidated. Hence, a

more performance-based approach was internalized by organizational members (Bae and

Rowley, 2001). At ﬁrst, the HRM system after the crisis was more like Rousseau’s

(1995) “Transitional” type. Top management and HRM professionals lost their sense of

direction regarding the future of HRM. However, from the beginning of the twenty-ﬁrst

century, ﬁrms started to became more like Rousseau’s (1995) “Balanced” type. This

model of mutual investment and support has been adopted by large, progressive

corporations, such as Samsung and LG. At the same time, ﬁrms began to utilize a dual

strategy of “balanced” type for core employees; and “transitional” type for contingent

workers (Bae and Rowley, 2003).

Partnership in HRM

Ideas of increased employee involvement and partnership have more recently emerged at

dual levels. Examples at the macro level include the neocorporatist-type Presidential

36 • Chris Rowley and Johngseok Bae

Commission on Industrial Relations Reform (1996) and the tripartite

Labor–Management–Government Committees (nosajung wiwonhoe) on Industrial

Relations (1998) (Yang and Lim, 2000). At the micro level are examples such as LG

Electronics which examined practices in plants in the USA (Saturn, Motorola) and Japan.

LG Group used the concept of “partnership” in its post-1998 employee relations reforms

(see Park and Park, 2000). There is also a national Labor Management Council (LMC)

system (Kwon and O’Donnell, 2001).

Some indicators of employment relations, such as unemployment and real wage growth,

worsened after the crisis, which the Tripartite Commission was formed to resolve. This

was an unusual case, given the hostile relationships among employee relations systems’

actors and the government’s policy direction toward a more market-based approach.

Since 1998 several commissions have been initiated:

1 15 January 1998: the First Tripartite Commission with Mr. Han Kwang-ok as

Chairperson held its ﬁrst session

2 6 February 1998: the Tripartite Commission held the 6th session and adopted the

Social Compact to overcome the crisis and agreed on ninety items, including

consolidation of employment adjustment-related laws and legalization of teachers’

trade unions

3 3 June 1998: the Second Tripartite Commission with Mr. Kim One-ki as Chairperson

held its ﬁrst session

4 24 February 1999: the Korean Confederation of Trade Unions (KCTU) withdrew from

the Tripartite Commission

5 1 September 1999: the Third Tripartite Commission was launched with Mr. Kim

Ho-jin as Chairperson and held its ﬁrst plenary session

6 8 August 2000: the Fourth Tripartite Commission was launched with Mr. Chang

Young-chul as Chairperson

7 9 August 2002: the Fifth Tripartite Commission was launched with Mr. Shin Hong as

Chairperson.

Although an assessment of the commissions is difﬁcult, it may be summarized by the

shorthand label of “early effective, later malfunctioning” (Kim and Bae, forthcoming).

The Social Compact was groundbreaking, the ﬁrst autonomous tripartite agreement in

Korean labor history. Although this helped the government to enhance its capacity for

crisis management and to tackle the Crisis, the Commission did not produce any

signiﬁcant agreements thereafter. Therefore, while the experiments with tripartite systems

were meaningful, they were not entirely successful.

There are also examples at the micro level, such as LG Electronics and Samsung SDI.

Both are in the electronics industry, have histories of severe labor disputes and are

successful. During workplace innovations towards a high performance work organization

(HPWO), these chaebols took quite different routes and modes. The 1997 crisis had

HRM in South Korea • 37

1 These are mainly from Kim and Bae (forthcoming).

pushed their management to make these workplace innovations. Both management and

employees developed more cooperative and participative employee relations.

Management changed from paternalistic and authoritarian styles and attitudes towards

being more progressive and participative. Unions and employees were also effectively

involved in the process of workplace innovation. Full cooperation of the union leadership

or employee representatives helped to establish a new work production system. While

unionized LG Electronics adopted a team production mode with a labor–management

partnership, non-union Samsung SDI had a lean production mode emphasizing TQM,

Six Sigma and other management-initiated innovations. Thus, trade union status made a

difference in the process of HPWO adoption in terms of speed, method and persistence.

In the case of LG Electronics, from 1990 to 1994, labor–management cooperation

remained at the affective and attitudinal level. However, at the next stage (1995 to the

present), the partnership of labor and management changed towards a more structural

and institutionalized level. In the high-tech electronics industry most competitors are

non-union, such as Samsung Electronics in Korea; IBM, Motorola, and HP in the USA.

The initial adoption process was slow in LG Electronics due to strong union resistance,

whereas Samsung SDI more speedily adopted new approaches. While LG Electronics

used a more bottom-up approach, with the involvement of frontline employees, Samsung

SDI chose a management-centered top-down approach. However, when the HPWO is

established, we expect the team production mode to be more strongly institutionalized

in the unionized setting, which is more likely to prevent easy abandonment. Although

LG Electronics shows very active union participation in workplace (i.e. lowest) and

collective bargaining (i.e. middle) levels, it is not practiced in the strategic (i.e. highest)

level, such as product development, new investment and corporate restructuring. This

may be a future agenda for labor and management. Samsung SDI operates successfully

an extensive system of open communications, information sharing, and non-union

employee representation. Although this has cultivated well the attitudinal aspects of

employee relations (i.e. labor–management cooperation), its structural and institutional

aspects (i.e. employee participation through formal mechanisms), have not yet fully

developed.

HRM practices: key determinants and review

This section is divided into two main parts: ﬁrst, key factors inﬂuencing HRM practices;

second, a review of those HRM practices.

Inﬂuences on HRM

Several key factors have inﬂuenced HRM. These include politics, national culture, the

economy, business environment, different institutions and so on.

38 • Chris Rowley and Johngseok Bae

Historical and political background

This north-east Asian country now occupies almost 100,000 km

of the southern Korean

peninsula (6,000 miles from the UK). Korea’s very homogeneous ethnic population

rapidly urbanized and grew, more than doubling since the 1960s, from 20.2 million

(1966) to 47.6 million (2002). Of these, nearly 10 million are in the capital, Seoul

(more than double 1966’s 3.8 million), the dominant center for political, social, business

and academic interests.

Korea’s nickname of “the country of the morning calm” became increasingly obsolete

with massive, speedy economic development. From the 1960s Korea was rapidly

transformed from a poor, rural backwater with limited natural or energy resources,

domestic markets and legacy of colonial rule and war with dependence on US aid, to

one of the fastest growing economies in a rapidly expanding region. Gross domestic

product (GDP) real annual growth rates of 9 percent from the 1950s to the 1990s (with

over 11 percent in the late 1980s) took GDP from US$1.4 billion (1953) to US$437.4

billion (1994) (Kim et al., 2000). Per capita GDP grew from US$87 (1962) to US$10,543

(1996) and gross national product (GNP) from US$3 billion (1965) to US$376.9 billion

(1994). From the mid-1960s to the 1990s annual manufacturing output grew at nearly

20 percent and exports over 25 percent, rising from US$320 million (1967) to US$136

billion (1997) (Kim and Rowley, 2001). Korea became a large manufacturer of a range

of products from “ships to chips,” in both more “traditional” (steel, shipbuilding, cars)

and “newer” (electrical, electronics) sectors. Employment grew and unemployment levels

declined, to just 2 percent by the mid-1990s.

How did the former “Hermit Kingdom” reach this position? The “Three Kingdoms”

(39

onwards) were united in the Shilla Dynasty (from

668), with the Koryo

Dynasty (935 to 1392) followed by the Yi Dynasty, ended by Chosun’s annexation

by Japan in 1910. The colonization experience, along with the forced introduction

of the Japanese language, names and labor, inculcated strong nationalist sentiments,

a central psychological impetus for the later economic dynamism (Kim, 1994: 95).

While colonized, Koreans were restricted to lower organizational positions and excluded

from managerial roles. Other Japanese inﬂuences came via infrastructure developments,

industrial policy imitation, application of technology and techniques of operations

management and Korean émigrés (Morden and Bowles, 1998). Some later HRM

indicated these Japanese inﬂuences, including lifetime employment and seniority pay,

although with some distinctions. For instance, employee loyalty was “. . . chieﬂy to an

individual, be it the owner or chief executive” (Song, 1997: 194), with little to

organizations as such, in contrast to Japanese organizational commitment. While limited

to regular, particular male employees in large companies, normative practice extended

this to other ﬁrms (Kim and Briscoe, 1997).

After 1945 came partition, with US military control until the South’s independence

government in 1948 followed by further widespread devastation with the Korean War

from 1950 to 1953. The large US military presence, and continued tensions with the

HRM in South Korea • 39

North remain. Furthermore, many Koreans studied the American management system,

especially as the country was the destination of most overseas students. This impacted on

managerial, business and academic outlooks, perspectives and comparisons. Korea also

experienced 25 years of authoritarian and military rule, which only ended in 1987.

Additionally, many business executives were ex-ofﬁcers, while many male employees

served in the military, and had regular military training, while some companies

maintained reserve army training units.

Cultural inﬂuences

The role of national culture, including Confucianism, had and continues to have a

powerful, multi-faceted and ingrained inﬂuence on Korean society in general and is

embedded in HRM in particular (see Rowley and Bae, 2003). This can be seen in

summary in Table 3.1.

Economic environment

The importance of Korea’s economic background, rapid development and the particular

structure and organization of capital and links to the state, are all important to HRM’s

operating context. This developmental, state-sponsored, export-orientated and labor-

intensive model of industrialization (Rowley and Bae, 1998; Rowley et al., 2002) was

reinforced by exhortations and motivations (often with cultural underpinnings, as noted

earlier). These included the need to escape the vicious circle of poverty, compete with

Japan, repay debts and elevate Korea’s image and honor.

In late 1997 the contagion of the Asian crisis hit Korea, with devastating impacts on

economic performance, employment, although both quickly recovered, and HRM.

This was partly because the post-crisis IMF “bailout” loan came with stipulations of

labor-market changes, for instance to end lifetime employment and allow job agencies.

Furthermore, the economy opened up to greater penetration from foreign direct

investment (FDI), which in turn brought exposure to HRM practices to supplement the

experiences of Korea’s own multinational companies (MNCs) operating in other

countries.

Key aspects of this economic performance and context may be seen in Tables 3.2 and

3.3. The different age and gender impacts are important to note. Basically, older and

male workers remain more exposed to the vagaries and impacts of unemployment,

especially in a system with only a limited safety net and culturally inﬂuenced

opprobrium. Finally, despite the post-crisis economic regeneration, a worrying survey

by Dong-a Ilbo (reported in The Economist, 2003) indicated recent public apprehension:

89 percent agreed that the economic situation in mid-2003 was either worse (54 percent)

or at least similar (35 percent) to that in 1997.

40 • Chris Rowley and Johngseok Bae

Table 3.1 Characteristics and paradoxes of culture and management in Korea

Cultural Concepts Meanings Management behaviors and Paradoxes

inﬂuences managerial characteristics

Inhwa Harmony, solidarity Company as family-type Sharp owner–manager–worker

community distinctions

Yongo Connections: Recruitment via common ties, Bounded collectivism and

hyulyon: by blood solidity within inner circles, exclusivism

jiyon: by geography kinship-based relationships with

hakyon: by education owners

Chung Loyalty, subordinate to superior Paternalistic approach and taking Emphasis on hierarchical ranks,

care of employees and their authoritarianism in leadership

families

Un Indebtedness to organization/ Respect, tolerance, patience Loyalty/cooperation to individual

members adhered to in business not organization

Uiri Integrity to others in everyday Long-term relationships Personal entertainment, gift giving,

life (e.g. lifetime employment) transaction opaqueness

Gocham Senior in service, an ‘old-timer’ Seniority-based rewards and Tension between seniority and

promotions competence/ability

Confucianism

(family)

Table 3.1 (continued)

Cultural Concepts Meanings Management behaviors and Paradoxes

inﬂuences managerial characteristics

Kibun Good mood, satisfactory state Maintain harmony, not hurting Performance management tensions

of affairs someone’s kibun

Sinparam Exulted spirits Management and making efforts Delinquency and low commitment

by sentiment-based motivation without sinparam

rather than rational understanding

Han Resentment/frustration felt Confrontational and militant Passiveness, negativism and

over unjust or inequitable labor relations (e.g. suppression

treatment employment adjustment tensions)

Chujin Propulsion, drive, get through Can-do spirit, strong driving Lack of rational evaluations and

something force, rapid accomplishment of omitting due processes

plans/goals

Palli palli Quickly quickly Speed of action Quality, reﬂection

Sajeonhyupui Informal consensus formation Collaboration and participation Team ethos impacts, slow

prior to making ﬁnal decisions of stakeholders in decision-making decisions, impediment to

empowerment

Source: Rowley and Bae (2003)

Military

Japan

Capital – the chaebol

These leading lights and drivers of the economy were family founded, owning and

controlling large, diversiﬁed business groupings with a plethora of subsidiaries, as

indicated in the label: An “octopus with many tentacles.” They were held together by

opaque cross-shareholdings, subsidies and loan guarantees with inter-chaebol distrust and

rivalry. Much of the large business sector was part of a chaebol network and they exerted

widespread inﬂuence over other ﬁrms, management practices and society. The chaebols

HRM in South Korea • 43

Table 3.2 Recent trends in Korean employment patterns, growth and inﬂation (%)

Year Participation Unemployment GDP growth Inﬂation

1990 60.0 2.4

1991 60.6 2.4

1992 60.9 2.5

1993 61.1 2.9

1994 61.7 2.5

1995 61.9 2.1

1996 62.0 2.0 6.8 4.9

1997 62.2 2.6 5.0 4.4

1998 60.7 7.0 –6.7 7.5

1999 60.5 6.3 10.9 0.8

2000 60.7 4.1 9.3 2.3

2001 61.4 3.8 3.0 4.1

2002 62.0 3.1 6.0 2.7

Source: Korea National Statistical Ofﬁce.

Table 3.3 Trends in leaving by age in Korea (%)

Year Age

15–20 21–24 25–29 30–39 40–49 50–60

All 1995 7.06 22.69 21.34 25.66 12.97 10.28

1997 5.63 21.62 23.57 25.22 12.10 11.85

1998 4.39 16.37 20.87 25.27 15.73 17.37

Male 1995 9.43 14.28 22.36 30.24 12.88 10.81

1997 4.52 13.80 24.70 30.91 12.69 13.39

1998 3.13 10.30 19.83 30.63 16.84 19.28

Source: Kwon (2003)

were underpinned by a variety of elements (Rowley and Bae, 1998; Rowley et al., 2002)

and explained by a range of theories (Oh and Park, 2002). For some, the state–military

links and interactions with the chaebol was the most important factor, producing

politico-economic organizations substituting for trust, efﬁciency and the market.

The state-owned banks (with resultant reliance for capital), promoted chaebols as a

development strategy and intervened to maintain quiescent labor. These close

connections were often damned as nepotism and “crony capitalism.”

There were more than 60 chaebols, although a few dominated. At their zenith in the

1990s the top ﬁve (Hyundai, Daewoo, Samsung, LG, SK) accounted for almost one tenth

(9 percent) of Korea’s GDP, and the top 30 for almost one sixth (15 percent), taking in

819 subsidiaries and afﬁliates. Some became major international companies in the world

economy, engaged in acquisitions and investments overseas, dominated by the USA and

China. A sketch of the top chaebols illustrates their typical development and structure.

Samsung is the oldest chaebol, with roots in the Cheil Sugar Manufacturing Company

(1953) and Cheil Industries (1954), although it started as a trading company in 1938.

It developed from a fruit and sundry goods exporter into ﬂour milling and confectionery.

Over the postwar decades it spread to sugar reﬁning, textiles, paper, electronics, fertilizer,

retailing, life insurance, hotels, construction, electronics, heavy industry, petrochemicals,

shipbuilding, aerospace, bio-engineering, and semiconductors. Sales of US$3 billion and

staff of 45,000 (1980) ballooned to US$96 billion and 267,000 (1998) (Pucik and Lim,

2002). Samsung Electronics alone had 21 worldwide production bases, 53 sales

operations in 46 countries, sales of US$16.6 billion and was one of the largest producers

of dynamic random access memory semiconductors by the late 1990s. By 2002 Samsung

still claimed global market leadership in 13 product categories, from deep-water drilling

ships to microwaves, television tubes and microchips, and with a target to actually have

30 world beaters by 2005. In 2003 it still had 63 afﬁliates and assets of won 72,000

billion.

44 • Chris Rowley and Johngseok Bae

Table 3.4 Size and businesses of the largest chaebols (trillion won)

Name Main business Assets

Samsung Electronics, machinery and heavy industries, chemicals,

construction 72.4

LG Clothing, supermarkets and radio, television, electronics

stores 54.5

SK Reﬁning, distributing and transporting petroleum products,

production and sale of petrochemical products 46.8

Hyundai Motors Manufacture and distribution of motor vehicles and parts 41.3

Hanjin Construction, shipbuilding 21.6

Hyundai Electronics, construction, ﬁnance 11.8

Source: OECD in The Economist (2003)

However, the Asian crisis brought out into the open some of the inherent and underlying

problems and strains that were beginning to be felt in the chaebols, and the Korean model

more generally. There followed the collapse of some chaebols, scandals and bankruptcy

and the reconﬁguration of others, including even the takeover of some by western MNCs.

The more recent situation may be seen in Tables 3.4 and 3.5.

Labor

The critical management of labor has occurred in a variety of contexts, including military

governments. Importantly, labor played an integral role against occupation and

supporting democratization. From the early twentieth century, low wages, hazardous

conditions and anti-Japanese sentiments contributed to union formation (see Kwon and

O’Donnell, 2001). From the 1920s unions increased, reaching 488 and 67,220 members

(1928). The 1930s witnessed a decline with harsh repression and subordination to

Japanese war production, and also internal organizational splits. Union numbers fell to

207 and 28,211 members (1935). The postwar radical union movement (the Chun Pyung)

HRM in South Korea • 45

Table 3.5 Korean large business groups (’000 billion won)

Name Afﬁliate Debt–equity Assets

number ratios (%)

Korea Electrical Power Corp 14 72.1 90.9

Samsung 63 240.6 72.4

LG 51 206.8 54.5

SK 62 156.4 46.8

Hyundai Motors 25 168.0 41.3

Korea Telecom 9 101.7 32.6

Korea Highway Corp 4 100.4 26.4

Hanjin 21 294.4 21.6

Korea Land Corp 2 373.4 14.9

Korea National Housing Corp 2 185.2 14.5

Hyundai 12 977.6 11.8

Gumho 15 503.1 10.6

Hyundai Heavy Industry 5 219.4 10.3

Hanwa 26 238.3 9.9

Korea Water Resources Corp 2 27.2 9.5

Koran Gas Corp 2 256.0 9.1

Doosan 18 191.4 9.0

Donghu 21 312.1 6.1

Hyundai Oilbank 2 837.1 5.9

Source: Ward (2003b) based on OECD and Korea Fair Trade Commission

was declared illegal by the American military government trying to restrict political and

industrial activities to encourage US-type “business unions.” The subsequent strikes and

General Strike resulted in 25 dead, 11,000 imprisoned and 25,000 dismissed. A more

conservative, government-sponsored industry-based movement was decreed, signaling

labor’s incorporation by the state, conﬂict repression and an authoritarian corporatist

approach. Thus, the government ofﬁcially recognized the Federation of Korean Trade

Unions (FKTU) and became increasingly interventionist, enacting a battery of laws

regulating hours, holidays, pay and multiple and independent unions.

A diversity of approaches towards labor were also partly inﬂuenced by chaebol growth

strategies (Kwon and O’Donnell, 2001). For instance, economic growth and focus on

minimizing labor costs resulted in the expansion and concentration of workforces in

large-scale industrial estates with authoritarian and militaristic controls. The pressure

and nature of the labor process was indicated in the volume of workplace accidents,

some 4,570 (1987) compared to smaller numbers in larger workforces (although with

sectoral impacts, of course), such as 513 in the USA and 658 in the UK (Kang and

Wilkinson, 2000). Labor resistance was generated, the catalyst for conﬂict and

re-emergence of independent unions from the 1970s. Employers responded by disrupting

union activities, sponsoring company unions and replacing labor-intensive processes

by automating, subcontracting or moving overseas. From the late 1980s companies

also softened strict supervision and work intensiﬁcation emphasis by widening access to

paternalistic practices and welfare schemes (ibid.). Nevertheless, trade unionization grew

from 12.6 percent (1970), peaking at 18.6 percent (1989).

During the 1990s independent trade unions established their own national organization,

with federations of chaebol-based and regional associations. An alternative national

federation, the KCTU (minjunochong), emerged in 1995. It organized the 1996 General

Strike (Bae et al., 1997), enhancing its legitimacy. However, the economic whirlwind of

the Asian crisis then hit. Trade union density fell back to 11.5 percent (1998).

Review of HRM practices

Second, a review of HRM practices is presented. It is useful to compare the more

traditional characteristics with newer ones, as in Table 3.6. We will then detail these

categories that comprise much of HRM.

Employee resourcing

Aspects of employee resourcing include recruitment, selection and contracts. The

chaebols, traditionally seen as prestige employers, recruited graduates biannually with

preference for management trainees from prestigious universities (Kim and Briscoe,

1997). There have been some moves from such resourcing systems towards on-going,

atypical and insecure forms. For instance, ﬂexibility was classiﬁed as “low” numerically

46 • Chris Rowley and Johngseok Bae

Table 3.6 Inﬂuences on HRM in Korea: traditional and new compared

Inﬂuences

→

Traditional characteristics HRM area New characteristics

←

Inﬂuences

Culture • Mass recruitment of new graduates Employee • Recruitment on demand Culture

(traditional) • Job security (lifetime job) resourcing • Job mobility (lifetime career) (modern)

• Generalist oriented • Development of professional

America • Seniority (age and tenure) Employee • Ability, performance (annual system) Globalization

• Pay equality rewards • Merit pay

Japan • Evaluation for advancing in • Evaluation for pay increases Asian crisis

job/grade

• No appraisal feedback • Appraisal feedback

Military • Single-rater appraisal • 360° appraisal State

• High induction Employee • Overseas programs

State • Company speciﬁc development • Differentiated training Management/capital/

• Functional ﬂexibility context • Numerical ﬂexibility context investment

(inward and outward)

Management/ • Authoritarian corporatism Employee • Enterprise based union and federations

capital • Legal constraints relations • More freedoms

• Less involvement • Involvement of knowledge workers Labor

Labor • Less information sharing • Information sharing

in pre-crisis Korea (Bae et al., 1997). Since then ﬂexibilities seemingly swiftly increased.

The trend is indicated by a survey (of 300 ﬁrms) in 1997 and 1998 (Choi and Lee, 1998).

During the ﬁrst period, virtually one third (32.3 percent), adjusted employment. By the

second period this coverage almost doubled (to 60.3 percent). For the ﬁrst period, speciﬁc

types of employment adjustment (ﬁrms made multiple responses) were: worker numbers

(19.7 percent), working hours (20 percent) and functional ﬂexibility (12.7 percent). By

the second period these types of employment adjustment massively increased: worker

numbers more than doubled (43.7 percent), while working hours (36.7 percent) and

functional ﬂexibility (24.3 percent), almost doubled. There was a more than doubling in

both “freezing or reducing recruitment,” from 15 percent to 38.7 percent, and “dismissal”

from 7 percent to 17.3 percent, with rises in “early retirement” from 5.7 percent to 8

percent. Thus, numerical ﬂexibility increased. Indeed, it was argued that even by 1999

the number of temporary, contract and part-time workers now comprised over 50 percent

of the workforce (Kang and Wilkinson, 2000; Demaret, 2001). These employee

resourcing areas can be seen in the growth and variety of types of non-permanent

workers, as shown in Table 3.7.

Some company cases also highlight employee resourcing practices. Samsung Electronics’

60,000 employees (1997) were massively reduced by about one third to 40,000. LG

Group in 1998 dismissed 14,000 (11.6 percent of its total) employees (Kim, 2000).

Daewoo Motors shed 3,500 jobs, despite violent protests and strikes. Some 30,000

employees at public companies, like Korea Telecom, Korea Electric Power Company and

Korea National Tourism Organization were to be dismissed, while another 30,000 (10

percent) of local public servants were dismissed by the end of 1998 (Park and Park,

2000).

However, there were some limits to such employee resourcing practices. At ﬁrst, neither

government nor chaebols seemed overly keen to use the new legislation (The Economist,

1999). This inertia may be seen in the following cases where adjustment was constrained.

Korea Telecom moved towards increased adjustment via changes in job categories,

transfers and promotions (Kwun and Cho, 2002). Rather than dismissal, a Samsung

subsidiary asked both men and women to take unpaid “paternity leave,” while Kia

remained “proud” of its “no-lay-offs” agreement and Seoul District Court protected jobs

by refusing to close Jinro (The Economist, 1999). One high-proﬁle example concerned

Hyundai Motors, whose initial plan to dismiss 4,830 of its 45,000 workers was diluted

48 • Chris Rowley and Johngseok Bae

Table 3.7 Trends in employment status in Korea (%)

1995 1996 1997 1998 1999

Regular workers 58.1 56.6 54.1 53.0 48.3

Temporary workers 27.7 29.5 31.6 32.8 33.4

Daily workers 14.2 13.8 14.3 14.2 18.3

Source: Kwon (2003)

to 2,678 and then 1,538. The union went on strike in 1998, followed by illegal strikes

and physical conﬂict until a negotiated compromise was reached. This provided for just

277 dismissals (with 167 of these from the canteen!), along with severance payment.

As a result, while Hyundai’s workforce fell to 35,000, this was mainly due to 7,226

voluntary retirements plus about 2,000 who will return after 18 months’ unpaid leave

(ibid.). Indeed, some collective dismissals, such as the 1,500 ﬁgure at Hyundai Motors,

were regarded as “illegal” and “unreasonable” (Lee, 2000).

Employee rewards

There has been increasing importance attached to performance in employee rewards

practices. Some of the reasons for this were: pay system rigidity making labor almost a

quasi-ﬁxed cost; weak individual-level motivational effects; and changing environmental

factors (Kim and Park, 1997). However, there is actually more variety here than is

presented by an overly-stark “either–or” choice as Table 3.8. indicates:

Data from the earlier survey (Choi and Lee, 1998) indicated employee rewards ﬂexibility

almost quadrupled from 10.7 percent to 38.7 percent between 1997 and 1998. The table

shows that about one third (33 percent) of ﬁrms had performance-based – (3) or (4) –

systems. There seem to be common trends across sectors, although with some greater

change in use of (4) in non-manufacturing vis-à-vis manufacturing. Slightly more

variation by size of organization would be expected, given size is a powerful variable in

many HRM areas. Somewhat counter-intuitively, (1) was used by slightly more “smaller”

(although deﬁned at a relatively high employment level here) ﬁrms, while more than

twice the percentage (although still a small total percentage) compared to “larger” ones,

used (4).

The example of annual pay, whereby salary is based on individual ability or performance,

is another employee rewards practice. A survey (1999) of 4,303 business units (with over

100 employees) found 15.1 percent had already adopted annual pay; 11.2 percent were

preparing for it; and 25 percent were planning to adopt it (Korea Ministry of Labor,

1999). Thus, just over one quarter (26.3 percent) of ﬁrms had either introduced it, or were

preparing to. Indeed, just over half (51.3 percent) of ﬁrms were in some stage of changing

pay systems. Again, there seemed to be common trends across organizational size.

Other evidence indicates employee rewards practices being used and considered. Some

13 percent (more than double 1998’s 6 percent) of companies listed on the Korean Stock

Exchange were giving share options; with some 18 percent (more than quadruple 1998’s

4 percent) of l5,116 large companies sharing proﬁts in January 2000, with another 23

percent planning to do so by year end (Labor Ministry survey in The Economist, 2000).

Again, we give company examples of employee rewards. The operation of annual

rewards systems may also be seen in speciﬁc cases. Instances among the chaebols are

shown in Table 3.9. All used forms of annual pay systems. Samsung and Hyosung

adopted a “zero-sum” method, reducing salary for poorer performers while increasing

HRM in South Korea • 49

Table 3.8 Variations in Korean pay systems by size and sector (%)

System options Sector Size (employees)

Manufacturing Non-manufacturing Less than 300 More than 300 All ﬁrms

(N=210)(N=68)(N=144)(N=134)

(1) Traditional seniorityism 42.4 42.6 43.8 41.3 42.4

(2) Seniority-based with performance factor* 25.2 22.1 22.8 26.0 24.5

(3) Performance-based with seniority factor 29.0 29.4 27.8 30.5 29.1

(4) Ability/performance-based 3.4 5.9 5.6 2.2 4.0

* originally labelled “Ability-based system, but seniority-based operation.”

Source: Park and Ahn (1999).

pay by the same amount of reduced salary for better performers. Doosan, Daeang and SK

used a “plus-sum” method, increasing salaries of good performers without reducing those

of poor performers. Finally, some ﬁrms accumulated performance evaluation results.

In Samsung remuneration had been composed of base pay (based on seniority), plus extra

beneﬁts (long service, and so on) until it introduced its “New HR Policy” (1995) with its

greater emphasis on performance. Now remuneration was composed of base pay

(common pay, cost-of-living), plus merit pay (competence and performance used)

(Pucik and Lim, 2002; Kim and Briscoe, 1997). LG Group introduced (1998) practices

to determine pay based on ability and performance (Kim, 2000). LG Chemical brought

in a system of performance-related pay at its Yochon plant (The Economist, 1999). Korea

Telecom made some moves towards more ﬂexibility and performance in rewards (Kwun

and Cho, 2002). Hyundai Electronics introduced (1999) share options. Samsung

Electronics used proﬁt sharing.

The key lever in operationalizing these employee rewards practices is performance

appraisal. Traditionally, it did not affect pay (or promotion). Given this new emphasis,

however, Samsung’s appraisal system was revamped and made more sophisticated in the

search for greater objectivity and reliability. It was now composed of several elements,

such as: supervisor’s diary; 360-degree (supervisors, subordinates, customers, suppliers)

appraisal; forced distribution; and two interviews (with the supervisor; “Day of

Subordinate Development”). The “Evaluation of Capability Form” used was composed of

interesting items, such as “Human Virtues,” for example, “morality”: willingness to

sacriﬁce (sic) themselves to help colleagues (Kim and Briscoe, 1997).

Again, the extent of such employee rewards practices requires some consideration. Some

practices are relatively limited in coverage and spread. For instance, data in Table 3.8 also

indicated that seniority remained in large numbers of ﬁrms (nearly 43 percent). Indeed,

HRM in South Korea • 51

Table 3.9 Comparison of annual pay systems among Korean chaebols

Doosan Daesang Hyosung SK Samsung

Adopted 1994 1995 1997 1998 1998

Target group Section chief College College Deputy general Section chief

and above graduates and graduates managers and and above

above and above above

Composition – Basic annual – Basic – Seniority – Individual – Basic annual

of annual pay – Performance – Ability – Job-based annual – Performance

– Performance – Ability – Incentives (individual

– Performance and group)

Base-up No Yes Yes No Yes

Plus-sum Yes Yes No Yes No

Cumulative Yes Yes No Yes No

Source: adapted from Yang (1999: 232).

some form of seniority – (1) or (2) – accounted for the pay systems of over two-thirds

(67 percent) of ﬁrms. Likewise, data in Table 3.9 indicated most ﬁrms applied practices

only to certain groups, such as managers or the higher educated. Some, such as Samsung,

Daesang and Hyosung, used “base-up” methods, a uniform increase of basic pay

regardless of performance or ability levels. Similarly, Hyundai’s vaunted stock option

policy covered just 7 percent of the workforce, while Samsung’s proﬁt sharing was

restricted to “researchers” (The Economist, 2000). At LG, although employee evaluation

systems were in place, in most instances compensation did not reﬂect evaluation results

as it remained “...largely determined by seniority . . .” (Kim, 2000: 178).

Also, there are also many problems with trying to link employee rewards and

performance via appraisals. These concern appraisals in general, when linked to rewards

and in Asian contexts (see Rowley, 2003). For instance, well-known tendencies in human

nature lead towards subjective aspects in appraisals. Furthermore, practitioner-type

literature commonly recommends that appraisals should not be linked with remuneration.

There are also concerns that appraisals cut against the “professional ethos.” Finally,

there are cultural biases of which to be aware. For example, Korean managers are often

unwilling to give too negative an evaluation as inhwa emphasizes the importance of

harmony among individuals who are not equal in prestige, rank and power, while

supervisors are required to care for the well-being of their subordinates and negative

evaluations may undermine harmonious relations (Chen, 2000). Another Korean value,

koenchanayo (“that’s good enough”), also hampers appraisals as it encourages tolerance

and appreciation of people’s efforts and not being excessively harsh in assessing sincere

efforts (ibid.).

Employee development

Korea’s spectacular postwar economic growth, and some chaebols, have been inﬂuenced

by a skilled and well-educated workforce with heavy investment in the development of

HRs. It was argued that the success of companies, such as Pohang Iron and Steel, was

due in part to its employee development and regular training (Morden and Bowles, 1998).

Many espoused the Confucian emphasis on education with very strong commitment to it

and also traditional respect and esteem attached to educational attainment. This is

indicated by high levels of literacy, high proportion of scientists and engineers per head

of population, and that 70 percent of the workforce graduated from high school (Morden

and Bowles, 1998).

Employee development can be classiﬁed (Kim and Bae, forthcoming) as: new recruits

and existing employees; in-house and external; language proﬁciency, job ability and

character building; basic and advanced courses. Many chaebols put strong emphasis on

training and have their own well-resourced and supported training centers. There is often

many (3–6) months’ in-house induction training with new employees staying at training

centers or socialization camps. Here they are inculcated in company history, culture,

business philosophy, core values and vision, to develop “all-purpose” general skills

52 • Chris Rowley and Johngseok Bae

through which to enhance team spirit, “can-do” spirit, adaptability and problem-solving.

They use sahoon (shared values explicitly articulated), a company song and a catch-

phrase, to build up feelings of belonging, loyalty and commitment (Kim and Briscoe,

1997; Kim and Bae, forthcoming). These centers also provide on-going training and a

variety of programs. For instance, in 1995 Samsung spent US$260 million on training,

Hyundai US$195 million, Daewoo and LG US$130 million each (Chung et al., 1997).

Some companies use invited foreign engineers to work with them and transfer skills, and

some send their own trainees overseas (Kim and Bae, forthcoming). Managerial-level

training focused more on molding managers to the company’s core values and

philosophy than to developing their job-related abilities and knowledge. Programs placed

more emphasis on building character and developing positive attitudes than on

professional competence. One popular way to improve job-related skills was job rotation

and multi-skilled training, but these were not applied systematically and varied between

industries (ibid.). Many large ﬁrms launched several programs to promote

business–university partnerships. In addition, overseas training programs to provide

opportunities have been introduced and many companies give employees with requisite

qualiﬁcations or appraisal results opportunities to study at foreign universities,

e.g. Samsung’s “Region Expert” program sends junior employees overseas for one

year to obtain language skills and cultural familiarity (ibid.).

Employee relations

By 1998 there were 1.40 million union members (12.6 percent density) and an increasing

number of strikes: 129; this rose to 1.48 million members (11.9 percent) and 198 strikes

in 1999, and to 1.53 million members (12 percent) and 250 strikes by 2000 (Kim and

Bae, forthcoming). Thus, unions can be highly militant. Furthermore, unions are

strategically well located in ship and automobile manufacture as well as power,

transportation and telecommunications. Conﬂicts had often been high proﬁle, large scale

and confrontational. For example, the 1992 week-long occupation of Hyundai Motors

was ended by 15,000 riot police storming the factory (Kim, 2000).

From the late 1980s the institutions, framework and policies of employee relations

all reconﬁgured under pressures from political liberalization and civilian governments,

joining the ILO (1991) and OECD (1996), trade union pressure and the Asian crisis.

Nevertheless, the frames of reference and perspectives for management remains strongly

unitary. In contrast, this is less so for labor, with stronger pluralist, and even radical,

perspectives evident. The position of the state is more ambiguous, especially given the

background of the current president and some seeming shift from the initial pluralist

stance towards a more unitary one. This may be seen in the following examples.

There were strikes by power plants and major car-makers in 2002, and a week-long

truck-driver strike in early 2003. This latter dispute crippled Pusan, the world’s third

largest port, which handles 80 percent of Korea’s ocean-going cargo, and risked

HRM in South Korea • 53

manufacturers, such as Samsung and LG Chem, grinding to a halt by choking their

supply and distribution channels (Ward, 2003a). The government made concessions to

resolve this dispute; these included fuel subsidies, tax cuts and lower highway tools for

trucks (ibid.). It was also seen as part of the new President Roh Moo-hyun’s policy of

resolving labor disputes peacefully through dialog. Similarly, the privatization of the

national railway network has been cancelled, while the sale of the state-owned Chohung

Bank stalled, both amid ﬁerce union opposition (ibid.). These instances can be seen to

support a more pluralist approach.

However, a more unitarist sentiment can also be detected. For instance, in 2002 there was

imprisonment of unionists, refusal to recognize public sector unions and ending of the

power workers strike after several weeks of public threats and intimidation and

surrounding their Myong-dong Cathedral camp with riot and secret police. In 2003 there

were high-proﬁle disputes by truck-drivers and bankers and a four-day strike of railway

workers was crushed by more than 1,000 arrests. Korea is still seen as repressive, ﬂouting

trade union rights and ILO Conventions 87 and 98 by restraining the rights to freedom of

association, collective bargaining and strike action. Thus, in 2002 the President of the

Korean Confederation of Trade Unions was imprisoned for two years for “obstructing

business” by simply coordinating a general strike (ICFTU, 2003).

Changes taking place within the HR function

Traditionally in the chaebol there were links between the HR department and the

powerful chairman’s ofﬁce, which made many important HR decisions, “thus the HR

function is closely tied to the highest level of the chaebol” (Kim and Briscoe, 1997: 299).

More recently, HRM units in Korean ﬁrms have changed their roles from the traditional

administrative aspects towards more strategic value-adding activities. This is summarized

in Table 3.10.

The ﬁrst change is in HRM organization. Traditionally, Korean ﬁrms had the perception

that “anybody can assume HRM jobs,” meaning that HR practitioners did not need any

special competencies or qualiﬁcations. This reﬂects a “lowest common denominator”

syndrome: a small fraction of HRM activities created the large proportion of value-added,

whereas most activities added little value (Baron and Kreps, 1999). The shifts in this also

occurred in several different ways. As aforementioned, the roles of HR professionals

have changed and have become more strategic. To become business partners, HR

managers started to align HRM conﬁgurations with business strategies and organizational

goals. Some empirical evidence also conﬁrms this (Bae and Lawler, 2000; Bae and Yu,

2003). In addition, ﬁrms also started to reorganize their HR units by differentiating them

into several specialities and sections, i.e. HR planning, recruitment, HR support team,

employee relations, and by adopting a separate shared service unit.

A second change in the HR function, related to the ﬁrst, involves the efforts to enhance

the competencies of HR professionals. Three different strategies are employed:

54 • Chris Rowley and Johngseok Bae

(a) initiating various education programs for HR managers (see Kim and Bae,

forthcoming); (b) transferring to HRM units people who have various experiences in

organizations, such as planning, sales and R&D; (c) recruiting HR professionals from

outside who are trained in graduate-level programs or experienced in other organizations.

All these strategies were unusual in the past.

Another change in the HR function is the outsourcing phenomenon (similar to that in

some other countries such as the UK; see Rowley, 2003). Various HR activities have

been outsourced, as shown in Table 3.11. Three areas highly prone to outsourcing are:

(i) education and training; (ii) outplacement; (iii) HR information systems. Partly as a

result of these trends, HR service ﬁrms have drastically increased (Rowley and Bae,

2003). These include outsourcing for general affairs and beneﬁts, HR consulting,

education and training, head-hunting, e-HRM and HR information system providers,

outplacement, online recruiting, stafﬁng service, and HRM (active server pages ASP)

(see Table 3.11). The approximate gross sales for such businesses (in won in 2002) are

(Kim, 2002): HR consulting (one trillion); stafﬁng service (one and half trillion); on-line

recruiting (200 billion); head-hunting (100 billion); and HRM ASP (50 billion).

HRM in South Korea • 55

Table 3.10 Change in perspectives on HRM in Korea (%)

Employee champion or advocate 29 Current 40 Strategic partner

12 Future 68

Reactive change agent for 63 Current 17 Proactive change agent

management 32 Future 57

Internal-oriented for 57 Current 17 External-oriented for social issues

organizational issues 22 Future 48

Focused on operational issues 68 Current 14 Focused on business goals

in organization 16 Future 75 and strategies

Efﬁcient management of human 53 Current 23 Internal consultants for line

resources 38 Future 49 managers

Seniority-based HRM 70 Current 12 Ability/performance-based HRM

2 Future 96

Results-oriented HRM 51 Current 24 Process-oriented HRM

26 Future 54

Task-centered HRM 26 Current 50 People-centered HRM

47 Future 38

Generalist orientation 62 Current 11 Specialist orientation

6 Future 84

Paternalism-based HRM 71 Current 9 Contract-based HRM

3 Future 91

Authoritarian approach 70 Current 10 Democratic approach

4 Future 91

Source: Park and Yu (2001).

Finally, the adoption of e-HRM is also an example of recent change in the HR function.

By managing all employment-related data through such information systems, ﬁrms

gained some beneﬁts in terms of cost reduction and speed of operations. In particular,

e-recruitment through which ﬁrms efﬁciently screen job candidates, is actively utilized.

Key challenges facing HRM

There is a range of key challenges facing HRM. First, there are more macro ones

stemming from the economy. These include the call for greater transparency and

openness in corporate governance issues, and the continued reorganization of capital with

chaebol restructuring, FDI and takeovers, and thus exposure to nontraditional HRM

practices. HR practitioners can have a role in all of these.

There is also the challenge for HRM of an aging workforce (Bae and Rowley, 2003). For

example, in 1990 the economically active population aged 15–19 was 639,000, by 2002 it

was down to 352,000, while over the same period those aged 40–54 increased from

5,616,000 to 8,189,000. Of course, such trends are widespread, but the implications for

Korea are stark given some of the traditional aspects of culture and society, not least its

strong family basis and orientation, homogeneity and exclusiveness.

Second, there are challenges from the more micro HRM policy areas. This has several

elements to it. One challenge is the so-called “war for talent,” i.e. an attraction strategy

to recruit top-quality talent. Many Korean corporations actively pursued recruiting and

retaining such talent. For this purpose, chaebols such as Samsung, LG, SK, Hyundai

Motors, Hanwha, Doosan and Kumho, provide a fast-track system, signing-on bonus,

stock options, and so on. This was not an issue earlier during the “seniority-based

relational” HRM system. Since the 1997 crisis, the mobility of people has increased

within and across large corporations and venture ﬁrms. Corporations responded to labor-

market changes with multiple strategies (Kim and Bae, forthcoming). Firms divided

employees into different groups, each with their own approach: “attraction strategy”

(i.e. dashing into the war for talent) and “retention strategy” (i.e. taking measures to keep

56 • Chris Rowley and Johngseok Bae

Table 3.11 HRM activities expected to be outsourced in Korea

Rank HRM activities for outsourcing Feedback (%)

1 Education and training 85

2 Outplacement 77

3 Building up and utilization of HR information systems 77

4 Job analysis 68

5 Employee recruitment and selection 56

6 Salary pay and operation 53

Source: Park and Yu (2001).

core employees) for core employees; “replacement strategy” (i.e. dismissing

under-performing employees) and “outplacement strategy” (i.e. providing information

and training for job switching) for poor performers; “transactional and outsourcing

strategy” (i.e. contract-based, short-term approach) towards atypical workers. All of

these strategies had been unfamiliar to most Korean ﬁrms.

Managing contingent workers is also a challenge for HRM. At ﬁrst, these types of

workers reduced company costs. Yet, managing these people is becoming harder. There

are several issues here, which include the shattering of the “psychological contract,”

recontracting, differentiated treatment (e.g. lower pay and beneﬁts) and disharmony with

regular workers, and complicated and multiple conﬁgurations. These “costs” have been

seen in a range of countries, while additionally in Korea, some cultural aspects (see Table

3.1), i.e. the strong perception of the equality norm and a strong union movement, make

management even more difﬁcult.

Finally, performance-based systems have also generated HRM challenges. In some

aspects, ﬁrms gained higher productivity and performance after adoption. However, it

also produced downsides too. Commonly, people only become involved in activities that

are evaluated by their organization – the “no evaluation, no act” syndrome or the dictum

“what gets measured get done.” Therefore, organizational citizenship behaviors, which

used to be more common in Korean ﬁrms, are now more rarely observed. Another

phenomenon is that people are more reluctant to cooperate with other teams or divisions.

This has become even more critical since some proﬁt-sharing programs were adopted.

This is particularly problematic for electronics companies pursuing digital convergence

as this requires high levels of cooperation and coordination. Finally, people have become

more prone to focus on current and short-term goals, especially in R&D divisions or

institutes. Researchers avert high-risk long-term projects, the critical foundation for

future success. In short, the institutionalization of performance-based HRM is a half-

success story, and one which may have an unhappy middle section and a calamitous

ending.

What is likely to happen to HR functions?

With regards to HR units, we expect re-engineering of HRM processes and

decentralization. The shrinkage in headquarters HR practitioners, and increases in

business division HRM, will be accelerated. Decentralization will be realized through the

transfer of HRM-related activities to line managers. Again, some activities will be

accomplished by outsourcing. However, the difﬁculties with the necessary control,

coordination and consistency in HRM, with the importance of equity and fairness

within and across businesses and people in such circumstances are clear (see Rowley,

2003).

As other functional areas (e.g. planning, marketing and MIS) have experienced, the HRM

function might encounter a challenge from top management regarding the value added by

HRM in South Korea • 57

the HRM unit. HR managers in many Korean ﬁrms are currently preparing for this

challenge. Following Becker et al. (2001), many ﬁrms have recently developed HR

performance indexes to link HRM activities and ﬁrm performance. HRM audit and

review based on the HR scorecard approach will be more actively conducted. A focus on

areas such as corporate governance, ethical business practices and top executive pay, as

well as managing diversity, will further allow HR to add value.

Finally, as Korean ﬁrms continue to relocate production to other countries such as China,

Southeast Asia and further aﬁeld, global HRM is gaining signiﬁcance. Several issues here

include the globalization–localization choice, transfer of the “best” people (e.g. both

expatriates and inpatriates) and HR practices, and global integration and coordination.

Some companies, such as Samsung Electronics, employ inpatriates from host countries to

work at the head ofﬁce. Other companies, like LG Electronics, send executive-level

management to regional head ofﬁces (e.g. China) to establish and coordinate the whole of

HRM in the region. The need for HRM to have a role in this area of cross-cultural

management is clear. All these issues are examples of what is likely to happen in the

next few years.

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Useful websites

There are a range of sources for the latest information and developments in HRM that can provide

details to the reader over the years. These include the following:

Korea Labor Institute: http://www.kli.re.kr

Korea Chamber of Commerce and Industry: http://www.kcci.or.kr

Ministry of Labor: http://www.molab.go.kr

Ministry of Education and Human Resource Development: http://www.moe.go.kr

Ministry of Science and Technology: http://www.most.go.kr

National Statistical Ofﬁce: http://www.nsohp.nso.go.kr

Civil Service Commission: http://www.csc.go.kr

Samsung Economic Research Institute: http://www.seri.org

There is also a range of journals in the area, especially:

Asia Paciﬁc Business Review

International Journal of HRM

Asia Paciﬁc Journal of HRs

Asia Paciﬁc Journal of Management

60 • Chris Rowley and Johngseok Bae

HRM in Japan

JOHN SALMON

Introduction

Since the early 1980s there has been a growing debate regarding the importance of

human resource management (HRM). Much of this debate has provided conceptual and

analytical accounts that have sought to link the presence of HRM practices with

improved company performance (MacDufﬁe; 1995; Delaney and Huselid, 1996; Tyson,

1997). The conventional wisdom holds that the ﬁrm investing in HRM possesses a route

towards high performance in which improved employee effort can become a source of

sustained competitive advantage (Barney, 1991). It is through the implementation of

HRM that improved employee effort can be developed whereby improved performance

and value added contribute towards organizational speciﬁc human capital that is difﬁcult

for competitors to emulate precisely (Becker, 1964). In its most developed form HRM

is viewed as a strategic management approach that seeks to link employee policies to

business strategies that pave the way towards enhanced organizational performance

(Legge, 1995). Although HRM is in essence a managerial approach, it is principally

through the organizational investments in training, employee recruitment and

selection, in addition to performance evaluation and career development that effective

employee commitment comes to contribute towards a high performance–employment

relationship.

Despite the considerable western interest in Japanese management, very little academic

attention has been paid to HRM in Japan. This is all the more signiﬁcant given that Japan

is under considerable pressure to change important aspects of its employment practices in

order to cope with the changing business environment. Against a decade of low growth,

recession and rising unemployment, Japanese employers have been faced with an

increasing number of HR problems. On the one hand they have to devise HRM strategies

to address the effects of an ever greater social diversity amongst employees and their

values and lifestyles, alongside a concurrent employer-led diversiﬁcation of the labor

market. Such changes have been urging a critical re-evaluation of the basic framework

of the established Japanese HRM management model. This chapter explores Japanese

HRM in regard to changes in company recruitment, training, lifetime employment and

labor-market diversiﬁcation.

The Japanese HRM model

Japan has long attached particular importance to the development of its human resources.

Unlike other leading economies in Europe and North America, Japan’s rapid rise to

become the world’s second largest national economy was achieved largely in spite of

its absence of natural resources. The development, growth and centrality placed upon the

management and organization of its indigenous human resources has been, as in the ﬁeld

of education for example, quite conscientiously cultivated as an important matter of both

corporate and national public policy (Salmon, 1999). Since the early 1980s there has been

a growing and largely Anglo-Saxon debate regarding the importance of HRM. Much of

this debate has provided conceptual and analytical accounts that have sought to link the

presence of HRM practices with improved company performance (Tyson, 1997;

MacDufﬁe; 1995; Delaney and Huselid, 1996). The conventional wisdom holds that the

ﬁrm that invests in HRM possesses a route towards high performance in which improved

employee effort can become a source of sustained competitive advantage (Barney, 1991).

It is through the implementation of HRM that employee effort can be developed so that

improved performance and value added contribute towards organizational speciﬁc human

capital that is difﬁcult for competitors to emulate precisely (Becker, 1964). In its most

developed form, HRM is viewed as a strategic management approach that seeks to link

employee policies to business strategies that pave the way towards enhanced

organizational performance (Legge, 1995). Although HRM is in essence a managerial

approach, it is principally through the organizational investments in training, employee

recruitment and selection, in addition to performance evaluation and career development

that effective employee commitment comes to contribute towards a high

performance–employment relationship. There are, however, a number of key differences

between the Japanese and Anglo-Saxon approaches towards creating HRM. Whereas the

Anglo-Saxon model of HRM has been seen in part as a corporate strategy to achieve a

union-free organization by avoiding union recognition and collective bargaining (Godard

and Delaney, 2000), in Japan HRM is a characteristic that is most developed in the large

unionized ﬁrm (Koike, 1997; Sano, 1997; Sato, 1997; Selmer, 2001). Moreover, the

Japanese unionized employment relationship has attached far greater emphasis upon the

maintenance of long-term institutionalized political and societal sources of organizational

stability both at the macro level as well as the micro level of the ﬁrm (Cole, 1973; Dore,

1973; Aoki, 1984, 1988; Salmon, 1992; Morishima, 1995; Pempel, 1998; Kato, 2000b)

Under conditions of low growth, however, and following a decade of the Heisei

recession, there have been growing doubts about the continued sustainability of Japanese

job security. The stability of lifetime employment and its centrality to the in-house

growth of HR development and training have been central features of the Japanese

employment relationship (Kawakita, 1997). Recent Japanese media coverage of

restructuring and downsizing in the decade of recession suggests that employment

security in Japan is in decline, the implication being that Japanese employees can no

longer expect their companies to fulﬁl their commitment to job security as they resort to

corporate restructuring.

62 • John Salmon

The Japanese management model has been characterized largely by its institutional

features: the presence of nenko comprising merit, age and seniority-based promotion and

the lifetime employment principle in addition to the presence of the third pillar, an

enterprise union. Nenko systems operate within the ﬁrm. Lifetime employment, though

a feature of the large ﬁrm, takes the form of an implicit employer adherence not to

dismiss members of the regular workforce. Enterprise unionism represents mainly the

manual and non-manual regular workers within the company below that of the

managerial grades. With only a minority of exceptions there is no real effort to organize

the non-regular worker such as the part-time and temporary employee. The most

distinctive feature of the Japanese employment relationship is that both nenko and

lifetime employment provide the necessary conditions for the long-term development

of ﬁrm-speciﬁc human capital within the ﬁrm. Core workers are carefully selected from

an annual intake of young inexperienced new recruits chosen from prestige high schools

and universities and who are expected continually to strive to enhance their careers

within the company by improving their capabilities through extensive in-house training

and company-based personal development.

Abegglen was one of the ﬁrst western scholars to draw attention to the concept of lifetime

employment (1958); the expansion of the lifetime employment norm is largely associated

with a period of high economic growth (Cole, 1973). Its widespread societal acceptance

in Japan, however, is not simply determined by the interests of employers. It owes much

to the judicial rulings of the Japanese courts that placed limitations on the rights of

employers to dismiss employees. An important body of case-law rulings created by the

Japanese courts during the 1950s and 1960s encouraged employers to seek alternatives to

employment dismissals (Sugeno 1992: 162; Hanami, 1994). During the 1970s’ economic

crisis, government public-policy initiatives were implemented to promote employer

acceptance of employee security within the ﬁrm (Kume, 1998). Union militancy has also

played its part. Some of the most violent industrial disputes in the early postwar period in

Japan have been fought against rationalization and mass lay-offs (Moore, 1983). For

Japanese unions, job security has long been an important consideration for the creation of

a cooperative relationship with the employer while long-term employee tenure within the

ﬁrm has been a necessary requirement for gaining employee recruitment and commitment

for creating ﬁrm-speciﬁc HR development within the ﬁrm.

HR development

Skill formation and internal career development among regular workers have been the

central features of the Japanese model of HRM. In-house learning and the particular

centrality placed upon on-the-job training (OJT) (Okazaki-Ward, 1993; Koike, 1997)

are distinctive hallmarks of the Japanese management system and the cornerstone of

the development of human capital (Sato, 1997; Selmer, 2001) for inexperienced

high-school leavers and university graduate recruits. Careful recruitment and selection,

socialization into the company culture and late promotion has provided the career span

HRM in Japan • 63

for long-term training in ﬁrm-speciﬁc skills and leadership development. OJT also helps

foster worker cooperation through team working, information sharing and the Japanese

preference for face-to-face communication through small group activities at workplace

level (Rohlen, 1985). Change in the business environment, however, has led ﬁrms to

rethink their competitive strategies and product-line portfolios. There is a greater need to

diversify product lines and create new business opportunities, raising problems for

company training and development.

Following recruitment and induction, new employees embark upon a speciﬁed systematic

program of skill formation and learning that involves job rotation and programmed

instruction under the direction of their immediate supervisors, line managers and in

accordance with the strategic requirement of the personnel department. It is the personnel

department budget that speciﬁes the required hours and duration of the allotted training

time for each inexperienced employee. The schedule of training leads to certiﬁed

knowledge that is meticulously recorded in the career proﬁle for each individual worker.

Learning takes place by working alongside a more experienced worker within the

workgroup. Initial training requires high levels of off-the-job training (Off-JT)

particularly where specialist knowledge is required or a public license is needed to handle

particular types of equipment. Health and safety legislation may also call for specialized

formal Off-JT training and the need to have certiﬁed evidence of a particular skill and

ability (arc-welding, for example, cannot be learned exclusively by OJT). The

company-based career development program sets out the agreed blueprint for each

individual’s learning schedule (Okazaki-Ward, 1993). The training process is subject to

regular appraisals and guidance from supervisors, with attempts to get a close ﬁt between

the individual learning schedule and the long-term needs of the ﬁrm. OJT is also used in

the preparation of candidates in line for promotion to higher positions. New

responsibilities are learned from the direct experience of working with a senior manager.

Much of the OJT training in the workplace remains informal. It takes place outside the

programmed training budget and emerges as part of the normal shared collective effort

within the workgroup, with tacit learning development, guidance and interaction with

more experienced senior members of the workgroup.

Limits of HR development

OJT is widely used among blue-collar workers in manufacturing who are trained in

performing manual job tasks that are deﬁned by the type of job description and the nature

of the plant technology. OJT is more extensive in the largest ﬁrms where multi-skilling,

job rotation and problem-solving maintenance tasks are widely developed. Only a quarter

of small ﬁrms utilize OJT compared to over a half of large ﬁrms. Though OJT is utilized

in the training of white-collar employees, it has proved to be much less effective (Koike,

1997) White-collar workers with higher-education backgrounds have job tasks less

subject to routine, involving greater discretionary judgments and requiring greater

capacities to process knowledge (Sato, 1997). The relationship between job content and

64 • John Salmon

training is far less transparent than for blue-collar workers (Koike, 1997). One

consequence has been that more generalized responsibilities have left much of their work

activities relatively undisturbed during the period of high growth. Under low growth,

however, and the rising seniority-based wage curve, greater attention has been placed

upon the performance of the white-collar worker. The revolution in information

technology and the pressure for organizational efﬁciency has heightened white-collar

job insecurity.

HRM and white-collar workers

The traditional Japanese approach towards the recruitment of white-collar staff places

considerable value on the social and attitudinal characteristics of candidates. Selection

criteria tends to seek “cooperative spirit,” cultural orientation and reliance on new

recruits coming from the same high schools and universities as the existing workforce.

This reliance upon a closed institutional network for company recruitment has helped to

sustain the corporate culture and foster company loyalty, nurturing the “company man.”

It has, however, led to claims of favoritism and the privilege of old-boy networks

(Kameyama, 1997). Moreover, it appears ill-ﬁtted to broaden to a more socially diverse

employment relationship suited to the changes taking place in today’s Japan. Moreover,

the selective screening of candidates places less weight on particular capabilities of new

entrants. White-collar recruitment stresses generalist abilities but gives insufﬁcient

attention to the possession of professional and specialist skills.

Faced with low growth, business strategies required new products. Over half of ﬁrms

have sought to ﬁnd new growth through creating new ﬁelds of business. The OJT system

has been found ill-suited to adapt to new business ventures. Direct recruitment of new

graduates is not feasible for new businesses where developed abilities and work

experience are required, while established experienced company workers with high levels

of ﬁrm-speciﬁc skills may be ill-ﬁtted to the requirements of new business. New products

increase training costs as more Off-JT is required but do little to address the employment

opportunities of existing workforces. Some 70 percent of ﬁrms who have found

themselves in this situation have resorted to hiring experienced mid-career workers from

the external labor market. Company employees, who possess embedded knowledge of

company culture, work practices and procedures, often lack speciﬁc knowledge or

experience of sales and marketing or the particular skills needed for new business areas.

Firms as well as employees are increasingly seeking more specialized and professional

skills and abilities that give them a stronger advantage in meeting more diversiﬁed

business strategies (Kawakita, 1997). In terms of internal career development, however,

low growth considerably increases the anxieties of regular workers. Ironically the lifetime

employment norm, with its implicit expectation of a career in the same company, has

come to pose a threat to older workers. Unlike America and Britain there are no Japanese

agreements that provide rules regarding lay-off by seniority. Despite the high

commitment to the training of regular workforces, the largest proportion of investment is

HRM in Japan • 65

understandably directed at younger workers. Low growth, however, reduces opportunities

for young workers to ﬁnd positions in big companies as regular workers. Promotion

opportunities intensify inter-worker competition while the prospects of being temporary

or permanently transferred or encouraged to take early retirement increase. Against a

more competitive global business environment, Japanese ﬁrms are now changing their

hiring practices. They are increasingly resorting to cost-cutting measures that involve

expanding their pool of non-regular workers and in some cases recruiting cheaper non-

regular workers to undertake regular work assignments. Fears about the increased

uncertainty of lifetime employment along with the growth of non-regular, part-time,

temporary and agency work are giving rise to greater fears about future employment

security with a demoralizing effect on regular employees (Osawa, 2001; Sato, 2001;

Weathers, 2001)

Defending the employment norm

The fear of rising unemployment following the 1973 international oil crisis marked an

important stage in the development of the Japanese approach towards HRM. The

Japanese response to what was regarded as a major threat to the high-growth Japanese

employment model saw a number of initiatives being undertaken to deal with the

prospect of increased unemployment. The Labor Standards Law requires that a

30-day notice or payment in lieu of notice is required to dismiss an employee. Mass

redundancies were met with unrest and militant union opposition during the early postwar

period. In the 1950s and 1960s, the courts began to develop a body of case law that

bolstered the lifetime employment norm (Sugeno, 1992). The courts accepted the

principle that a dismissal could be “an abuse of the employer’s right to dismiss” in which

the courts would establish whether there was “just cause” (Hanami, 1994: 35). Dismissals

could be declared null and void by the court unless the employer could prove that they

were “objectively reasonable and socially appropriate” measures. The burden of proof is

placed upon the employer rather than the employee. Such judgments set limits on the

employer’s capacity particularly to dismiss full-time regular workers. Employers seeking

adjustments in their workforce were obliged by the courts to demonstrate how they had

sought to avoid dismissals. This judicial requirement encouraged employers to develop

alternative measures short of dismissal to sustain employment. Companies began

reducing overtime working, curtailing the recruitment of new workers and avoiding the

non-renewal of part-time and temporary worker contracts (Schregle, 1993). In some cases

workers were re-trained, temporarily or permanently posted to other sections of the

company or sent to subsidiaries and supplier ﬁrms. Restricting the powers of employer

discretion to freely dismiss workforces led to creative ways to retain and redeploy regular

employees whose employment security and long-term HR value were prized by the ﬁrm.

The concern to protect employment, however, led to direct public policy initiatives that

sort to avoid employer recourse to unemployment. Radical policy alternatives to

redundancy were enshrined in a series of statutory initiatives introduced in the 1970s.

These were intended not only to encourage the retention of the lifetime employment

66 • John Salmon

norm but were also designed to placate the possibility of a revival of increased trade

union opposition to the potential response to large-scale redundancies (Kume, 1998;

Takanashi et al., 1999). A major government initiative seeking to sustain job security

at the level of the ﬁrm occurred following the statutory changes in the use of

unemployment insurance funds.

The Revision of the Employment Insurance Law (1974), The Special Measures for

Laid-off Workers in Targeted Depressed Industries (1977), along with the creation of

The Employment Stabilization Funds (1977) saw the beginning of an ambitious public

policy attempt to avoid unemployment by promoting employment security and retention

within the ﬁrm. Signiﬁcantly these changes received the support of the main opposition

political parties who were closely allied to the main trade unions. Japanese trade unions

have long prioritized job security. Trade union involvement in the public policy defense

of employment security led to the increased inﬂuence of organized labor in the policy-

making process. Domei, the more moderate national union center with the majority of its

membership among the private sector industrial unions, and eventually Sohyo, the more

radical union center representing the small ﬁrms and more militant highly unionized

public sector unions, came to support the new policy measures.

It was against the background of the oil shock, with the fear of rising inﬂation and the

concern about increased job losses that public policy endeavors sought to preserve

employment stability by containing rising unemployment. It is estimated that two-thirds

of wages in small ﬁrms and half of large ﬁrms’ wages were subsidized from

unemployment insurance funds to allow employers to re-train rather than dismiss

workforces (Takanashi et al., 1999). The trade unions restrained the level of their annual

shunto wage demands. The public policy goal remained the stabilization of employment

during a period of recession and employment adjustment by retaining existing employees

in work and through the maintenance and continued training of employees within the ﬁrm

rather than resorting to the Anglo-Saxon alternative of “hire and ﬁre” and mass lay-offs.

The speciﬁc effects of the new policy approach included the creation of employment

adjustment beneﬁts, payments for employee education and training and ﬁnancial support

for employee transfers to subsidiary companies, in order to sustain the welfare of

employees by protecting them from unemployment. The combination of statutory

measures sat alongside the body of case law in the context of the overriding concern to

maintain good industrial relations in a period of severe international crisis. This enabled

the creation of a pattern of employment adjustment that sought to preserve the Japanese

model of long-term in-house training and thereby sustain the internalization of employee

commitment through the protective development of employee careers within the ﬁrm.

The corporate community

By the early 1980s the characteristics of Japanese HRM were ﬁrmly in place. Employee

involvement, small group activities and joint participation schemes initiated in the 1960s

HRM in Japan • 67

continued to expand and ﬂourish throughout the 1970s and 1980s. In the aftermath of the

oil crisis the international business environment became more competitive. The trade

union movement began to lose its militancy particularly among the large industrial unions

in the internationally exposed private sector export industries. Japanese strike levels that

had been among the highest in the advanced industrial economies during the 1960s fell

to among the lowest after 1980. Yet while the domestic economy still operated under

conditions of acute labor shortages in the second half of the 1980s, the expansion of new

company recruits covered by lifetime employment status increased sharply (Chuma,

2002). The large ﬁrms continued to see the competitive development of the ﬁrm in terms

of expanding the speciﬁc in-house core competencies of employees as the principal

source for establishing Japanese international competitive advantage. Security of

employment continued to be a key component for the employment relationship. The

combination of policy intervention to sustain employment within the ﬁrm and the

avoidance of a major confrontation with organized labor during the period of

employment adjustment saw a more cooperative stance emerging among the private

sector industrial unions.

In 1987 there was a historic uniﬁcation of the formerly divided labor movement when

the four major national centers created “Rengo.” This led to high expectations that a

uniﬁed voice of Japanese organized labor could initiate progressive improvements in

the employment relationship that would beneﬁt not just union members but the wider

Japanese society. The international crisis, however, had led many of the leading Japanese

companies to improve their contacts with their enterprise unions. Joint consultation and

communication committees were installed at company, plant, and workplace levels with

their enterprise union-elected representatives. The improved channels of communication

between management and the company unions combined with union attachment to the

employers’ implicit responsibility to maintain job security for regular employees began

to appear to moderate the company union stance towards employers. In the 1980s, the

Japanese employment relationship came to be redeﬁned in terms of “companyism” or

the “corporate community” (Dore, 1973; Tabata, 1997). These new ways of theorizing

the Japanese management model placed primary importance on worker attitudes, values,

motivations and level of identiﬁcation with their company. Such an approach posed an

alternative to the prevailing orthodox view that Japanese management was a product of

Japan Inc. (van Wolferen, 1989) in which the Japanese state bureaucracy and big

business interests had master-minded the high growth strategy of Japanese

“exceptionalism” (Johnson, 1982). “Companyism” drew the debate back to the

employment relationships by highlighting worker loyalty and commitment to the ﬁrm

manifested in the concept of “company man.” The late 1980s became the high watermark

of the Japanese model.

The rekindling of HRM

Reforms to the nenko wage structure began during the 1980s. In the 1990s in the context

of low growth, nenko innovations have tended to relocate salary determination away from

68 • John Salmon

the more predictable ﬁxed annual entitlements and allowances based on seniority towards

a far greater emphasis on individual ability and greater use of merit evaluations. The

biannual bonus package, though formally subject to negotiation with the company trade

union, has become subject to a greater level of discretionary allocation based on

individual ability.

Prospects for promotion have considerably diminished in the 1990s. Slow growth reduces

the increase in new management positions. Promotion opportunities diminish further by

intensiﬁcation of lean management organization and delay of middle management as a

consequence of increased international competition. The response of the leading Japanese

ﬁrms has been to reconceptualize the basis for HR development. This has involved a

move away from the single channel management hierarchical structure to permit

promotion according to work specialism and professional expertise. The clearest example

may be seen in research and development. Under the traditional structure, promotion

required leaving an established area of expertise in order to be promoted to a higher

administrative post. The new trend that emerged in the mid-1990s sought to promote

specialist expertise on an equivalent management wage grade enabling specialist

knowledge workers to continue to develop their expertise rather than abandon it for

a management promotion. A further change has been the introduction of new criteria for

individual effort either to gain higher positions within a grade or by being promoted into

higher grades. In some instances “ghost” promotion has taken place where long-serving

employees who would have been promoted in periods of higher growth are granted

promoted status. Workers are able to use their status of foreman or supervisor in the

management rank but have no employees to supervise. Ghost promotion helps to satisfy

the considerable importance attached to status in Japanese society. It permits workers to

place their new position on their business cards, an important consideration to gain

credibility in social and personal relations outside the ﬁrm. They are also able to claim

the respect by being addressed within the ﬁrm by their new rank.

The movement away from the traditional seniority-based wage system has been a gradual

factor in the development of the nenko wage. The rethinking of the Japanese approach

has had to come to terms with low growth and the limitations of the famed OJT system

of broad skill accumulation where radical new business strategies have developed to meet

new markets. One aspect of the pressure for change has been the more pervasive

utilization of management by objectives. Although the duration of job tenure for regular

workers still remains high in Japan, the main change in nenko is the shift away from the

seniority system that had produced stable annual increments related to each year of

service and biannual bonuses. The new wage systems have become much more merit and

performance-orientated. Income is more tied to individual performance. Pay systems

stress individual ability to undertake job duties. The expanded use of satai assessment

based on measuring achievement, job ability and attitude has become a growing feature

in the Japanese workplace that can lead to unfavorable assessment and the lowering of

salaries.

HRM in Japan • 69

Heisei recession: the lost decade

The impact of recession during the 1990s and the sharp decline of trade union

membership and inﬂuence have signiﬁcantly weakened the bargaining stance of Japanese

industrial unions. The annual shunto wage round has faced much stiffer opposition from

the employers. The content of current wage negotiations has seen the reduction in the

traditional ﬁxed elements in the basic wage, and the decline of the value of annual

increments based on tenure. The determination of annual pay is being settled by a

greater variable lump sum in the salary structure. The future direction of the Japanese

employment relationship appears to be directed towards greater levels of internal

expertise and professional knowledge as new criteria for advancement in the ﬁrm. The

shift to reward through personal ability and away from a pattern of predictable ﬁxed

increments has had an impact on union inﬂuence. Union weakness has eroded both moral

and union representation. The sharp rise in personnel issues caused by restructuring and

increased employment transfers has placed considerable burdens on union ofﬁcers with

greater time spent in involvement in company participation meetings. Even the largest

Japanese unions face severe difﬁculties ﬁnding rank and ﬁle members willing to put

themselves forward for election to union ofﬁcer posts (Kato, 2000).

Between 1950 and 1980, unemployment remained at 1 or 2 percent during most years.

Throughout the 1990s it rose to a historic postwar high, reaching 5 percent in 2001.

Gross domestic product (GDP) averaged only 1.6 percent in the 1990s compared to

11.1 percent in the 1960s, 5.3 percent in the 1970s and 4.5 percent in the 1980s. At

current low levels, competitive survival comes into question. The response of Rengo to

rising unemployment levels is to seek to establish work-sharing in an attempt to sustain

the retention of employment.

The employer offensive: diversiﬁcation of the labor market

Employer response to the recession has been to set an agenda for change in the

employment relationship. The “Japanese-style management for a new era” published in

1995 by the leading Employers Organization, Nikkeiren (Nikkeiren, 1995), advocated a

threefold classiﬁcation in the traditional employment model. Long-term employees would

form the core workforce. The second tier would be made up of specialist workers hired

only for their speciﬁc skills and professional abilities but for shorter periods of

employment. The third group would be the ﬂexible workforce with lower skills, little

training and irregular employment contracts and would include part-time, temporary and

largely female workers. Such a structure would retain the lifetime model for the core

workforce but lower the employer obligation for employment retention among specialists

and lesser-skilled employees, particularly during adverse business conditions. The

Worker Dispatching Law in 1985 was introduced for specialized occupations. The 1999

revision substantially extended the types of occupation to come under contract to

employment agencies. These marked the biggest changes in the Labor Standards Law

70 • John Salmon

since their enactment in 1947 and have helped to pave the way for a deregulation of the

Japanese labor market. Both Nikkeiren and the statutory labor law reform reﬂect a

fundamental rethinking about the future direction of the Japanese management model in

an era of low growth. Socioeconomic changes effecting young worker attitudes combined

with greater diversiﬁcation of the Japanese employment relationship has seen a marked

change in the HRM model.

The Japanese management model now has to determine how to maintain competitiveness

in a global economy while adjusting to the conditions of low growth in what has become

a mature domestic economy. Many employees are faced with employment insecurity;

employers with the high cost of lifetime employment, an aging workforce, and with

companies still burdened by long-term recession (Chuma, 2002). Many long-serving

blue-collar and white-collar employees who have invested their livelihood in their

company have limited value beyond the parameter of their ﬁrm.

Conclusion

The debate about the importance of HRM has been tied to improved company

performance (Delaney and Huselid, 1995; MacDufﬁe, 1995; Tyson, 1997). HRM has

been seen as a route towards improved employee effort and sustained competitive

advantage (Barney, 1991). Although HRM is in essence a managerial approach in Japan

it is principally through the organizational investments in training, employee recruitment

and selection, in addition to performance evaluation and career development, that

effective employee commitment is being reconﬁgured to contribute towards a high

performance–employment relationship

The Japanese management system is under considerable pressure to change. Much of the

current diversiﬁcation of employment is aimed at reducing labor costs. Many of the

features that provided high growth in the past have come to be questioned in relation to

economic maturity, recession and low growth. The Japanese approach towards HRM has

in turn had to adapt to the changing business environment. For regular employees and

particularly the white-collar baby-boomers, the prospects for promotion are diminishing.

Ironically the pioneering of high-performance lean-management organization that did so

much to elevate Japanese international competitiveness also brought about ﬂat

management structures that have limited the growth of career opportunities. The response

of the leading Japanese ﬁrms has been to reconceptualize the basis for HR development.

Although Japanese unions, employers and public policy initiatives continue to stress the

retention of the long-term institutionalized commitment to employment within the ﬁrm,

the emphasis now being placed upon the need for specialists and professional expertise

suggests more value will be given to identifying individual ability and personal

performance, and future rewards and career development will come to be more closely

tied to personal evaluation as the basis for motivation.

HRM in Japan • 71

Acknowledgment

The author wishes to acknowledge support from the Japan Foundation.

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presented to BUIRA conference.

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The Japan Institute of Labor: http://www.jil.go.jp/index-e.htm

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HRM in Japan • 73

HRM in Hong Kong

ANDREW CHAN AND STEVEN LUI

Introduction

To understand the current challenges and future prospects of HRM in Hong Kong, we

take a historical perspective in this chapter and review Hong Kong’s wider cultural,

social and economic context since the 1970s. We will recount the unfolding of HR

practices as the city evolved from an entrepôt, to an enclave economy to a metropolitan

business and ﬁnancial center. In the latest words of ofﬁcials of the Hong Kong

government, the vision of Hong Kong is to reposition itself as the world’s most

service-oriented knowledge economy that capitalizes on its strength in value-added

producer services in order to complement the growth of the Chinese economy in the

future.

We agree with Budhwar and Debrah (2001) that HRM practices are largely driven by

external factors – in Hong Kong the most important are economic conditions, company

size and the owner’s background and culture. In spite of much discussion over the aims

of HRM in the academic literature, we consider for the purpose of this chapter that HRM

in Hong Kong comprises a set of practices in the service of the employers to maintain

employment relationships.

The preferences and shifts in company policies regarding manpower and succession

planning, recruiting, training, performance and compensation management are

predominantly determined by whether the owner’s business is prospering, striving or

merely surviving. In a free economy like Hong Kong, where 90 percent of employers are

small enterprises, HR policies and practices have a direct casual relationship with

business realities. It makes sense, therefore, to maintain an optimum employment

relationship through versatile HR practices.

This chapter sketches a proﬁle of the key features inﬂuencing the development of HRM

in Hong Kong. In the eyes of its Hong Kong practitioners, HRM refers to management

practices purposefully used to regulate employment relationships in sizable organizations,

including Chinese family business conglomerates, the Hong Kong civil service, quasi-

governmental organizations, and subsidiaries of foreign companies in Hong Kong. The

academic distinction between personnel management and human resource management

has been well debated in the literature (Armstrong and Long, 1994; Legge, 1995; Bach

and Sisson, 2000; Boxall and Purcell, 2003). In the context of our characterization of

HRM in Hong Kong and the theme of this volume, we take the view that the distinction

is moot.

This chapter is organized into four parts. We will ﬁrst trace the development of HR in

Hong Kong during the last 30 years in order to make sense of what happens in workplace

employment relations today. We will then account for the role of HR in different business

settings. This is followed by a discussion of three selected contingent factors that impinge

on some of the key developments of HR practices in the unique setting of Hong Kong.

Lastly, we review the prospects and challenges facing HRM in Hong Kong today.

The development of HRM in Hong Kong

Manufacturing base (1970s)

Hong Kong ﬂourished as a British colony for trading in its early days. After three decades

of rapid expansion in manufacturing, Hong Kong had successfully transformed itself

from an entrepôt into a low-cost manufacturing center by the 1970s, exporting mainly

garments, textiles, electronic products, and toys to the rest of the world (Chiu et al., 1997;

HKTDC, 1998). This transformation was buttressed by the closure of China to the

outside world after the communist takeover and the large labor pool thus made available

to Hong Kong by the inﬂux of legal and illegal immigrants from China (Cheung et al.,

2000). The 1960s and 1970s were the heyday of Hong Kong’s industrialization, with

high growth rates of both industrial exports and income. In 1971, the manufacturing

sector generated 28.2 percent of the GDP and employed 47.0 percent of economically

active persons (Chiu et al., 1997).

The majority of manufacturing companies were labor intensive. These companies tended

to be small, export-oriented, and engaged in cost-based competition (Enright et al.,

1999). Government statistics show that in 1978, 78 percent of the manufacturing ﬁrms

in Hong Kong employed fewer than 20 workers, and only 4 percent had more than

100 employees (HKDTC, 1998).

In an early study of labor relations in Hong Kong,

England (1989) reported that the working conditions in these small factories were

generally bad with cramped space, unsafe practices and long working hours. Their

businesses depended mainly on subcontracted orders and required highly ﬂexible

employment practices that could adjust to ﬂuctuation in the orders. Most workers were

therefore employed as semiskilled or unskilled labor on a temporary basis, and were

provided with little training and few welfare beneﬁts. Although the employment

76 • Andrew Chan and Steven Lui

1 In the Year 2002, out of about 320,000 registered companies in Hong Kong, 87.8 percent

hired less than 10 members of staff; 1.1 percent hired 50–99 employees, and only 254

companies (0.08 percent) had 500 or more staff members.

conditions were better in larger ﬁrms, the labor relationship was still maintained by

personal paternalism rather than formal employment contract (England, 1989: 70–73).

Human resource management in this period was largely administration oriented,

perceived as less strategic, and so personnel management would be a more ﬁtting

characterization. Recruiting labor was not a problem, as there was a plentiful supply

from the refugee pool and the postwar baby boom in Hong Kong (Chen, 2000).

Low-level recruiting was often carried out informally through word of mouth or

personal relationships. On the other hand, managerial positions in large companies

and senior ranks in the civil service were often ﬁlled by expatriates coming to work

in Hong Kong.

At more senior levels, civil servants enjoy indirect compensation which is not normally

given to civil servants in other countries. This indirect compensation (or “fringe beneﬁts”)

is largely the result of Hong Kong’s colonial legacy. Beneﬁts are paid to all expatriates in

the British colonial service. These include the provision of housing and the payment of a

tenancy allowance. Air passages for leave (and on resignation) are paid to expatriate civil

servants and their families on the directorate scale. In addition, education allowances and

passages are paid for the civil servants’ children who are educated overseas.

(Scott, 1984: 23)

Motivation and compensation of semi- and unskilled labor were not a problem.

Workplace training was often minimal, as worker mobility was high, and employers were

hesitant to provide training for workers in a free labor market with high worker mobility

(Ng and Ip, 1999). The work environment deterred workers from organizing themselves

for collective bargaining. Instead, trade unions in Hong Kong in their early days were

extensions of China’s internal political strife (England, 1989). Civil disturbances in 1967

led to the enactment of the Employment Ordinance in 1968. This ordinance later became

the foundation of other labor legislation in Hong Kong (Ng and Wright, 2002).

Early service-base (1980s)

During the 1980s, the growth of manufacturing in Hong Kong slowed as small-scale

manufacturing companies faced protectionism from advanced economies and a shortage

of affordable land and factory space within the city. To maintain their cost advantage,

these companies started relocating their labor-intensive production facilities to China

where land and labor were abundant. Their logistics and support functions, however, they

kept in Hong Kong. Thus a small company of a dozen employees in Hong Kong might

comfortably oversee the running of a factory with several production lines and hundreds

of workers in China (HKTDC, 1998). At the same time, Hong Kong gradually built itself

up as a trade support center. It became a hub for traders and businessmen looking for

ﬁnancial services such as seed money from merchant banks and help from investment

banks with initial public offerings when they wanted to become publicly listed. Taking

advantage of China’s open-door policy, many companies engaged in re-export activities

HRM in Hong Kong • 77

to and from China in the early 1980s, and Hong Kong regained its role as a very active

entrepôt.

The Sino-British Joint Declaration, which detailed the reversion of sovereignty over

Hong Kong to China 13 years later, was signed in 1984. Ever since then, Hong Kong’s

social, economic, and cultural integration with China has gathered momentum. This

created uncertainty among the population, and led to high emigration, creating a brain

drain of managerial and professional labor to countries like Canada, New Zealand, and

Singapore, especially in the ten years between 1984 and 1994. This resulted in a

widespread surge in real wages, and increased costs in the service sector from 1986

onward (Chen, 2000).

The completely different development in the service and the manufacturing sectors posed

two HR issues. First, as manufacturing companies managed their operations between

Hong Kong and its hinterland in South China, they needed a speciﬁc set of HR practices

to optimize employment relationships, having to deal fairly in the midst of intricate issues

of workplace diversity, pay differentials, and differences in legal systems between the

two places. Second, the thriving service sector demanded more skilled human resources

than the residual labor-intensive manufacturing sector, and this created a scarcity in the

labor market. A falling birth rate in Hong Kong, emigration among the middle class and

tightened border controls on illegal entrants from China added to the problem (Chiu and

Levin, 1993; Chen, 2000).

The Hong Kong government at that time used various measures to address the critical

issue of labor scarcity. These included the setting up of a quasi-governmental body, the

Vocational Training Council, in 1982. The council was responsible for identifying

manpower and training needs and providing training in industrial, technical, and

management skills to the Hong Kong workforce. This was followed by the expansion

of tertiary education opportunities for secondary school graduates, with a target of

placing 18 per cent of the eligible age group in degree or subdegree programs. The

government also launched successive labor importation schemes throughout the early

1990s for the purpose of addressing labor shortages in speciﬁc industries (Ng and

Wright, 2000).

At the company level, more effective channels of recruiting were explored. Newspaper

advertisement was the most often used recruitment method. Interestingly, Chinese

newspapers were generally used for lower-level employment, while local English

newspapers were used for senior-level employment. This segregation has continued into

the 2000s. Employment agencies became more popular, and executive search ﬁrms came

to be used for top-level vacancies, at least by larger companies, which also started to

invest more in training and development in order to retain employees and to reduce

turnover. Relatively more structured succession planning and promotion from entry-level

positions became slightly better accepted among private enterprises.

Kirkbride and Tang (1989) have provided a general review of HR practices in Hong

Kong based on a survey of 361 companies conducted in 1988. They concluded that HR

78 • Andrew Chan and Steven Lui

policies in Hong Kong were not very sophisticated when compared with those in other

developed countries. In-house training focused narrowly on technical and vocational

ability, and management development was seldom provided. Although formal appraisal

systems were common, they were often accompanied by employee collusion and

inadequate appraisal training. In terms of time spent on HR issues, respondents in that

survey reported spending most of their time in recruitment, followed by employee

relations, manpower planning, pay administration, training, and appraisal. The

importance of recruitment again reﬂected the scarcity of labor in society at the time.

Full service-base (1990s)

The 1990s saw Hong Kong successfully positioning itself as an international

commercial, business, and ﬁnancial center. The deindustrialization of Hong Kong was

followed by a recommercialization process that had been taking place continually in the

ﬁnancial, banking, and business subsectors throughout this decade. According to

government economists, Hong Kong drew more than 80 percent of its GDP from

commercial and service-oriented activities, one of the highest percentages in the world

(Ng and Ip, 1999). On the other hand, manufacturing shrank below 10 percent of GDP

(Chen, 2000). Enright et al. (1999) have argued that Hong Kong focused on developing

value-adding producer services that supported the production of goods and services by

others, as opposed to consumption services. As producer services were subject to

increasing returns to scale and attracted further services to cluster together,

it became logical for more multinational corporations (MNCs) to choose Hong Kong

as their regional headquarters. During the 1990s, more than 2,000 MNCs had

regional ofﬁces or headquarters in Hong Kong, including over 200 Fortune 500

companies.

Another feature of Hong Kong’s service sector was its external orientation, as a service

hub to China and Asia. The repercussions of the 4 June 1989 crackdown on student

demonstrators in Beijing haunted HR managers well into the 1990s in the run-up to the

reversion to China of sovereignty over Hong Kong. During this period, there was still

considerable labor shortage in many sectors, intensiﬁed by the brain drain of

professionals and other workers. It was at this time that companies of all sizes began

to provide more internal training and more promotion opportunities.

On a macro level, the government set up the Employee Retraining Board in 1992 to deal

with the mismatch of skills between industrial workers and service jobs. As the business

situation became more complex, with globalization, rapid environmental changes, and

increased competition, a closer partnership between HR and ﬁrm strategy became more

accepted, and this paved the way for HR managers to play a more strategic role within

their organizations.

In 1995, the government established the Equal Opportunities Commission with the aim

of protecting individuals against prejudice that might arise from their age, sex, gender,

HRM in Hong Kong • 79

religion, family status, or physical and mental handicaps. Antidiscrimination regulations

were subsequently passed regulating recruitment (such as newspaper job advertisements).

This has kept Hong Kong’s labor regulations in line with international norms in terms of

workplace and employment standards.

HR practices have become more sophisticated to satisfy the needs of a service economy.

For instance, Ng (1997) noted that increased training and internal promotion were

being provided to junior staff. Snape et al. (1998) found the use of performance appraisal

was more widespread in Hong Kong than in Britain, but that the process tended to be

more directive and less participative in Hong Kong. McCormick (2001) rightly pointed

out a need to use more term-based appraisals to suit the local collectivist and group

culture.

However, a survey of over 1,000 medium and large companies showed that only

33 percent employed full-time HRM personnel in 1991. Of these, 3.9 percent were

appointed at a strategic job level (HKVTC, 1992). Two subsequent large-scale surveys

in 1995 (see Tang et al., 1995) and 1998 (Cheung, 1998) conducted by the Hong Kong

Institute of HRM depicted the limited inﬂuence of HR in Hong Kong companies on

strategic issues such as manpower planning, changes in work organization, and new

technology introduction. These two surveys showed that while HR was becoming more

important, it still played a limited role in a strategic sense. This perception has now

changed, as we shall see.

Post-1997 restructuring phase

In 1997, Hong Kong reintegrated with China as a Special Administrative Region,

maintaining its own laws and institutions. The Asian ﬁnancial crisis of 1997 struck a

huge blow to Hong Kong’s externally-oriented service-based economy. The post-crisis

environment in Asia was one of rapid globalization. Traditional interﬁrm relations were

reshufﬂed, and the industrial environment became highly competitive (Kidd et al., 2001).

Other complex issues like returning emigrants, labor importation schemes,

unemployment, a depressed property market, and the outbreak of SARS aggravated the

problems of post-1997 Hong Kong. The unemployment rate remained around 8 percent

between May 2002 and June 2003. HR faced tremendous challenges in this phase.

Companies in Hong Kong painfully adjusted to this new business environment with

revised HR measures (Fosh et al., 1999; Cheung et al., 2000). They became more

cautious in recruitment and moved towards performance-based compensation.

Companies also needed to tackle new HR issues such as downsizing and employee

retrenchment. Kamoche (forthcoming) examined the hotel industry in Hong Kong after

the 1997 Asian ﬁnancial crisis and identiﬁed the simultaneous need for more structure

and ﬂexibility in HR practices. He further cast doubt on Hong Kong organizations’ ability

to meet this need. Chu and Siu (2001) reported how some small companies in Hong Kong

faced the crisis by ﬁrst cutting staff development funds and wages, using lay-offs only as

the last resort. On the other hand, industrial conﬂicts in large companies were notable.

80 • Andrew Chan and Steven Lui

For instance, the pilot pay dispute at Cathay Paciﬁc Airlines in 1999 and the labor

disputes, pay cuts, and redundancies at Paciﬁc Century CyberWorks Ltd. in 2002.

Another major development was the introduction of the Mandatory Provident Fund

(MPF) in 2000. Under this scheme, both employers and employees were required to

contribute to the employees’ retirement beneﬁts. It was a belated government response to

the call for basic provision of employee beneﬁts for the general labor force. Similar

schemes had been set up much earlier in other Asian countries such as Malaysia in 1951

and Singapore in 1955, but the MPF in Hong Kong has retained features of high risk and

a privatized nature (Ng and Wright, 2002). However, its introduction amidst an economic

downturn drew criticism that it represented an extra burden in the cost of running a

business.

While we have portrayed this slightly gloomy picture of the nagging issues faced by

HR managers in the ﬁeld, another representative sample of the HR community, however,

perceived things slightly differently. A survey conducted by the Hong Kong Institute of

HRM among their member companies in 2001 showed that HR practices were often

deployed with a strategic purpose (Cheung, 2001). More companies were found to have

adopted strategic HRM than traditional HRM. Training was often provided to employees

to address changes in products, new technology, and organizational reengineering.

Results-oriented performance appraisal with targets to meet was more widely used with

all levels of staff. There was also more outsourcing of HR functions, particularly in

training, development, and recruitment. The survey amply reﬂected the vibrant

environment and the challenges to HRM.

The role of HRM in different business settings

Next we will examine the changes in the HRM function and the unique sets of issues

HRM has faced in different business settings in Hong Kong over those four phases. We

characterize these changes through looking at a spectrum of relative degrees of HRM

partnership that underpinned HR policies and practices — from strategic partnership or

one end to pragmatic administration at the other. This relative continuum of HR

involvement in the business strategy is attributable to the size and the ownership of the

ﬁrms (Chiu and Levin, 1993; Shaw et al., 1993). We outline the contours of HRM

partnership found in three types of ﬁrms in Hong Kong: small and medium enterprises,

large family businesses, and multinational corporations.

Small and medium enterprises

As in other Asian economies, a dual labor market exists in Hong Kong (Ng and Wright,

2002), and it is made up of a primary and a secondary sector. The large private ﬁrms, the

civil service and the quangos constitute the primary sector, while the small and medium

enterprises (SMEs) constitute the secondary sector. SMEs make up the majority of

HRM in Hong Kong • 81

businesses in Hong Kong. In 2000, SMEs in the manufacturing sector (fewer than

100 persons) constituted 98.6 percent of all manufacturing establishments and took up

62.7 percent of total manufacturing employment. Similarly, SMEs in the service sector

(fewer than 50 persons) constituted 98.3 percent of all service establishments and

accounted for 61.3 percent of total service employment (Hong Kong Information Service

Department, 2002).

Compared with the primary sector, HR practices in the secondary sector are ad hoc, much

less structured, and less formalized (Ng and Wright, 2002). Because of their small size,

these ﬁrms subscribe to a lean regimen in their personnel and administration that often

results in only the sheer essentials of what may be called the core HR functions. Based on

the research ﬁndings on SMEs in Hong Kong (Saha, 1987; Kirkbride and Tang, 1989;

Cheung, 2001), most SMEs provide limited on-the-job training for their employees,

as these employees can move around easily in Hong Kong’s free labor market. To retain

employees, ﬁrms generally resort to a high pay strategy. This decision partly leads to a

high cost structure in these ﬁrms, and it greatly reduces their competitiveness in times

of economic adversity.

To summarize, the role of HR in SMEs is minimal. HR is mainly non-strategic,

administration focused, and has low inﬂuence on a ﬁrm’s operations, as far as small

companies in Hong Kong are concerned.

Local Chinese family businesses

Local Chinese family businesses employ a signiﬁcant number of employees. Their early

success was usually built on businesses in textiles, garment manufacturing, and trading.

Some of these family businesses have grown alongside the Hong Kong economy to

expand into new markets. Their key decision-makers and management have reached the

third generation succeeding their founders at the turn of the last century. A few of these

ﬁrms are much larger than SMEs, and their HR policies are more comprehensive and

formalized. However, their HR policies are different from those promulgated by the

strategic partnership model. Redding (1993: 155) and Westwood and Chan (1992) have

suggested that the Chinese heads and their businesses encapsulate the ethnocentric values

of Confucian paternalism, patriarchy, and personalism. These are manifested in three key

relationships: power connected to ownership, a distinct style of benevolently autocratic

leadership, and personalistic as opposed to neutral relations. Their management style is

paternalistic, with centralized decision-making, emphasizing harmony and compliance

(Westwood and Chan, 1992), seniority, loyalty, mutual obligation, and informal

networking at the workplace (Redding and Wong, 1986; Shaw et al., 1993; Snape et al.,

1998). By no means deprecating, this Chinese management style propagates unique

employment relationships marked by a delicate blend and balance between a western

outlook and traditional Chinese values. For instance, these ﬁrms may recruit from a

variety of sources, but selection is pragmatically based on personal recommendation.

They may establish clear job descriptions and levels of reporting, but remuneration would

82 • Andrew Chan and Steven Lui

reﬂect seniority and degree of loyalty rather than performance. Usually, these ﬁrms can

enjoy a strong internal labor market with entry to the organizations at low levels, and the

frequency and scale of training and development being more ad hoc.

These HR features or employment relationships engender a clear sense of goals among

employees, who could expect that their hard work, dedication, and loyalty are repaid, and

many practitioners believe that such work values have contributed to the early success of

these Chinese family ﬁrms. However, the HRM functions are still found to be separated

from the decision and power core of the businesses and from other business operations in

the company, performing an administrative rather than a strategic role. This may pose

problems as these companies expand overseas and face increasing market uncertainty.

The strategic role of HRM becomes more signiﬁcant in multinational corporations than in

Chinese family business conglomerates and SMEs.

Multinational corporations

Over 3,000 overseas companies had regional headquarters or ofﬁces in Hong Kong in

2002 (Hong Kong Census and Statistics Department, 2002). The majority of them came

from the USA, Japan, and the UK, with China coming up the list recently. Their major

lines of business were in the wholesale and retail trades, and in business services. Their

reputations and high proﬁle gave MNCs a prominent presence in Hong Kong.

Among other needs in managing HR, MNCs need to deal with expatriation, repatriation,

adjustment, and adaptation of home-based practices to blend with local norms and host-

nation laws and regulations. As MNCs are relatively more experienced in managing

international HR, the role of their HRM function is more strategically oriented compared

with the other types of Hong Kong companies that we have discussed. Most often cited in

literature are the former’s well-developed management training programs and their

structured performance-based reward systems (Dowling et al., 1999).

Research has consistently pointed to the differences in HRM between foreign ﬁrms and

local ﬁrms operating in Hong Kong. For instance, Shaw et al. (1993) found that British

and American ﬁrms were more likely than local ﬁrms to use formal performance

appraisal and more technical methods of job evaluation. Ng and Chiu (1997) found that

British and American ﬁrms were more likely to adopt women-friendly HR practices. Ngo

et al. (1998) extended the comparison to Japanese ﬁrms and found that they were more

likely to adopt seniority-based compensation than local Hong Kong ﬁrms, but had no

differences in the provision of training and development, or in retention-oriented

compensation. Fields et al. (2000) found that foreign ﬁrms tended to spend more effort in

securing and retaining managers. Contrary to the above, McGraw (2001), however, found

relatively minor differences in HR practices between local and foreign ﬁrms, and

supported a global convergence of HR practices.

HRM in Hong Kong • 83

Contingent factors shaping HRM

At the beginning of this chapter, we have referred to Budhwar and Debrah (2001) who

suggest a way forward to research international HRM. There, the factors that affect HRM

practices in any country or culture are categorized into national factors, organizational

strategies and policies, and other contingent variables. As we trace the historical

development of HRM in Hong Kong, three such contingent variables stand out to be

inﬂuential in shaping the present state of HRM practices in the workplace: the legal and

institutional factors, the China factor, and globalization.

Legal and institutional factors

The free market principles underlying the economy, coupled with the weak bargaining

power of the labor unions and Chinese paternalism engendered what Ng and Wright

(2002) called an “institutional permissiveness” in the workplace. Institutional

permissiveness refers to loose and informal regulating institutions in the labor market,

which help to maintain harmonious industrial relations. This is reﬂected in the weakness

or lack of legal regulations. The Hong Kong government regulates the labor market and

employment mainly through the Employment Ordinance of Hong Kong. Intervention

has been minimal, apart from setting up initiatives for long-term manpower development.

Neither does the government favor laws mandating trade unionism, nor a minimum wage

for labor.

According to government statistics, there were 601 trade unions at the end of 2001.

Of these, only 93 had declared a membership of over 1,000. The role of trade unions

in Hong Kong has remained weak. Snape and Chan (1999) offer three reasons for this:

the small size of establishments in manufacturing and private sector services, cultural

resistance of workers towards joining unions and openly challenging their employers,

and employers’ hostility towards unions.

Surveys show that the role of unions in private sector pay negotiations has been limited

(Tang et al., 1995; Cheung, 1998, 2001). Instead of work-related issues, unions engage

mostly in activities outside the workplace, such as organizing recreational and social

activities, and providing educational and health services to members. In the absence

of strong trade unions, collective bargaining has been weak, leading to the low level of

strikes and industrial conﬂict in Hong Kong (England, 1989).

However, collective bargaining has become more common after the Asian ﬁnancial

crisis. Several high-proﬁle strikes were reported in large private companies, such as the

cases of Cathay Paciﬁc and PCCW Ltd. mentioned earlier. Ng (1997) suggests that this

may signal a change in the way conﬂict is handled between ﬁrms and their employees,

as a more western-style adversarial approach is adopted.

The consequence of institutional permissiveness for HR managers is that they can adopt a

set of highly versatile and ﬂexible HR practices based on individual employment

84 • Andrew Chan and Steven Lui

contracts (Cheung et al., 2000; Ng and Wright, 2002). Firms can adjust their

compensation based on individual performance and prevailing market conditions. In this

way, ﬁrms have high leverage in their HR policies, especially in SMEs. Conversely,

individuals can negotiate their wages and salaries according to their individual bargaining

power.

The China factor

The economic and political development of Hong Kong is closely linked to China. This

factor impacts HR development through the labor supply and business opportunities for

businesses of all types. Two waves of immigration from China provided the needed labor

in Hong Kong at crucial moments (Chen, 2000). The ﬁrst wave of immigrants came to

Hong Kong in the early 1950s, when the Communist Party came to power. The huge

inﬂux of refugees brought capital and entrepreneurial skill. This generation of immigrants

formed the source of labor throughout Hong Kong’s industrialization in the following

decade. The second wave of immigration during the 1970s, consisting of illegal

immigrants, provided a large pool of cheap labor to Hong Kong at its time of rapid

industrialization.

The China factor has also been inﬂuential in attracting MNCs to Hong Kong. In order to

tap into the huge China market for their products, MNCs have often opted to set up their

headquarters in Hong Kong to test the water. These MNCs brought with them new

HR skills and procedures. Local companies beneﬁt from their presence through imitating

these HR practices. Indeed, some researchers suggest that MNCs may have been the

“major impetus towards increasing personnel sophistication” in earlier days (Kirkbride

and Tang, 1989: 46).

Globalization

The effect of globalization on Hong Kong may be much stronger than elsewhere because

of Hong Kong’s externally oriented and open economy. To increase its legitimacy as a

global business partner, Hong Kong has adopted international industrial regulations and

set up human rights watchdogs such as the Equal Opportunities Commission. This

commission has adopted a mainly non-coercive approach, focusing on conciliation and

public education rather than invoking its statutory power to issue enforcement notices

against non-compliance (Ng and Wright, 2002).

Globalization opens Hong Kong to external market forces, and its inﬂuence in directing

HR development in Hong Kong was particularly crucial in the 1970s and 1990s. In the

1970s, Hong Kong’s manufacturing ﬁrms moved their operations ﬁrst into Southern

China and then to Southeast Asia. At that time, this development solved the labor scarcity

problem. With hindsight, we suggest that this might have slowed down the development

of HRM in Hong Kong, especially in training and development. In the 1990s, facing a

HRM in Hong Kong • 85

fast changing global market, ﬁrms had to be adaptive, fast to change, and efﬁcient.

Globalization resulted in China becoming the global production site, supporting Hong

Kong’s service role. In our view, China’s entry to World Trade Organization in 2001 has

clearly provided an impetus for any ﬁrm to use more developed HR practices, and will

accelerate their need for high-quality employees in the years to come.

The future prospects of HRM in Hong Kong

Bleak future or a silver lining?

The last part presents a point-counterpoint about the future of Hong Kong and

implications for the future of HRM. Let us ﬁrst sketch aspects of what may make up the

bleak outlook and dire situation, before we counterpoise this with a contrary thesis.

In many people’s eyes, Hong Kong’s lackluster economy over the ﬁve years 1999–2003

has exhibited its worst performance in many decades. The poor economic environment

and the brief disruption of the outbreak of SARS in 2003 have been coupled with salary

cuts, redundancies, lay-offs, early retirement schemes, downsizing, and corporate

restructuring in large ﬁrms and small enterprises. Insolvencies have become more

common. In the HR ﬁeld, practitioners have been busy looking at ways to rationalize

manpower, minimize expense, and freeze hiring in order to sustain a low-cost operating

environment. Like the business sectors, the civil service has also been affected by this

trend. With a forecast budget deﬁcit between 2003 and 2007, the Hong Kong government

has frozen all civil services hiring except policemen beginning from 2003, slashed

salaries across the board by 1.5 percent in 2002, and proposed a further pay-cut of

3 percent each year in 2004 and 2005. The government’s target is to reduce the staff

establishment from 180,000 in 2000/01 to c. 160,000 by 2006/7, through, among other

things, natural attrition and early retirement schemes.

Hong Kong’s biggest private sector employer, the telephone company Paciﬁc Century

CyberWorks Ltd., uses incentive schemes to lure employees to depart and set up their

own businesses to bid for project-based assignments and subcontracting work farmed out

by their former employer. Many HR practitioners are dealing with downsizing programs,

budget and salary cuts, and early retirement schemes. They are ﬁne-tuning appraisal and

performance management, and putting very few resources into training and development

– but there are exceptions.

Some employers hire aggressively. For example, in the business and ﬁnancial sectors,

insurance, transport and logistics, information systems, and property development. The

qualiﬁcations and quality of people hired in these ﬁelds are on the rise. For these

employers and their HR managers, the situation in the next ﬁve years will be different.

Broadly speaking, medium and long-term HR planning should be aware of the declining

birth rate (60,000 births in 1994 as against 80,000 in 1986) and a graying population.

(Those aged 65 or above were 200,000 and 480,000 respectively in 1984 and 1994, and

86 • Andrew Chan and Steven Lui

projected to be 700,000 in 2004.) Macro-measures like labor re-training, continuing

education, importation of skilled labor, experts and professionals and the luring of

investment emigrants are in full swing or being vigorously studied.

The metropolis thesis

In both the press and the academic literature, analyses have pointed to the dire conditions

facing Hong Kong’s economy. The future of the city seems bleak, and recovery is not yet

in sight. Some economists, however (e.g. Enright et al. 1997; Enright et al., 1999)

emphasize the contrarian view that Hong Kong is in transition to a truly metropolitan

service economy. As this gradually materializes, the HR scenario in Hong Kong

companies will present new sets of challenges.

While Hong Kong retains the distinctive “one country, two systems” for 50 years until

2047, it will continue to offer to businesses incentives like a low tax base, a liberal

environment for movement of capital, and freedom of exchange of information. As in

other metropolitan economies, high value-added activities will continue to replace low

value-added activities. The physical production stages of manufacturing will play

a less prominent role in Hong Kong’s GDP (5.8 percent of GDP in 2000). Proponents

of this metropolis scenario argue that Hong Kong’s strength is that it has established itself

as a regional center and one of the most service-oriented economies in the world, with

producer services that support Hong Kong’s offshore production operations.

If we look at some relevant ﬁgures, they tell us that in 2003, Hong Kong’s services sector

accounted for 86 percent of Hong Kong’s GDP.

This is similar to the percentage of GDP

occupied by the service sector in the New York metropolitan area in 1994 (Enright et al.,

1999). The metropolis thesis compares Hong Kong and Greater London, whereby as a

city Hong Kong’s 1997 GDP of US$170.1 billion exceeded that of Greater London.

Hong Kong is backed up by the vast Pearl River Delta hinterland consisting of city

economies that were formerly rustic townships. Three of these representative cities have

now turned into closely collaborative cities that have a combined GDP greater than that

of Shanghai. Seen from the perspectives of regional economics and competitive

advantage, Hong Kong is unlike Singapore in that the latter does not have a “friendly”

hinterland to absorb the benevolent centrifugal windfalls from its economic activities.

Dodwell (2001: 254) invites us to ponder the following scenario:

If opportunities are appropriately exploited and managed, future scenarios of the shared

region (Hong Kong and the Pearl River Delta hinterland) are exciting in the extreme. As

more Hong Kong residents settle in the delta townships – commuting daily to work as

HRM in Hong Kong • 87

2 Percentages of services in GDP in 2003 are: 72 percent in USA, 67 percent in the UK,

62 percent in Japan, 65 percent in Singapore, 50 percent in Shanghai, 45 percent in Shenzhen,

35 percent in the People’s Republic of China.

would a commuter from Connecticut or New Jersey into New York – and as these

commuters mingle with an increasing well-off middle-class local workforce, there is

the prospect of attractive PRD communities emerging. ...Managed well, the region

can become one of the most prosperous in the world, as the PRC progressively liberalizes

in the decades ahead. Many metropolitan regions worldwide fail to capture cooperative

strategies . . . this cooperation will take time and careful democracy, but it is essential

if the region is to emerge as one of the world’s leading metropolitan economies, and as

Asia’s “world city.”

These proﬁles give out important signals to HR practitioners and their senior

policy-makers and strategists. Even though the “threat” of deindustrialization of Hong

Kong has materialized, groups of economists close to the government (e.g. Enright et al.,

1997, 1999) argue that “opportunities” always exist for Hong Kong if it suitably

concentrates on value-adding producer services and related activities. Similar changes

have been experienced in cities like New York and Tokyo. The outward relocation of

manufacturing activities does not represent a “decline” of this sector as far as Hong Kong

capitalists are concerned. In the 2003 policy address, Mr C.H. Tung, Chief Executive of

Hong Kong, has sanctioned the idea that the city’s preferred role would be the

management and coordination center for Southern China.

As a metropolitan business center that provides value-added services, Hong Kong-based

service providers and the ofﬁces of multinationals should be geared up to reap the

ﬁrst-mover advantage. Opportunities to compete for the provision of ﬁnancial, business,

and professional services in China are highly likely. Markets there tend to be fragmented

by China’s restrictions on foreign ﬁrms. As the regulatory environment changes and

service sectors open up further under China’s WTO accession, Hong Kong ﬁrms and

their HR functions are advised to concentrate on performing even higher value services in

attracting, hiring, and keeping the workforce in the ﬁelds of banking, ﬁnance, accounting,

consulting, and other kindred activities.

A knowledge workforce for a knowledge economy

Given the importance of knowledge-intensive and highest value-added activities in

businesses, HR priorities should be prepared to place even more resources on supporting

these activities. Helping the business sectors meet their needs, university education

should focus on training personnel for logistics management, process engineering,

information systems, ﬁnance and management. We suggest to HR practitioners that the

skills that will be in greatest demand are those involved in managing organizations,

coordinating across borders, generating and processing information, and communicating

with international partners. For Hong Kong ﬁrms and their HR managers, the strategic

focus will be on identifying long-term HR needs. If they are to compete in the

knowledge and information economy, they had better become highly efﬁcient in

information processing: they must begin by knowing what staff they need, with what

skills, how they can ﬁnd and re-train them as needed, and how they can motivate them to

88 • Andrew Chan and Steven Lui

work more effectively and raise their awareness of lifelong skills for future roles. In-

house career counseling and advice about training needs and opportunities will be very

much needed.

Unlike metropolitan destinations such as New York, Tokyo, and London, where property

and other costs fall gradually from the city center out to the furthest suburbs, Hong Kong

is situated on the coastline of the Pearl River Delta with its boundary drawn against the

mainland where costs remain relatively low. In our view, the past and future of Hong

Kong HRM policies and practices are predominantly subject to external contingent

factors (e.g. economic conditions and business sentiment). From colony to special

administrative region, from window to China to metropolitan driver for its hinterland

cities, Hong Kong’s macro-environment mandates that it strengthen its role as a business

and ﬁnancial nerve-center and as a hub for services producers. In that regard, the rhetoric

has shifted from “colony” to “territory” to “tiger” to “city” to “metropolis.”

At a practical level and of more immediate concern to HR managers, HRM sourcing is

advised to look more carefully at the wide pool of talents, experts, and professionals

resident in South China, Taiwan, and among ethnic Chinese and other overseas nationals

familiar with China. This skilled workforce is what Hong Kong seriously lacks now.

Of prime importance in the 2003 policy address of the chief executive was the need to

make it attractive for mainland Chinese specialists and skilled workers and experts to

come with their families to work in Hong Kong. This emphasizes establishing even closer

ties and integration with the Pearl River Delta hinterland. The metropolis thesis clearly

requires a repositioning of HR-related policies for many companies. This will become

clear on the eve of the sixth anniversary of the handover in June 2003, when the Closer

Economic Partnership Agreement (CEPA) is announced. This will allow for zero tariffs

on exports coming from Hong Kong entering mainland China. Service ﬁrms in Hong

Kong, for example, in the ﬁelds of legal services, accountancy, banking, advertising,

transport and logistics, and management consultancy, will enjoy the beneﬁts of “no trade

barriers” and hence be able to set up their businesses. With these impending openings in

late 2003, HRM’s future in Hong Kong has acquired a new deﬁnition with a new set of

implications.

A glimpse of these important changes can also be seen in the new immigration policy

proposed by the Hong Kong government in February 2003. Whether Hong Kong will

attract and retain the required manpower, whether it is an attractive place for mobile

professionals, remains to be seen. The rationale behind this policy asserts that skilled

and professional people will make up the most critical portion of Hong Kong’s

knowledge workforce. Immigrants are welcome because, in the long term, a continually

renewing and thriving population is needed to overcome problems as a result of the low

birth rate and the graying of Hong Kong citizens. Incentives to lure “investment

immigrants,” whether they are ethnic Chinese or not, are now openly offered under the

new immigration policy. The time will come for HR managers in Hong Kong to revisit

expatriation and kindred international HRM issues, once hot topics in the 1980s. This

time their internal customers may well be local Hong Kong Chinese moving across the

HRM in Hong Kong • 89

border to work in the mainland, as well as indigenous Chinese coming to work in Hong

Kong from all parts of China and the rest of the world.

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HRM in Hong Kong • 91

Useful websites (as of July 2003)

Government departments

Hong Kong Government: http://www.gov.hk

Labour Department: http://www.info.gov.hk/labour

Government Information Services Department: http://www.info.gov.hk/isd/index.htm

Hong Kong Trade Development Council: http://www.tdc.org.hk

Employees Retraining Board: http://www.erb.org

Vocational Training Council: http://www.vtc.edu.hk

Non-government organizations

Hong Kong Management Association: http://www.hkma.org.hk

Hong Kong Institute of Human Resources: http://www.hkihrm.org

China Staff: http://www.asialaw.com

92 • Andrew Chan and Steven Lui

HRM in Taiwan

PEI-CHUAN WU

Historical background

Taiwan is the largest island in the arc of mountainous islands in the western Paciﬁc off

the eastern coast of Asia, situated between Japan and the Philippines. Shaped like

a sweet potato, the island of Taiwan is separated from mainland China by approximately

130 km at its closest point and is about 36,006 km

in size.

Until the seventeenth century, Taiwan was largely isolated from mainland China and

the rest of the world. It was the Dutch and Spanish who ﬁrst arrived and set about

colonizing parts of the island. In 1662, Cheng Cheng-Kung defeated the Dutch and

then ruled the island for 22 years until his family surrendered to the Ching Dynasty in

1683. Under the Ching administration, Taiwan was viewed as a gateway to the seven

south-eastern provinces in China and a key trading base (The Republic of China

Yearbook, 2002).

In 1885, Taiwan was made the twenty-second province of China. However, as a result of

the 1895 Treaty of Shimonoseki, it was ceded to Japan and was not returned to Chinese

sovereignty until the Japanese surrendered at the end of World War II. The Japanese

regime transformed Taiwan into a relatively modern society with a better economic

infrastructure. However, the social cost was high as the Taiwanese were treated as

second-class citizens and the island’s economic development only beneﬁted the ruling

power.

Economic development

As a small island with only one-third of its land area usable, Taiwan has always relied

heavily on its human resources. The island’s population grew from 6 million in 1945 to

22 million by 2002, making it one of the most densely populated areas in the world today.

In 2000, 8.62 percent of the population was over 65, which is close to the world average.

As the population growth rate has decreased since the 1980s and life expectancy has

increased, standing at 75 in 2001, it is expected that Taiwan will become an aging society

in the near future.

Table 6.1 Selected key economic and labor market indicators in Taiwan

Variables 1965 1970 1975 1980 1985 1990 1995 2000 2001 2002

GNP per capita (US$) 217 389 964 2,344 3,297 8,111 12,653 14,188 12,876 12,900

Economic growth rate (%) 11.0 11.3 4.4 7.1 5.6 5.5 5.9 5.9 –2.2 3.5

Unemployment rate 3.3 1.7 2.4 1.2 2.9 1.7 1.8 3.0 4.6 5.2

Total labor force (1,000s) 3,891 4,654 5,656 6,629 7,651 8,423 9,210 9,783 9,830 9,965

Labor force participation rate (LFPR) 58.2 57.4 58.2 58.3 59.5 59.2 58.7 57.7 57.2 57.3

LFPR: male – – – 77.1 75.5 74.0 72.0 69.4 68.5 68.2

LFPR: female – – – 39.3 43.5 44.50 45.3 46.0 46.1 46.6

Source: Council for Economic Planning and Development, Executive Yuen. Directorate General of Budget, Accounting and Statistics.

Over the past 50 years, Taiwan has enjoyed the most rapid period of economic growth in

its history (see Table 6.1 for macro-economic and labor statistics), its GDP increasing

from US$1.7 billion in 1952 to US$309.4 billion by 2000.

Under the Japanese regime and in the early days of the Kuomintang (KMT)

administration, agriculture was the major industry, hiring 56.7 percent of the labor force

in 1951. The manufacturing industry became increasingly important in the following

decades, reaching a peak in 1987 when it employed 42.8 percent of the labor force. Since

then, the ﬁgure has gradually decreased, standing at 35.2 percent in 2002. On the other

hand, the percentage of workers employed by the service industries has grown sharply,

from 27.0 percent in 1951 to 57.3 percent in 2002. The agriculture industry now employs

only 7.5 percent of the labor force.

Average monthly working hours decreased from 204 in 1985 to 181 in 2001. On the other

hand, average monthly earnings in manufacturing increased from NT$4,044 in 1976 to

NT$38,277 in 2001. The relatively high postwar economic growth rate led to acceleration

in labor costs and an increased tendency for people to take lower-skilled work. This

resulted in a labor shortage problem in the mid-1980s that forced many manufacturing

companies to transfer their operating plants to countries with lower labor costs, such as

China. In 1990, the government approved the employment of foreign workers from

Southeast Asia to ease Taiwan’s problems. The unemployment rate, consistently low

from 1965 to 2000, currently stands at 5.2 percent, the highest in Taiwan’s history.

In 1997, Taiwan managed to resist the effects of the Asian ﬁnancial crisis by diversifying

into the high-tech industry. However, in the past decade, China has become the main

destination of Taiwanese investment. It is expected that not only will traditional

manufacturing companies continue to move their operations to China, but so will

companies in the high-tech and service industries.

The government

The strength of Taiwan’s economy in recent years has been due partly to government

policy. After the Japanese occupation, Taiwan was ruled by the KMT regime for 50

years. During this period, Taiwan’s success was driven by sound government policy as

well as a stable external environment. From 1950 to 1965, two policies were critical to

the island’s economy: aid from the USA and land redistribution.

Between 1965 and 1987, Taiwan experienced rapid growth via an export promotion

policy. In 1987, the government lifted the state of martial law and opened up non-

government civilian contact between Taiwan and China. During the same period, Taiwan

gradually shifted its focus to high-tech and chemical-intensive industries. By 2000, China

had become Taiwan’s second largest trading partner after the USA.

In 1988, President Lee Teng-Hui came to power and began to implement a series of

widespread reforms. In 1996, Lee was re-elected in Taiwan’s ﬁrst-ever presidential

HRM in Taiwan • 95

election. Four years later, President Chen Shui-Bien (a member of the Democratic

Progressive Party) won the second direct presidential election, ending 50 years of KMT

rule. Under Chen’s administration, investment in China is discouraged and ofﬁcial talks

between Taiwan and China remain stagnant. However, the government has recently

adopted a more open China policy and limited transportation links have been allowed

between two small islands and the mainland.

Another major event affecting Taiwan’s economy was its entry into the World Trade

Organization (WTO) in 2002. While this promises to give the nation a more signiﬁcant

say in the world economy, in the short term, the domestic market may suffer.

The culture

When Taiwanese characteristics are judged from the perspectives of the two previously

well-documented frameworks, the whole picture of Taiwanese value orientation appears

unclear and inconsistent. Hofstede’s (1980) study showed a large power distance and a

low level of individualism. The survey conducted by Chinese Culture Connection (1987)

revealed a medium level of human-heartedness and moral discipline, a low level of

integration and a high level of Confucian dynamism. As these studies were all carried out

more than 20 or 30 years ago, there is a need today to explore the stability and change in

value orientations in Taiwan after a relatively long period of industrialization and after

signiﬁcant social changes.

Empirical studies indicate that Taiwanese students’ motivational patterns have changed

over the last few decades (separate studies were conducted in 1963, 1975 and 1987) as

they now show more tendencies towards exhibition, autonomy and change, and less

towards deference, order, dominance, endurance and aggression (Hwang, 1989).

A similar trend has been detected among Taiwanese people in general in that their need

for individual-oriented achievement motivation is higher now than that for social-oriented

achievement motivation (Yu, 1990). Hsu’s (1987) study of work goals showed that

Taiwanese managers are more self-centered compared to Singaporean managers. They

tend to place more importance on organizational rewards than the job content and

relationships, and pay little attention to job signiﬁcance. Yang (1986) concluded that

Taiwanese society is gradually transforming into one that emphasizes individual needs

more (e.g. autonomy, exhibition, heterosexuality, etc.) and collective needs less (e.g.

order, abasement, nurture, endurance and social approval). Individual needs or

characteristics are now possibly more in tune with the so-called “modern” values of

Taiwanese society, while collateral needs or values are more similar to the stereotypes of

“traditional” Chinese values.

Yang’s (1992) ﬁndings further suggest that some indigenous collectivistic values still

survive in modern society; they can coexist and will not necessarily disappear despite the

rise of individualism. Furthermore, certain traditional values should not be viewed as a

stumbling block to modernization or social development (Yau, 1988). Rather, some

96 • Pei-Chuan Wu

values, such as familism, which is embedded in traditional Chinese values, are reinforced

and sustained across generations in Chinese societies (Yang, 1986). Indeed, the values of

harmony and familism will help companies to implement techniques such as total quality

management, face-to-face communication and feedback, and a cooperative learning

climate.

It is therefore more important for researchers and practitioners to explore the human

resources management (HRM) model in the context discussed above. First of all, with

the above discussion in mind, it is expected that the hardship and familism stressed by

Confucianism will dominate top management’s values, which may inﬂuence the design

of HRM systems. Second, the Taiwanese value of harmony will have positive

associations with participatory programs such as quality circles, goal-setting, feedback,

participation in decision-making, and so on. Harmonious attitudes will lead to a more

cooperative relationship between management and labor. The greater the level of

harmonious industrial relations, the greater the effectiveness of implementing HRM

policies in organizations. Finally, with the changing values of Taiwanese society,

especially among the younger generation, organizations with an open and commitment-

based HRM system will earn more support from their employees. Indeed, under the new

government rules, the new democratic system and the new phase of economic

development on the island, a looser and more democratic atmosphere is expected to arise,

both in the workplace and in non-work domains. Strategic HRM policies on the island

have been implemented over the past decade to address these needs. We will now

continue our discussion of HRM systems in Taiwan.

Pre-2000 HRM practices

The development of HRM systems in Taiwan can be divided into three different stages

(Yao, 1999). The ﬁrst stage, occurring well before the mid-1960s, coincided with the

country’s focus on the agriculture industry. At that time, companies were more concerned

with the traditional and administrative roles of HRM. The major role of the HRM

function is book-keeping, especially in the conventional areas of compensation,

attendance and leave records, health records, recruitment and evaluation. Negandhi’s

(1973) ﬁndings reﬂected HRM themes in Taiwan in this particular stage in that he

concluded that the HRM systems used by local Taiwanese companies were less

developed than those of US and Japanese subsidiaries. At that time, local Taiwanese

companies were adopting fairly simple and loose HRM practices. For example, no

manpower policies were documented, there was no independent personnel department,

there were no clear criteria for promotion opportunity, seniority was more important than

performance in promotion, monetary rewards were emphasized, and so on. Companies

would not spend a large amount of money on training and development unless it was

absolutely necessary. The role of HRM at this stage was insigniﬁcant.

The second stage was the learning period (1965–1985). During this time, many

multinational companies, mainly from the USA and Japan, set up subsidiaries in Taiwan.

HRM in Taiwan • 97

It was also at this time that Taiwan sought to become labor-intensive by focusing on the

manufacturing industry. Indeed, the island’s fastest economic growth rate occurred

during this period. Yeh’s (1991) ﬁeld study conducted in 1984–1985 found that local

companies had learned quickly from their Japanese and US counterparts, and had then

adapted accordingly. For example, local Taiwanese companies were similar to the

American subsidiaries in terms of two recruiting criteria of new hires (technical

education and general education). They were similar to the Japanese subsidiaries in

their preferences of hiring new graduates, obtaining referrals from current employees,

using technical competence and seniority in promotion, adopting quality circles and

emphasizing group activities. However, Taiwanese ﬁrms occupied the middle position in

many other HRM practices, such as bonus payment, job autonomy, lay-off policies and

the emphasis on training. The HRM system in Taiwan during this period was seen to be

more established and to display a hybrid style.

Stage three encompassed the years following the mid-1980s. When the ﬁeld of HRM

introduced the idea that business strategy was important to the HRM system in the USA,

organizations in Taiwan started to bring HRM issues into the boardroom. It was also

during this period that Taiwan’s industry became more service-oriented and more

focused on IT, with many IT ﬁrms, such as Acer and Mitac, being set up. The functions

of HRM were viewed as more signiﬁcant. Some companies changed the personnel

department into the HRM department, some set up an independent HRM department and

some installed a vice president as the head of HRM. Wu (1990) examined the role of HR

managers in the top 500 manufacturing ﬁrms in Taiwan. Her study found that 88 percent

of the ﬁrms had a formal personnel department and 80 percent of the heads of the HRM

function bore the title “manager” or lower. The average size of the personnel department

was small, with 47 percent employing fewer than six staff. The strategic role of HRM

was not clear and the contribution of the HRM function to ﬁrm performance was

considered fairly low compared to other functional areas. More recently, Huang (2001)

found that 44 percent of companies in Taiwan have HRM practices linked closely to a

ﬁrm’s strategic function. The role of HRM in many companies, therefore, gradually

transformed from an administrative one into a strategic one, and there was a shift from a

reactive to a proactive approach in planning HRM activities to meet changing business

needs. The HRM function at this stage was not yet at the strategic level, but it was

moving towards a more strategic role. Meanwhile, two professional HRM associations

were established, namely the Chinese Human Resource Management Association and the

Human Resource Development Association of ROC. These associations help to organize

public seminars and workshops in HRM-related areas.

Clearly, HRM in Taiwan had developed smoothly – from insigniﬁcance to hybridity –

well before it incorporated the strategic role of the HR function. In the past 15 years,

HRM in Taiwan has undergone many changes, especially in its role as a strategic partner

and in its capability of being transformed. In the following section, we will discuss major

ﬁndings in the ﬁeld of HRM in Taiwan that have implications for the future.

98 • Pei-Chuan Wu

HRM practices in the twenty-ﬁrst century

In 2002, I conducted a questionnaire survey of strategic HRM issues in leading

companies in Taiwan. A directory of Taiwan’s leading companies published by the local

CommonWealth magazine was used for sampling. Companies with less than 40 full-time

employees were excluded. In total, the sample was made up of 553 ﬁrms from the

manufacturing industry and 553 ﬁrms from the service industry. The contact for the study

was the HR manager in each ﬁrm. I mailed each HR manager a cover letter and a

questionnaire measuring strategic HRM activities. From the 1,106 companies, 198

questionnaires were returned. Missing data reduced the ﬁnal dataset to 190, representing

a reasonable response rate of 17 percent. Among the 190 ﬁrms in the sample, 152 were

Taiwanese-owned, 18 were western-owned and joint ventures, and 20 were Japanese

subsidiaries and joint ventures. The sample represented 128 (67 percent) manufacturing

ﬁrms. The questionnaire measured four important issues of HRM: environmental factors

inﬂuencing HRM decisions, changes in the HRM function during the past ﬁve years,

current HRM practices and key challenges of HR functions in the next ﬁve years. We

shall discuss these issues in the following section.

Environmental factors and HRM

The survey asked the HR managers to rank the environmental factors according to the

extent to which they inﬂuenced their companies’ HRM practices. Based on a six-point

scale ranging from extremely unimportant to extremely important, Table 6.2 shows the

results across the three groups.

The Taiwanese-owned companies considered the business environment, business strategy

and top management’s values as most important when formulating HRM policies. They

paid least attention to employees’ points of view, the labor representative committee and

unions, and the political situation. For the western-owned companies, the top four factors

were top management’s values, laws and regulations, business strategy and the business

environment. The least signiﬁcant factors were cultural values, the labor representative

committee and unions, and the political situation. The Japanese-owned companies ranked

the business environment as the most signiﬁcant factor, followed by the economic

situation, and then laws and regulations. They paid least attention to cultural values,

employees’ viewpoints, the labor representative committee and unions, and the political

situation.

Although the three groups had different priorities, it was clear that the business

environment and business strategy were important for them all when it came to forming

HRM policies. Thus, the linkage between business strategy and HRM is important in

Taiwan, and is contingent upon there being a dynamic business environment. Another

similarity was the minor perceived inﬂuence of the political situation and unions, and the

labor representative committee. Although there is a tension in the relations between

China and Taiwan, any political instability is diluted by the close business relationship

HRM in Taiwan • 99

Table 6.2 Ranking of factors that inﬂuence HRM practices in foreign subsidiaries/joint ventures and local ﬁrms in Taiwan

HRM practices Taiwanese-owned Western-owned Japanese-owned F-value (Sig) Tukey’s B

ﬁrms ﬁrms ﬁrms

Mean (1) Mean (2) Mean (3)

N = 152 N = 18 N = 20

(Ranking) (Ranking) (Ranking)

Laws and regulations 5.02 (4) 5.39 (2) 5.20 (3) 1.33

(0.27)

Political situation 3.86 (10) 2.89 (10) 4.05 (10) 6.30 2–1, 2–3

(0.002)

Societal/cultural values 4.12 (8) 3.94 (8) 4.20 (8) 0.44

(0.64)

Economic situation 4.99 (5) 5.17 (4) 5.30 (2) 1.33

(0.27)

Business environment 5.13 (1) 5.33 (3) 5.35 (1) 1.30

(0.28)

Organizational culture 4.74 (6) 5.06 (5) 4.90 (5) 1.36

(0.26)

Union/labor representative committee 3.56 (11) 3.89 (9) 4.10 (9) 2.23

(0.11)

Company’s business strategy 5.07 (2) 5.33 (3) 4.95 (4) 1.14

(0.32)

Top management’s values and objectives 5.05 (3) 5.44 (1) 4.65 (6) 4.48 2–3

(0.01)

Competitors’ HRM policies 4.39 (7) 4.56 (7) 4.30 (7) 0.37

(0.69)

Employees’ viewpoints 4.08 (9) 4.83 (6) 4.20 (8) 4.05 2–1, 2–3

(0.02)

between the two sides. The role of unions and the labor representative committee is also

not inﬂuential when ﬁrms set up HRM policies, partly because ﬁrms in Taiwan usually

stress the importance of harmony. Many ﬁrms simply do not have unions, or employees

do not proactively join unions. In the current study, the union concentration rate was

32 percent. This ﬁgure is in line with the estimated unionization of 30 percent in Taiwan

reported by previous studies (Warner, 2000). Most Taiwanese companies have an

informal labor representative committee to deal with beneﬁt-related issues.

Finally, the major difference across the three groups was in their willingness to listen to

their employees’ viewpoints. Not surprisingly, the western-owned ﬁrms were more open

to their employees than were the Taiwanese-owned and Japanese-owned ﬁrms. Employee

participation opportunities in regard to HRM-related issues are still limited in Asian

companies. The embedded culture of high power distance could be one of the major

contributors to this.

Changes in the HRM function

In the current study (see Table 6.3 for details), 43 percent of the participating ﬁrms had

an independent personnel department (20 percent) or an independent HR department

(23 percent). The remainder had an HR unit/department under administration or

management. The average size of the personnel/HR function was 7.5 and about half of

them (53 percent) hired less than four personnel staff. About 32 percent of the heads

of HR functions bore the title “senior manager” or higher, and the majority of them

(75 percent) reported directly to the company’s managing director, vice president or

president. The average size of the HR department found in this study is similar to that

of previous studies (Wu, 1990). However, there was a higher tendency for the HR

manager to be engaged in business planning.

The major change was in regard to the HRM function itself. As can be seen from Table

6.3, 28 HR managers described a transition from the traditional personnel function to a

more strategic HR role. They argued that the role of the HR function became more

important by being integrated with strategy formulation and implementation processes.

This was in line with their direct link to senior managerial levels. Companies are aware of

the signiﬁcance of human capital and their contribution to organizational performance.

By incorporating HR functions into business planning and strategy formulation and

implementation, ﬁrms can gain an overview of their HR strengths and weaknesses,

and make necessary changes. The changes in HR functions in terms of being a strategic

partner and sharpening HR staff professionalism are in line with the transitional

strategic HRM patterns after 1985 in Taiwan.

The second major change was in regard to the HRM policies in all important areas,

including recruitment, retention, compensation, appraisals, training and development,

e-HRM, and international HRM. The factors leading to the restructuring of HRM

policies were the new organizational forms developing in the region and the shortage of

HRM in Taiwan • 101

multiskilled labor. In 1993, Lin (1997) conducted a mail survey of large companies in

Taiwan and found that recruitment and selection, training and development, and HR

planning were the current and future focuses of HR functions at that time. Labor

shortages of both skilled and unskilled workers are the major reasons for the focus on

recruitment and training. As mentioned earlier, the government introduced foreign

workers in 1990 to lessen the problem.

102 • Pei-Chuan Wu

Table 6.3 Changes in the HRM function over the past ﬁve years

Major changes Frequency Ranking

Changes in the HRM function 32 1

HR outsourcing 1

Changes from personnel function to strategic HRM function 28

The size and role of HR reduced because of economic downturn 1

The size and role of HR increased because of new structure 2

Changes in company structure 25 3

Ownership 3

Leadership – from family members to managers 1

Company size 1

Organizational structure – delayering, lay-offs, re-engineering

(lay-offs and restructuring; HR focusing more on lay-off policy

than recruiting) 20

HRM policies 26 2

High sales growth rate in certain functional units – different

manpower demands across functional units 1

Recruitment – lay-offs 6

Attracting and retaining workers 1

Training and development 15

Career management 1

New performance appraisal – equity 1

Moving from membership to performance-based 1

Beneﬁt programs – health insurance and labor insurance 1

E-HRM 1

International HRM 1

Psychological contract 6 4

Movement towards a commitment-based HRM system 1

Increasing employees’ level of satisfaction 1

Equal opportunity against sexual discrimination 1

Promoting loyalty and commitment 3

The current survey reveals certain shifts of focus in the same areas of training and

development, and recruitment. For example, in the areas of training and development, the

key changes were to upgrade employees’ competencies and to develop more multiskilled

workers. Thus, how to train the workers to have cross-functional skills was important.

Another important issue was recruitment. The focus of recruitment in the past ﬁve years

has shifted from how to attract people to how to lay off employees. The lay-off policy has

become signiﬁcant because many Taiwanese companies have not had experience laying

off employees during the past 20 or 30 years. However, due to the economic downturn in

the region and the business opportunities in China, ﬁrms with negative proﬁts have been

experiencing difﬁculty keeping all employees. The issue of how to reduce high labor

costs by cutting the workforce and using foreign workers has been at the center of the

debate.

The third major change was in regard to organizational forms. This includes changes in

organizational structure, delayering, lay-offs, mergers and acquisitions, and leadership.

The majority of the companies had successfully transformed into ﬂatter organizations

during the past ﬁve years through organizational restructuring. The average number of

organizational levels in the companies assessed in the present study was eight, compared

with ten to twenty layers in the past. These new organizational forms allow better

communication, are less hierarchical and give frontline employees more power.

Finally, changes in the workplace involve issues of how to restore employees’

psychological contract. Five managers pointed out the importance of increasing

employees’ levels of loyalty, satisfaction and commitment. The level of commitment

had been low due to the new lay-off policy used by the companies. Furthermore, the

old membership system had been replaced with a performance-based system in some

companies, which would certainly affect employees’ belief in the ﬁrms.

Selected HRM practices

Regarding HRM practices, 41 items (on a six-point scale ranging from very inaccurate

to very accurate) were used to measure seven HRM areas, namely selection, career

management, training, performance appraisals, empowerment, incentive pay and beneﬁts.

Table 6.4 gives a comparison of selected HRM practices (only signiﬁcant levels <0.01

are be shown) between foreign subsidiaries and joint ventures, and local Taiwanese

companies. The ﬁndings are discussed below.

In line with the results of a previous study by Hsu and Leat (2000), this study did not ﬁnd

signiﬁcant differences in most stafﬁng-related areas across Taiwanese-owned, Japanese-

owned and western-owned ﬁrms. Their study demonstrated that Taiwanese-owned ﬁrms

adopted selection techniques as rigorous as did their counterparts. The most signiﬁcant

difference between the three types of ﬁrms was the amount of money they spent on

selecting the right employees (p = 0.09). The Taiwanese-owned ﬁrms appeared to spend

the least money on this area. Apart from this minor difference, the ﬁndings in regard to

HRM in Taiwan • 103

Table 6.4 HRM practices of signiﬁcantly different items between foreign subsidiaries/joint ventures and local ﬁrms in Taiwan

HRM practices Taiwanese-owned Western-owned Japanese-owned F-value (Sig) Tukey’s B

ﬁrms ﬁrms ﬁrms

Mean (1) Mean (2) Mean (3)

N = 152 N = 18 N = 20

Large amount of money spent on stafﬁng 3.40 3.80 3.92 2.42 (0.09)

Training needs analysis 4.14 4.72 4.02 2.74 (0.06) 2–3

Appraisals based on quantiﬁable results 4.47 4.89 4.12 2.42 (0.09) 2–3

Performance feedback 3.71 4.94 3.93 7.65 (0.001) 2–1, 2–3

Formal appraisals 4.39 5.19 4.48 3.16 (0.04) 2–1, 2–3

Goal-setting 4.33 4.92 4.20 2.50 (0.08)

Employees’ views of HRM policies 4.12 4.77 4.13 2.47 (0.08)

Open communication 4.53 5.02 4.67 2.36 (0.09)

Stock ownership plans 3.90 2.80 2.45 7.30 (0.001) 1–2, 1–3

Pay based on external equity 3.58 2.63 3.60 5.23 (0.006) 2–1, 2–3

Performance-related pay 4.21 5.15 4.42 4.71 (0.01) 2–1, 2–3

Large pay dispenser 4.03 4.85 4.27 3.34 (0.38)

Flexible beneﬁts 2.92 2.48 2.25 2.42 (0.09)

selection were similar. The three groups of ﬁrms did not show any statistically signiﬁcant

differences in selectivity, including selection techniques, validation of selection tools,

selection processes and selection criteria. In addition, all ﬁrms guaranteed employment

and job security.

A series of policies regarding career management was measured. This included an

internal promotion policy, performance-based promotion, career counseling, career

opportunities and career information offered by the ﬁrms. Although the western-owned

ﬁrms practiced career policies more extensively than did the other two groups, there were

no signiﬁcant differences found across the three groups in all sub-areas of career

management.

In the areas of training and development, only one minor difference was identiﬁed across

the three groups. With regard to the degree to which training needs were conducted

systematically, the Japanese-owned ﬁrms (mean = 4.02) ranked lowest, followed by the

Taiwanese-owned ﬁrms (mean = 4.15) and then the western-owned ﬁrms (mean = 4.72).

Other areas in training and development, such as the extensiveness and effectiveness of

the training programs, the training volume received by employees, and initial training for

new hires, revealed similar levels of utilization.

Performance appraisals were probably one of the most heterogeneous areas in this

survey. Of the ﬁve policies relating to appraisals, three appeared to show signiﬁcant

differences across the three groups. The western-owned ﬁrms focused more on objective,

quantiﬁable results than did their Taiwanese-owned and Japanese-owned counterparts.

They also provided face-to-face appraisal interviews and feedback to their employees

more extensively than did the other two groups. The ﬁndings indicated that Taiwanese-

owned ﬁrms were the most reluctant to offer feedback to their employees. The two Asian

groups were far behind their western-owned counterparts in this sensitive area. The

problems of “protecting face” and “establishing a good relationship with employees”

might explain why this practice was not carried out. In addition, formal and systematic

appraisals were practiced more extensively in the western-owned ﬁrms (mean = 5.19)

than in the other two groups. Not surprisingly, the Taiwanese-owned ﬁrms were bottom

in this area. Another interesting related ﬁnding concerned the use of the 360-degree

performance appraisal system. All three groups appeared to show a fairly low adoption of

this practice (western-owned ﬁrms, mean = 2.90; Taiwanese-owned ﬁrms, mean = 2.89;

Japanese-owned ﬁrms, mean = 2.62). Traditional downward appraisals were more

popular.

With respect to areas of empowerment, three out of nine practices revealed signiﬁcant

differences across the three groups. The western-owned ﬁrms put more emphasis on goal-

setting and open communication. In addition, they seemed more likely to take employees’

points of view into consideration when formulating their HRM policies. In other areas of

empowerment, the results were rather similar for the three groups. The responding

companies were happy to provide a series of communication channels through which

their employees could exchange opinions, and they would allow their employees to make

their own decisions to a certain extent. However, they appeared to be more reluctant to

HRM in Taiwan • 105

delegate power to their employees by allowing them to participate in HRM-related

decision-making processes.

In the area of incentive pay, no clear patterns were found. Stock ownership plans were

used more widely by the Taiwanese-owned ﬁrms (mean = 3.90). The other two groups

showed a fairly low tendency to adopt this practice (western-owned ﬁrms, mean = 2.79;

Japanese-owned ﬁrms, mean = 2.45). On the other hand, the western-owned ﬁrms were

more into performance-related pay than were the Taiwanese-owned and the Japanese-

owned ﬁrms. Individual and group performance was more important in the western-

owned ﬁrms than seniority or membership. They also had a larger salary increment for

top performers to ensure the equity principle. However, the western-owned ﬁrms were

more into internal equity than external equity. They often had a sound and rigorous job

evaluation process to ensure internal equity, whereas the Taiwanese-owned ﬁrms were

more likely to adopt an external policy. The latter group would simply make comparisons

with their competitors in the industry rather than go through the whole cycle of job

analysis and job evaluation.

Finally, in the area of beneﬁts, ﬂexible beneﬁt programs were hardly practiced at all by

any of the three groups. In most companies, the idea of allowing employees to choose

what beneﬁts they prefer is still relatively new compared to other HRM practices. The

responding companies normally used a standardized beneﬁt plan for all employees. Other

forms of ﬂexibility offered by ﬁrms such as career break schemes, ﬂexible working hours

and family-friendly programs were also not widely practiced by the participating

companies.

The above ﬁndings demonstrate the development of strategic HRM in Taiwan. The data

indicated that Taiwanese-owned ﬁrms adopted the same HRM techniques as their

Japanese-owned and western-owned counterparts to a certain extent in most HRM areas.

No signiﬁcant differences were found in most aspects of the hard, quantiﬁable HRM

practices between Taiwanese-owned and foreign-owned ﬁrms, such as selection, and

training and development. On the other hand, some signiﬁcant differences were detected

in certain soft areas of HRM practices, such as communication, feedback, performance-

related pay and performance appraisals. In line with previous research carried out in

Taiwan (Farh, 1995; Chen, 1997), a trend towards convergence of HRM practices was

evidenced in “hard” rather than “soft” areas of HRM.

As HRM has moved from traditional control-based systems to commitment-based

systems, the stress now is on individual contributions rather than group contributions in

terms of job design, performance measurement, rewards and development. There is a

focus on mutuality by using face-to-face communication and by encouraging individual

employees to be involved in the goal-setting and decision-making processes. This model

of HRM is, in fact, a reﬂection of the USA’s own cultural values which are highly

individualistic and emphasize “doing” and “mastery.” In contrast, the HRM practices

used by Japanese organizations are deeply embedded in their collectivistic cultural roots,

such as teamwork, quality circles and lifetime employment. This culture-HRM linkage

forces us to consider seriously the innate nature of HRM and the appropriateness of

106 • Pei-Chuan Wu

American HRM models. This implication, or explication, of the congruence between

culture and HRM has triggered a growing concern about the transferability and success of

speciﬁc HRM techniques from one country to another. Child (1981) argues that despite

organizations in different countries becoming more similar, as measured by surface

characteristics and speciﬁc structures and technologies, the behavior of people within

those organizations maintains its cultural sensitivity. Thus, the impact of national cultures

on HRM policies and practices is expected to be more signiﬁcant in regard to soft,

behavioral-based techniques rather than hard, quantiﬁable techniques, and this is what

we observed for our Taiwanese-owned samples.

Indeed, empirical research has found that the “hard” or more easily quantiﬁable

technologies (such as planning, stafﬁng and training) have met with more effectiveness in

the transfer or convergence process than have the “soft,” behavioral and relationship-

based technologies, such as career development, performance management, work design,

and pay and reward systems (Yeh, 1991; Vance et al., 1992; Shaw et al., 1993; Yuen and

Kee, 1993; Brewster and Hegewisch, 1994; Easterby-Smith et al., 1995). This has raised

important considerations for organizations adopting or borrowing new techniques,

especially from abroad.

While the above arguments suggest a culturally sensitive approach to HRM systems,

they do not rule out the possibility of implementing strategic HRM systems in Taiwan.

The key issue here is still the local culture. Previous work by Bae and Lawler (2000) in

Korea point to a similar situation. They found that Korean culture was undergoing

change, and as a result, the Koreans were more willing to accept the strategic HRM

concept. They argue that “cultural changes seem to be occurring in Korea that make

workers and employers more open to high-involvement work systems” (Bae and Lawler,

2000: 504). Similarly, the Chinese cultural values in Taiwan have shown some inevitable

changes due to the rapid modernization process occurring in this part of the world. As a

result, companies are more aware of American or western-style HRM and are adapting

to it, especially to the “hard” areas of HRM.

As well as adapting to American or western-style HRM, companies in Taiwan have also

paid attention to the link between business strategy and HRM. Hsu and Leat’s (2000)

ﬁndings indicated that HR managers would like to be involved in board meetings in

developing corporate strategy. They also felt that HR policy should have a tight ﬁt

with business strategy to obtain competitive advantage. According to Huang (1998),

44 percent of companies in Taiwan have a close linkage between strategy and HRM;

for example, such ﬁrms would consider HR factors when formulating business strategies.

Huang’s ﬁndings further demonstrate that US-owned ﬁrms attach more importance to

strategic HRM than do local and Japanese-owned ﬁrms.

The challenges

About eight years ago, Farh (1995) argued that the role of the HRM function in Taiwan

would be more signiﬁcant in the future, and the convergence of HRM policies towards

HRM in Taiwan • 107

108 • Pei-Chuan Wu

Table 6.5 Challenges to the HRM function

Major challenges Current Future

challenges challenges

frequency frequency

(ranking) (ranking)

The HRM function 27 (3) 14 (4)

HR outsourcing 2

Labor shortage of HR specialists 4 1

HR specialists’ ability to deal with the new strategic HRM function 6 1

The link between business strategy and HRM 14 10

Poor company performance – insigniﬁcant HRM function 1

Changes from personnel function to strategic HRM function 2

Challenges of environmental factors 32 (2) 36 (2)

Labor laws (minimum wage and equal opportunity) 3 1

Competitor’s policy 4

The rise of China 3 8

Globalization 1 7

Flatter organizational structure 9

Top management’s attitudes towards HR and people 3 10

Aging and labor cost control 5 5

High salary, low ﬁrm performance and high labor cost 4 4

Technology – automation 1

Challenges of HRM policies 108 (1) 99 (1)

HR planning 6 2

Difﬁculties in recruiting senior managers and professionals 10 8

Attracting and retaining talented, good performers 14 5

Freezing labor or lay-offs 7 4

Human resource information system 2

Training, developing and preparing human resources 35 35

Succession planning 7 7

E-HRM 10 8

International HRM 2 10

Pay structure and incentive programs 8 8

Beneﬁt programs – ﬂexible working hours, social activities and pensions 1 3

Performance appraisals 4 7

Career management 2 2

Employees and the psychological contract 15 (4) 21 (3)

Changes in work attitudes and values 3

High employee turnover rate 5 6

Motivating employees to increase employee productivity 3 3

Developing a team work spirit and job sharing 2

Workers are unaware of the competitive environment 2

Forming a new corporate culture 2

How to communicate with employees within the new system 1 9

those of the West might need to be sensitive to a country’s social, economic and political

conditions. He highlighted four important future challenges for Taiwan, namely labor

shortage, industry transition, changing work values and the changing role of the

government. Changes in HRM functions, organizational forms, key environmental factors

and the psychological contract, discussed above, were the major changes perceived by the

HR managers. The current and future challenges faced by the ﬁrms in Taiwan were

similar, but they had different priorities (see Table 6.5 for details).

These challenges include:

1 HRM policies. HRM policies represented the most important set of challenges for

the ﬁrms. This is not surprising as so many changes have taken place in terms of

external and internal factors that have triggered the reform of HRM policies.

The most challenging HRM area was training and development, which includes

sharpening employees’ skills and knowledge, knowledge management, developing

a multiskilled workforce, promoting English ability, promoting e-learning and

establishing a learning environment. Recruitment was the second most challenging

area, and includes attracting and retaining talented employees, and implementing

lay-off policies. The shortage of labor, especially for professional and senior

managerial staff, was recognized as serious since Taiwan is transforming into an

IT hub. Other important challenges identiﬁed were the utilization of e-HRM,

performance-based pay and appraisals, and succession planning. International HRM

has been seen in terms of its important future rather than its current challenges.

As more Taiwanese ﬁrms move their subsidiaries to Southeast Asia, China, the USA

or Europe, the issue of international coordination and expatriation will become more

relevant.

2 Environmental factors. The major current challenge was the changing organizational

form. However, three important factors might hinder the development of HRM

systems in Taiwan. At the top of the list would be the top management’s support and

attitudes towards HRM and staff. Whether the top management sees HRM as an

important function and whether they see human resources as signiﬁcant assets will be

the key issues in the coming years. The rise of China and globalization are also

important factors. As mentioned above, many Taiwanese ﬁrms moved their factories

to China during the past 10 years. The close business relationship would only be

strengthened by integration and coordination between headquarters and subsidiaries.

Recruiting expatriates to manage the Chinese facility and to deal with local Chinese

employees would be challenging. The danger of losing talented employees to business

activities in China is another issue. Finally, as Taiwan has now joined the WTO,

attention has to be paid to international treaties.

3 The HRM function. The HRM function was viewed as the third most important

current challenge, but as the least important one for the future. The linkage between

business strategy and the HRM function is still a central theme. While changes have

been made to transform the personnel function into the strategic HRM function in

many ﬁrms in Taiwan, the key challenges in the coming years will be the formulation

and implementation of strategic HRM policies.

HRM in Taiwan • 109

4 Employees and the psychological contract. This was viewed as the third most

important future issue. As so many changes will need to be made when implementing

a series of HRM policies, companies will need to consider the cost of the

psychological contract. Since the written contract has shifted gradually to a

performance-based one with no guarantee of lifelong employment, companies will

need to sell and communicate the new HRM systems to their employees. As can be

seen from the results, the need to talk to employees was at the top of the ﬁrms’ list,

followed by the high turnover rate.

The HRM function shall continue to earn more attention in ﬁrms in Taiwan in the future.

We have observed changes in the HRM function itself over the past ﬁve years. The HRM

policies in regard to stafﬁng, and training and development have gradually adopted the

western HRM style by using more extensive and rigorous techniques. The HRM policies

in regard to pay and appraisals have moved halfway towards convergence. The Taiwan

companies were aware of the performance-based pay and appraisal systems. The

difﬁculty in implementing them would be bound to local Chinese culture in terms

of providing feedback and constructive communication. In the area of participative

management, many forms have been adopted in the past, such as suggestion schemes,

quality circles, proﬁt sharing, stock ownership and labor-management committees

(Huang, 1997). Allowing employees to participate in many HRM-related areas is another

future challenge. Whether or not companies in Taiwan will allow employees to have a

signiﬁcant say in HRM issues may depend on the sensitivity of the issue itself and the

high power distance relationship in the country. However, as the next generation joins

the job market bringing in new work values, and as the new government introduces more

open and democratic policies, democracy in the workplace may change accordingly.

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112 • Pei-Chuan Wu

HRM in India

DEBI S. SAINI AND PAWAN S. BUDHWAR

Introduction

This chapter presents a broad overview of the scenario of human resource management

(HRM) in India. It is structured along the framework discussed in chapter 1 of this

volume. To provide the required context, this section presents some relevant

demographic details of the Indian economy and society. India is a republic in South Asia.

It has the second highest population in the world after China, which reached the 1 billion

mark in June 2000. As per the latest census of 2001, the total population of the country is

1,027 million, which includes 531.28 million males and 495.73 million females. India’s

share of the world population is 16.7 percent. The literacy rate among the population for

seven years and above for the country stands at 65.38 percent. The corresponding ﬁgures

for males and females are 75.85 and 54.16 percent respectively. The density of

population (per km

) is 324 and the male=female ratio is 1000:933.

Being the largest democracy in the world, India is governed by a constitution that came

into force on 26 January 1950. It attained independence from the British on 15 August

1947. The country comprises of 29 states and 6 union territories. There are six main

religious groups: Hindus (83.2 percent), Muslims (11 percent), Sikhs (2 percent),

Christians (2 percent), Jains and Buddhists (less than 1 percent). There are over three

thousand castes. India has 179 languages and 544 dialects. The constitution recognizes

sixteen languages, “Hindi” and English being the two ofﬁcial languages. India has one

of the largest English-speaking populations in the Asia-Paciﬁc region (Budhwar, 2003).

As per the latest round of National Sample Survey (NSS) of Employment and

Unemployment, the total workforce in the country is 397 million. Out of this, nearly

92 percent or more are engaged in the activities of the unorganized sector (including

the so-called informal sector) while about 8 percent of the workforce is employed in the

organized sector. Of the total employment, 60 percent of the workforce is engaged in

agriculture. Of the 40 percent in the non-agriculture sector, the unorganized workforce

is 82 percent and the remaining 18 percent or so belongs to the organized segment. Only

about 12 to 15 percent of the total workforce in the country is estimated to fall in the

category of wage/salary employment. Such employees constitute 6 percent of the

workforce in the rural areas and about 40 percent of the workforce in the urban

(Economic Survey, Government of India 2002–2003). The second National Commission

on Labour (NCL) has estimated that only 5 percent of the workforce in the age group

20–24 has acquired some kind of a formal vocational training (Government of India,

2002). This is a far lower percentage than those of developed countries, which range

between 60 to 80 percent.

India is rich in both natural and human resources, even as it faces tremendous challenges

in its efforts to enhance economic growth and development. It is estimated that around

200 million people in the country comprise the middle class, which is becoming larger

with the liberalization of the Indian economy. This class is also viewed by the developed

countries as an important market for exporting their goods from a long-term point of

view. The country has multiplied its foreign direct investment (FDI) several times since

adopting the New Economic Policy (NEP) in July 1991, but is still far behind its neighbor

China and countries in Southeast Asia in this regard. There are now over 15,000

multinational ﬁrms operating in India and this number is increasing rapidly (for details,

see Budhwar, 2001).

As global ﬁrms seek success in their Indian operations, and as Indian ﬁrms reach a higher

degree of professionalism in the global context, they have to make critical decisions

related to people management as strategic choices. This will necessitate an appreciation

of the factors which inﬂuence HRM policies and practices in the Indian context. These

factors, among others, include availability of requisite skills and competencies, required

mindsets, desired values and customs, facilitative legal framework and institutions, and

conducive cultural environment. They are the products of a country’s socioeconomic and

political realities (see Budhwar and Sparrow, 1998; Hofstede, 1993). A comprehensive

understanding of such realities and insights helps a fuller comprehension of the HRM

model of a country (Budhwar and Sparrow, 2002a). The contemporary HRM scenario of

a country should be understood in the context of its general economic and business

environment as it evolves over the years.

The Indian economy and business environment

After independence, India put primacy on adopting self-reliance in its economic

development policies and thus preferred an import-substitution model of development for

45 years or so. It set up the Planning Commission in 1950 to formulate national plans.

Since then, a “mixed economy” approach (emphasizing both private and public

enterprise) has been adopted until quite recently. This had the effect of reducing the

incidence of entrepreneurship as well as global competitiveness – both necessary for

national growth. Economic planning is carried out mainly through the ﬁve-year plans and

industrial policies. Presently, the tenth ﬁve-year plan (2002–2007) and the industrial

policy of 1991 are in progress.

Despite the formalities of planning, the Indian economy was perhaps in its worst state in

1991. It witnessed a double-digit rate of inﬂation, decelerated industrial production, ﬁscal

114 • Debi S. Saini and Pawan S. Budhwar

indiscipline, a very high ratio of borrowing to the GNP (both internal and external) and a

dismally low level of foreign exchange reserves. Those had gone down so low that they

were barely sufﬁcient to meet the bill for three weeks’ imports. The World Bank and the

IMF agreed to bail out India on the condition that it changed from a regulated regime

to a “free market economy.” To meet the challenges, the government announced a series

of economic policies, beginning with the devaluation of the rupee, followed by a new

industrial policy and ﬁscal and trade policies. A number of reforms guided by the

liberalization philosophy were made in the public sector, trade and exchange policy,

the banking sector and the foreign investment policy (for details, see Budhwar, 2003).

The economy has responded positively to these reforms and India is now considered as

one of the largest emerging nations, having bypassed the Asian economic crisis. The

World Bank forecasts that, by 2020, India could become the world’s fourth largest

economy. In the last few years state control and ownership in the economy have been

reduced. Bold steps have been taken to correct the ﬁscal imbalance, to bring about

structural adjustments and to attract foreign direct investment. Foreign operators can now

acquire immovable property in India, employ foreign nationals in their operations in

India and buy and sell shares in Indian companies. Substantial reforms have been made in

the telecommunications, ﬁnancial and shipping sectors, as well as in direct tax structure

and industrial policy. Signiﬁcant reforms have already been initiated in the insurance

sector by the present government. However, India still has a long way to go before it can

compete fully with some of the more economically advanced Asian nations.

Liberalization of the Indian economy has resulted in sudden and increased levels of

competition for Indian ﬁrms from international ﬁrms. At the same time it has also created

opportunities for resource mobilization from new sources. HRM issues have now become

more important with the ﬁrms’ adoption of strategies of expansion, diversiﬁcation,

turnaround and internationalization. These developments have direct implications for

HRM in India and the Indian HR function is under severe pressure to bring about

large-scale structural changes in order to cope with the challenges brought about by

economic liberalization. It has to develop a domestic workforce capable of taking on

the challenges thrown up by the new economic environment. In such conditions the

performance of the HR function has become more important than ever (for details,

see Budhwar and Sparrow, 1997).

Despite many initiatives in response to the demands of the globalization process, India is

comparatively slow in implementing the reforms process. AT Kearney’s, a management

consultancy ﬁrm, developed a 2003 globalization index for various countries (Times of

India, 2003: 11). It was found that the low pace of integration with the global economy

together with the decline in portfolio capital investment caused India to slip to ﬁfty-sixth

rank from forty-ninth in the year 2002. Several factors have contributed to Indian

business remaining much below world class. These include: lack of aspiration to be world

class, lack of vision, lack of professionalism, lack of process sensitivity, lack of cost

consciousness, little respect for time, and lack of a professional system of skill

development, among others (Prahlad, 1998; Rao, 1999; Saini, 2000). Most enlightened

HRM in India • 115

employers are aware of these limitations. They also realize a greater need to tackle the

problem of outdated technology, excessive workforce, inadequacy of skills, and lack

of concern for customer satisfaction, and unsatisfactory levels of productivity.

Tackling these problems necessitated reorienting management systems and processes,

and undertaking programs of attitudinal change. These included mixed bags of harder

measures as well as attempts towards greater professionalism for HR empowerment.

Vigorous downsizing of the excessive workforce became the order of the day both within

the public and the private sectors. Several organizations devised voluntary retirement

schemes (VRS) to facilitate the reform process. The NEP (announced in 1991), among

others, envisaged the establishment of a National Renewal Fund (NRF). It was aimed

to promote upgradation of skills of those affected by downsizing, ﬁnance VRS in the

public sector enterprises, and support programs of skill enhancement in general.

Ironically, almost no effective program of skill upgradation has been initiated so far;

almost all spendings from the NRF has been conﬁned to ﬁnancing the VRS (Mishra,

2001). Even after more than a decade of liberalization policies a “skill development fund”

has not been set up to facilitate a professionally managed macro program of human

resource development (HRD). The aim of such a program would have been to develop

appropriate skills and competencies as per social and economic demands, including

changing the mindsets of the workforce so as to be in consonance with the needs of the

business realities. If started, it will necessitate necessary HRD programs at the macro

level and adoption of HRM strategies at the micro level.

Evolution of human resource management

The personnel function in India originated in the 1920s with the concern for labor welfare

in factories. The Trade Union Act of 1926 gave formal recognition to workers’ unions.

The Royal Commission of Labor, 1931, recommended the appointment of labor welfare

ofﬁcers and the Factories Act of 1948 laid down the duties and qualiﬁcations of labor

welfare ofﬁcers. Further, the Indian judiciary played an important role in expounding the

correct scope of the protection envisaged to the working class by the legislation that was

enacted in several spheres of industrial relations (IR) as per the spirit of the constitution.

Consequent to the passage of a number of labor and industrial relations laws, personnel

managers began performing IR as a very signiﬁcant role; one that formed such an

important part of their work that they came to be known as children of the Industrial

Disputes Act 1947 (IDA). All these developments formed the foundation of the personnel

function in India (Balasubramanian, 1994, 1995) and paralleled the initial developments

of the British personnel function. For example, provisions similar to those provided by

Cadbury in Britain were provided by the Tata group in India in the early 1920s (see

Budhwar and Khatri, 2001).

After Independence, in the 1950s, two professional bodies emerged: the Indian Institute

of Personnel Management (IIPM), a counterpart of the Institute of Personnel

Management in the UK, was formed at Calcutta and the National Institute of Labor

116 • Debi S. Saini and Pawan S. Budhwar

Management (NILM) at Bombay. In the 1960s, the personnel function began to expand

beyond the welfare aspect with three areas, labor welfare, industrial relations and

personnel administration, developing as the constituent roles for the emerging profession

(Venkata Ratnam and Srivastava, 1991). In the 1970s, the thrust of personnel function

shifted towards greater organizational “efﬁciency,” and by the 1980s it began to use and

focus on terms and issues such as HRM and HRD. The two professional bodies, i.e. IIPM

and NILM, merged in 1980 to form the National Institute of Personnel Management

(NIPM) in Bombay. Thus, the status of the personnel function in India has changed over

the years (Amba-Rao, 1994; Budhwar and Sparrow, 1997).

In recent years, HRD has been seen as the main tool for improving business performance.

Business survival has become an important aspect of HRD efforts. The vigorous efforts

by academics (such as T.V. Rao, Udai Pareek and Ishwar Dayal, among others) helped

to popularize the concept of HRD among both academics and practitioners. Programs

of HRD and organizational development (OD) at the individual enterprise level in public

as well as private sectors are being adopted. The formation of “The HRD Network,”

which today has a large membership of academics and HRM and other managers,

symbolizes the need to debate HR interventions and sharpen abilities of HR

professionals. This network has aroused tremendous sensitivity of the need for HRD

in particular and for HRM in general. Greater focus has been put on developing

HRD systems to produce synergy and employee contentment. During this period, the

HR profession developed by leaps and bounds in both positive and negative senses.

Several organizations resorted to indiscriminate appointment of HRD managers. This

period also saw an elevation in the status of personnel managers to the board level;

though only in professionally managed organizations. There was also a massive upsurge

in re-labelling the title of personnel manager to HRD manager and personnel department

to HRD department. Interestingly, however, some employers also perceived

disillusionment with their decision as they felt that the investment in HRD did not deliver

any tangible results. Thus they started downsizing or even abolishing their HRD

departments. Efforts are also made to outsource HR activities. This gave rise to the need

for the measurement of HR performance. Thus the concept of “HR audit” came into

practice. Progressive employers like Aditya Vikram Birla asked all their companies

to have their HR systems audited by consultants (Rao, 1999). The concept of the HRD

scorecard is being used as a device to measure effectiveness of people-development

activities.

As is well known, the HRM philosophy developed in the western countries during

the 1980s and the 1990s both in its hard (instrumentalist) and soft (empowerment)

dimensions (Legge, 1995). Empowerment was viewed as “the elixir of the 1990s.”

Finally, HRM now seems to have found wide application in both western organizations

and MNCs. Ironically, no such debate on HRM as a philosophy in the Indian context

existed, despite the immense contribution of various trainer-academics towards the

implementation of the HRD philosophy (Saini, 2000). At the organizational level, the

word HRM is rarely being used; it is substituted by HRD. However, MNCs operating in

India do not conﬁne their interventions to HRD and have undertaken wider programs and

HRM in India • 117

strategies of HRM (see Budhwar and Björkman, 2003). Some of the leading Indian

organizations have also taken the initiative in this regard and have brought out newer

issues in the strategic management of their human resources. Still, one fails to understand

why Indian ﬁrms continue to use different terminology to denote their HR departments

or the possible logic behind this.

Personnel management, HRD or HRM: some reﬂections

in the Indian context

If one examines HRM books or courses taught in management schools in India, by and

large it appears to be a case of old wine in new bottles; for the term “personnel

management” has been replaced by HRD without much debate. Only recently some

glimpses of reforms are visible in this regard. However, they are far from adequate.

The writings of key scholars in the ﬁeld such as Udai Pareek and T.V. Rao of the Indian

Institute of Management (IIM) Ahmedabad, have helped in popularizing the term HRD

in India (see for example, Pareek and Rao, 1981; Rao, 1999). But almost no attempt has

been made to critically expound the term HRM as it has come to be understood in the

advanced world. Pareek and Rao provide a very wide deﬁnition of the term HRD and

view it as a philosophy by itself. They do not attempt to knit it into the HRM concept

nor give any reasons as to why they have ignored the term HRM despite the long debate

on it in the West. Almost nowhere do they differentiate between HRD and HRM. And it

is certain that there is no Indianness in their explanation of the term HRD. They use the

contribution of Nadler (1970) as a model in their formulations, and continue to preach his

philosophy in the different versions of their text (i.e. the latest 1992 edition of Pareek and

Rao, 1981; Rao, 1999). Today, Nadler’s ideas have merged into the HRM philosophy.

HRD is largely viewed as a developmental intervention in HRM. Almost the entire HRM

community in the West has viewed it so, with very few exceptions (see, for example,

Walton, 1999). Indian academics have remained silent on the fate of HRM for long,

knowingly or unknowingly, which has led to an uncritical popularization of the term

HRD.

As a result, when scholars look for material on the HRM discourse in India, they

receive only confusing signals, especially if they wish to put HRM thinking and

practice in the context of global developments. For some strange reason, even most

books in the HRM area bear HRD labels or linkages (Saini and Khan, 2000). This

situation is partly attributable to the dominance of training and development and the

psychologist–academics in the contemporary thinking on HRD/HRM in the country. It

may partly be attributable to the renaming of the central government Ministry of

Education as the Ministry of HRD in the early 1980s. Looking towards the courses in

HRM offered at most business schools in India, they are not sufﬁciently equipped to face

the challenges of this emerging subject, especially its strategic connotation. We have yet

to witness most business schools and university departments devising innovative courses

in this area, knowledge of which is necessary for realizing the goal of professional

118 • Debi S. Saini and Pawan S. Budhwar

excellence in people management; in reality the basic HRM course for general MBA

students is still personnel management. Courses in strategic HRM are hardly taught even

as HR managers of most professionally managed organizations in the country are using

the most modern methods and interventions of HRM (see Budhwar and Sparrow, 1997;

Varkky et al., 2001).

Budhwar (1998) empirically investigated in 137 Indian ﬁrms the preference for the usage

of speciﬁc terms to denote HR departments in the Indian context, the nature of personnel

function and the differences between personnel management (PM), HRD and HRM.

His results show that the majority of Indian managers see the recently changed economic

environment as the most signiﬁcant factor responsible for major changes in the nature

of their personnel/HR function. The liberalization of the Indian economy has created a

pressure on the Indian HRM function to become more creative and innovative. The HRM

profession promises to commit itself to improve the efﬁciency and commitment of its

human resources, obtain better results and improve industrial relations. This highlights,

among others, the role of training and development and team or group-HRM activities.

Due to such changes, the use of HRD-related terms is becoming popular and that of

personnel management-related ones is going out-of-fashion. Interestingly, in MNCs

operating in India, HRM is the preferred term to denote both HR departments and

managers (see Budhwar and Björkman, 2003).

Indian managers deﬁne HRM as a holistic concept, which is more focused and proactive

than PM; it integrates and incorporates both PM and HRD, and deals with satisfying and

developing employees. HRD implies a long-term perspective for developing the potential

and capabilities of HR for future organizational needs. Personnel is seen as more of a

policing type of department as it is now a secondary function, also called transactional

HRM. This aspect of HRM is concerned with the day-to-day activities of control,

attendance, compliance with legislation, discipline aspects and IR. The majority of Indian

managers believe that the future of the HRM function is good and its status is improving.

Some managers, however, feel that the existing legislation can be obstructive in this

regard. Perhaps they rightly lament the functioning of the ‘EXIT’ policy (a policy for

voluntary retirement) as problematic due to the rigidities created by the IR laws

(for details, see Budhwar, 2000).

Factors inﬂuencing HRM and related challenges

National culture

The prevailing beliefs, values, traditions and behavior patterns among Indians form

part of the national culture and can be attributed to several factors. Prominent among

these are social customs and practices and the perpetration by the British of elitist values

during their rule over India for more than a century. Perhaps the Britishers’ biggest

inﬂuence in this regard was through the promotion of feudalism. Their land cultivation

HRM in India • 119

system involved appointing feudal lords who exacerbated the values of hierarchy and

subjugation. Also, their focus was on the supremacy of bureaucracy through

the institution of an administrative service called the Indian Civil Service (ICS). The

working of these institutions has made a lasting impact on the psyche of common people.

They have strengthened hierarchy and power distance between the rulers and the ruled.

The civil servants and the feudal lords constituted elite classes in society, whose position

in the social hierarchy was strengthened by the policies of the British Indian government.

After Independence, the ICS was replaced by the Indian Administrative Service

(IAS) with the projected intention of humanizing it and bringing it closer to people’s

aspirations. However, it inherited and sustained the culture of the ICS and the state

system suffered from all the vices which are attributed to bureaucracy (see Saini, 1999b).

It has resulted in a two-tier system of the elite and the general public. While the law is

enforced in a particular way for the former, the same law works to the detriment of the

latter. Such a culture of elitism is known to have pervaded most types of organization.

Such biases have been reﬂected even in the people management policies in general.

Feudalism created by the British promoted inequality and hierarchy amongst the urban

as well as non-urban population. The caste system in India has also played a contributory

role in this regard. The family-owned business houses have made full use of the

inculcation of these values in society in practicing a kind of neofeudalism in industry.

This is reﬂected in the organizational structures and social relations which reﬂect

hierarchy, status consciousness, power distance and low individualism. These values

have helped to strengthen hierarchical superior–subordinate relationships which act

as a kind of mechanism of social control on the managed. Studies have shown that Indian

managers attribute high priority to the importance of cultural assumptions which guide

their employees’ perceptions and organizational thinking. It is also revealed that the

common Indian values, norms of behavior and customs exercise considerable inﬂuence

on their HRM policies and practices (Budhwar, 2001).

The Indian social and cultural environment puts primacy on strong family ties that dilute

individualism, resulting in greater dependence on others. This highlights the importance

of interpersonal relations in people management in India, more than the importance

given to it in other societies. The core bases of the management system in social and

family relationships may then be attributed to various factors, including a strong caste

system, an agrarian-based society, a high incidence of illiteracy, poverty and an

indifference of the state system to the needs of the individual (Budhwar, 1999).

Kanungo and Mendonca (1994) have shown signiﬁcant cultural differences between India

and western countries on the basis of Hofstede’s (1991) four initial dimensions

of power distance, uncertainty avoidance, individualism and masculinity. India stands

relatively high on uncertainty avoidance and power distance and relatively low on

individualism and masculinity dimensions. Relatively high uncertainty avoidance implies

an unwillingness to take risks and to accept organizational change. The relative low

individualism implies that family and group attainments take precedence over work

outcomes (Sharma, 1984). The relative high power distance implies that managers and

120 • Debi S. Saini and Pawan S. Budhwar

subordinates accept their relative positions in the organizational hierarchy and operate

from these ﬁxed positions. Obedience is facilitated by the supposedly superior authority of

the position holder and not by any rational basis. This is simplyis simply by virtue of the

authority inherent in that status. The relative low masculinity implies that employees’

orientation is towards personalized relationships rather than towards performance

(Kanungo and Mendonca, 1994: 450). On the ﬁfth dimension of long-term versus short-

term orientation, traditionally, India is known as a long-term oriented nation (see Tripathi,

1990). However, results of a recent research (see Budhwar and Sparrow, 2002b) suggest

that, due to the severe pressure created by the recent liberalization of economic policies

and the presence of foreign operators in Indian organizations, the question of immediate

survival has become more important. This explains a recent shift of emphasis towards

short-termism. However, one should be cautious in generalizing any such analysis.

Nevertheless, on the same lines as the above analysis, other researchers (see, for example,

Sharma, 1984; Tayeb, 1987; Sinha and Kanungo, 1997) report that, on average, Indians

resist change, hesitate to delegate or even accept authority, are fearful of taking an

independent decision, are possessive towards their inferiors and frequently surrender to

their superiors. A possible explanation for such behavior can be traced to the long

imperialist history of India. Similarly, the traditional hierarchical social structure of India

has always emphasized respect for superiors, who can be elders, teachers or superiors

at work, i.e. the nature of Hinduism evidenced by the caste and social system (Sahay and

Walsham, 1997; Budhwar et al., 2000).

From the above discussion, it may be deduced that the Indian societal culture has made

a lasting impact on most management functions such as stafﬁng, communication,

leadership, motivation and control. Stafﬁng for top managerial positions among Indian

organizations (especially in the private sector) is generally restricted by familial,

communal and political considerations. Authority in Indian organizations is likely to

remain one-sided, with subordinates leaning heavily on their superiors for advice and

directions. Motivational tools in the Indian organizations are more likely to be social,

interpersonal and even spiritual (see Sparrow and Budhwar, 1997).

National institutions supporting industrial relations

The hallmark of the Indian IR law is massive state presence through the Industrial

Disputes Act 1947 (IDA). This Act empowers the “appropriate government,” in its

discretion, to refer an industrial dispute for adjudication either on failure of conciliation

or even without any resort to conciliation. Apart from the IDA, two other laws form part

of the IR law in the country: the Trade Unions Act 1926 (TUA) and the Industrial

Employment (Standing Orders) Act 1946 (IESOA). While the former confers on workers

and unions freedom of association and immunity against civil and criminal liability for

taking industrial action, the latter seeks to ensure standardization of the terms of

employment and their certiﬁcation by a government ofﬁcer, who is obliged to satisfy

himself that they are just and fair. These sets of laws were intended to facilitate the

realization of individual and collective rights of workers.

HRM in India • 121

Promoting industrial peace with social justice has projectedly guided the IR policy of the

government. Towards this end, apart from the legal framework, the central government

has effectively used an institution called consultative tripartite conference – otherwise

known as the Indian Labor Conference – consisting of representatives of employers,

labor and government, whose meetings have been held annually since 1940. One of the

most notable non-legislative initiatives in IR came from the government in 1958 as a

result of the deliberations at this forum in the form of the Code of Discipline and the

Joint Management Councils. These instruments were to be used as a formal basis for

recognition of unions and collective bargaining. However, the impact of these bodies was

merely transitory (Johri, 1998: 49). Legal means and interventions continued to dominate

the IR policy in the country.

By conferring the working-class rights and individual labor rights, these laws, along with

others, created working-class consciousness in the country. They led to a situation of

clash between workers’ aspirations and employers’ willingness to grant beneﬁts. Being

a labor-surplus economy, the country’s labor market realities helped the employers to

obtain cheap labor and violate minimum labor employment standards by colluding with

the labor bureaucracy. But the IDA model – which could not be replaced or even diluted

despite a 55-year debate on its fate – substantially diluted collective labor rights by

ensuring massive state presence in IR to control labor power. It resulted in juridiﬁcation

of IR (Saini, 1997, 1999b). Its inﬂuence has been so strong that arbitration as a method

of industrial disputes resolution is almost dead. Employers manage IR, among others,

by diluting the efﬁcacy of labor laws through consultation as well as adoption of

extra-legal means. Variegated unfair labor practices (ULPs) are committed by them

in the process. Over the years the pressure of unions, opposition parties and other

pressure groups, and union federations have succeeded in inﬂuencing the state agencies

to enact a large number of labor laws. One ﬁnds the situation paradoxical and perplexing.

On paper, even industries which have become sick beyond hope are required to comply

with these laws, including payment of minimum wages and minimum bonuses. In reality

the system works such that employers have learnt to get away with these legal

requirements. However, MNCs and other conscientious employers want an IR framework

with simpler laws that do not require them to indulge in maneuverings and shenanigans.

The IR law framework in larger organizations adversely affects the cause of forging

workplace cooperation so as to meet the challenges of HRM in responding to the changed

needs of industry in the era of globalization.

Unions

Being a democracy, India has at least aleast a seemingly union-friendly legal framework

of IR. Despite that, unionization rate has rarely exceeded 10 percent of the total working

population in all sectors. Today this rate is believed to have slipped to around 7 percent.

The compulsory adjudication system of the IDA has kept the unions weak (Saini, 1995,

1999b). The ﬁrst two decades after the independence witnessed rapid unionization of the

122 • Debi S. Saini and Pawan S. Budhwar

organized sector in the country (both private and public). But unionization in India started

declining after the famous Bombay Textile Strike which lasted more than a year and has

not been ofﬁcially withdrawn until today (Venkata Ratnam, 2001). This has brought a sea

change in the concept of collective bargaining, which is less and less on industry basis

and more on unit basis (Business India, 1998).

Membership of unions that are submitting returns is still low; as per the latest estimates

it is barely 2 percent of the total workforce. Over 47,000 unions have a membership of

6,329,000. As per the latest available statistics, the number of members covered by

collective agreements in the country is barely 1 percent of the total workforce (Mishra,

2001: 20). This is in spite of the fact that in the 1970s and 1980s the judiciary delivered

several judgments in the area of industrial relations and labor laws which reﬂected its

attitude of extreme sympathy with the working people, less to the basic principles of

industrial organization.

However, in the present economic environment the existing legal framework is required

to change its strong pro-labor stance. Early indications are positive in this regard. Lately,

some of the recent labor judgments reﬂect the belief that the judiciary is more

sympathetic to the employers and realizes their susceptibilities in the new environment.

As noted above, the incidence of unionism is also declining. The number of strikes

resorted to is much less than the lockouts (Business India, 1998; Mishra, 2001). This has

also reduced workers’ resistance to change to the new initiatives of HRM, despite patches

of working-class success in resisting the individualization of IR through HRM

(Ramaswamy, 2000: 219). Interestingly, in contrast to national ﬁrms, the impact of

unions on the HRM policies and practices of MNCs operating in India is negligible

(see Budhwar and Björkman, 2003). On the other hand, unions still signiﬁcantly

inﬂuence HRM policies and practices in Indian organizations. However, their stance

is slowly changing and becoming more cooperative towards their employers.

The liberalization of the Indian economy has then put tremendous pressure both on the

employees and employers. As a nation, India is lagging far behind in productivity

standards and production of quality goods. These realities have begun inﬂuencing the

mindsets of unions and union leaders who now seem to be meekly giving in to the

legitimacy of the globalization agenda, as they are aware of these burning problems.

Employees both in public as well as private sectors suffer from attitudinal indifference

towards professionalism in work. Overall, one notices a lack of vision of being world

class in India; this is largely true of government agencies as well as employers (Prahlad,

1998; Ghoshal et al., 2001). In such circumstances, the possible consequence of the

adoption of appropriate HRM policies will be salutary. They will lead to minimum

wastage of human and ﬁnancial resources at the micro level. Their adoption will also give

due importance to “innovation, bench-marking, and organizing business and professional

activities as per market exigencies” (Saini, 1999b: 166). But, values of “association,”

“industrial justice,” “workers’ dignity” will face crisis; “minimum standards of

employment” are also becoming clouded due to the unofﬁcial support of the state to

cost-cutting preferences of employers that is hidden in the globalization agenda. But

HRM in India • 123

being a democracy the country cannot openly adopt policies that disapprove of these IR

values.

Diluting “workplace pluralism” as a value by superimposing HRM on it may work

successfully if we have a signiﬁcant chunk of workforce as gold-collared. The merger of

the HRM and IR agenda many possibly work effectively in such a situation. If that

happens, one may also forecast greater possibility of the use of HRM as a broad model

of workplace justice. Some of the best examples in this regard are the software

companies in the country, which have used HRM as a model of workplace justice, which

automatically keeps the law and adversarialism away. The viability of the use of soft

HRM as the principal philosophy in managing human resources increases in the case

of such companies which employ knowledge workers. However, without question this

will be too much to ask of national ﬁrms which do not have knowledge workers.

Nevertheless, to a great extent this is successfully practiced in MNCs operating in India,

irrespective of having knowledge or non-knowledge-based employees (see Budhwar

and Björkman, 2003). It needs a macro level of overhauling of the Indian HRM system,

which seems to have been initiated due to the pressure created by new economic

environment on local ﬁrms (Ghoshal et al., 2001). Still, India has a long way to go in

this direction.

Judging by the way the Indian government has reacted to the situation, the continuance

of its sympathy to the cause of social justice in the organized sector appears only

remote. This is despite the fact that there has been no labor law reform at all in the

post-liberalization era. This may appear surprising to the champions of globalization.

But principally, governments’ unwillingness to effect labor reforms in the past decade

or so is largely explained by their fragility at the central level; they have not shown the

courage to antagonize the trade unions openly by undertaking these reforms. Interesting,

as it may appear, most employers have been able to manage the show despite the archaic

laws. However, there is always a limit to everything, including the regulatory laws for

workplace functioning.

At the executive level, state governments’ attitudes are changing. Many of them have

announced far-reaching changes in their labor policies, which henceforth appear to be

helpful and in favor of the workers. Now they tacitly support hire and ﬁre policies,

forbidding bandhs (stoppages), as happened in the case of Kerala, and easing of

requirements for labor inspection, for example, in Rajasthan. West Bengal government

(which is headed by a Marxist party) has cancelled registration of hundreds of unions for

non-submission of returns to the Registrar of Trade Unions, which is contrary to its

earlier position. The incidence of granting permission for closure and retrenchment (as

required under the IDA) in Tamil Nadu has gone up (Venkata Ratnam, 2001).

Workers’ participation in management

Another important area of contention in IR is workers’ participation in management.

Today we have virtually no meaningful participation structures through law, except the

124 • Debi S. Saini and Pawan S. Budhwar

works committees under the IDA, which are not fully functional (Saini, 1997). However,

the Workers Participation in Management Bill 1990 is pending before the Rajya Sabha

(upper house of Parliament). The bill is still under consideration of the Parliamentary

Select Committee on Labour and Welfare (Government of India, 2002: 22). This bill

seeks to give substantial voice to employees in management, but it is unlikely that, given

the changed priorities of the state, it will ﬁnally be enacted, despite the fact that the bill

has recently been approved by the Cabinet Committee of the Government of India; and

the present Labor Minister has shown his commitment to the cause of ensuring employee

participation in industry through law. A debate on the bill is current among the social

partners. Analysts, however, opine that this is a mere election gimmick as parliamentary

elections are due in early 2004. One problem with granting such rights at this phase of

economic development is that these efforts will exacerbate building of participation rights

on the ediﬁce of adversarial values, which in any case are at a low ebb almost

everywhere. Despite such ﬂeeting glimpses of state-sponsored attempts to help rejuvenate

working-class rights, one may observe an ambience of well-recognized concerns for

improving efﬁciency and productivity through HRM. The social goals of “association,”

“social justice” and “participation” are likely to remain subjugated, for they are not in

tune with employers’ needs for ﬂexibility and autonomy. Workers involvement as an

HRM strategy, however, is at a much higher level in foreign ﬁrms operating in India (see

Budhwar and Björkman, 2003). However, employee involvement interventions are not

built on adversarial foundations or any legal sanctions. Rather, they are viewed as part of

an organization’s voluntary efforts towards promoting commitment and performance

culture, and also its unitarist goals. Such unitarism is inherent in HRM philosophy. The

rationale of the “involvement” interventions is rooted in Japanization, which is

increasingly becoming attractive for western organizations and for those who want to

follow western HRM practices in other locales.

Urgency of IR reforms

The above developments in Indian IR augur fairly well for developing HRM; for it is

difﬁcult to sustain it in situations of zero-sum IR; this is especially important when

India’s HR systems and processes have to be conducive to facilitating efﬁciency and

productivity, and eventually the export-promotion model of development. But the

government’s support may be said to be forthcoming indirectly, i.e. by remaining

oblivious to the legal intent. The question is whether this is enough for the country’s

needs to attract higher levels of FDI. MNCs and other professional establishments need

more tangible ways of state support, including having the changed legal framework itself.

Intriguingly, it should be appreciated that one way of tackling the problem of ﬂexibility at

the micro level is the effective adoption of HRM. It has been used even alongside unions

in many organizations including Reliance and Tata Steel (see Ghoshal et al., 2001). This

latter has nearly 50,000 workers and has downsized by some 20,000 in the past few years.

But most other organizations are unable to follow this. The need for reforms in IR law for

it to be facilitative to the globalization policies then remains paramount.

HRM in India • 125

The labor law framework

India has a widespread network of labor laws which are believed to be too rigid. Due to

this, wages do not necessarily respond to unemployment and productivity. Globalization

warrants that areas are identiﬁed that require attention for infusing greater ﬂexibility in

the formal labor market; labor law is one such area. A large percentage of Indian

managers (61.5 percent) have been found to believe that Indian national labor laws

inﬂuence their HRM practices the most, for their actions and prerogatives are constricted

by these laws (Budhwar, 2001: 82).

Today there are over 60 major central labor laws and about 150 state labor laws in India.

All these laws may be grouped into ﬁve major categories: laws relating to working

conditions; laws relating to wages and monetary beneﬁts; laws relating to industrial

relations; laws relating to social security; and miscellaneous labor laws. Some of the

major central labor laws are as follows:

● Apprentices Act 1961

● Beedi and Cigar Workers (Conditions of Employment) Act 1966

● Bonded Labor System (Abolition) Act 1976

● Building and Other Construction Workers (Regulation of Employment Service) Act

1996

● Child Labor (Prohibition and Regulation) Act 1986

● Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act 1981

● Contract Labor (Regulation and Abolition) Act 1970

● Dangerous Machines (Regulation) Act 1983

● Dock Workers (Regulation of Employment) Act 1948

● Dock Workers (Safety, Health and Welfare) Act 1986

● Emigration Act 1983

● Employees’ Provident Fund and Miscellaneous Provisions Act 1952

● Employees’ State Insurance Act 1948

● Employers’ Liability Act 1938

● Employment Exchanges (Compulsory Notiﬁcation of Vacancies) Act 1959

● Equal Remuneration Act 1976

● Factories Act 1948

● Industrial Disputes Act 1947

● Industrial Employment (Standing Orders) Act 1946

● Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service)

Act 1979

● Labor Laws (Exemption from Furnishing Returns and Maintaining Registers by

Certain Establishments) Act 1988

● Maternity Beneﬁt Act 1961

● Mines Act 1952

● Minimum Wages Act 1948

● Motor Transport Workers Act 1961

● National Commission for Safai Karamcharis Act 1993

126 • Debi S. Saini and Pawan S. Budhwar

● Payment of Bonus Act 1965

● Payment of Gratuity Act 1972

● Payment of Wages Act 1936

● Plantations Labor Act 1951

● Public Liability Insurance Act 1991

● Sales Promotion Employees (Conditions of Service) Act 1976

● Trade Union Act 1926

● Weekly Holidays Act 1948

● Workmen’s Compensation Act 1923

While labor laws are a necessary area of the focus of public policy in any enlightened

society, they have to change with time. Some of the major points about the structure and

working of Indian labor laws are discussed below.

1 The most problematic part in this regard is that some aspects of IR law are quite

anti-thetical to the needs of globalization. Among others, the Industrial Disputes Act

1947 (IDA) has become the biggest epitome of rigidity in IR in the country. Chapter

V-B of this Act requires all employers employing 100 or more workers in factories,

mines and plantations to seek permission from the government in matters of lay-off,

retrenchment and closure. The chapter gives bureaucratic discretion, which has often

been exercised not at all or on extraneous factors. There have been cases of

perennially sick establishments which have not been allowed to close or retrench

excess labor force on extraneous considerations. The present government has

proclaimed its commitment to increase the limit of 100 workers to 1,000 for the

purpose of this chapter (V-B), but had to retreat twice under the pressure of its trade

union wing, i.e. the Bhartiya Mazdoor Sangh (BMS), which today is the largest trade

union federation in the country. Likewise, there are problems with section 9-A of the

IDA, which requires that a notice of 21 days should be given by the employer for

effecting change in any service conditions of workers. This section has also resulted in

workers’ resistance to the ﬂexibility needs of the employers in this regard. The IDA

also gives tremendous powers to the state to intervene in labor–management relations

which produces their “juridiﬁcation” (Saini, 1999b) and consequently adversarialism,

thus diluting the goals of HRM (Saini, 2000).

2 The Industrial Employment (Standing Orders) Act 1946 (IESOA), an important IR

law, is proving to be problematic. Among others, it provides for uniformity in service

conditions of all workers who are similarly placed. This is not quite in consonance

with the current needs of industry where employers want to implement performance

management principles and introduce new measures which discriminate between

employees as per their competencies and/or performance.

3 The Contract Labor (Regulation and Abolition) Act 1970 (CLA) is another law whose

structural features are being debated in academic and management circles. This law

makes it very difﬁcult to employ contract labor in permanent operations as it provides

for abolition of contract labor in certain areas of employment speciﬁed by the central

government. To the extent that this Act provides for regulating the service conditions

of contract workers to make them reasonable, it is a welcome piece of legislation. It is

HRM in India • 127

well known that contract labor is highly exploited by contractors who do not observe

minimum labor standards in their employment. Often, they are even denied minimum

wages, appointment letters, identity cards, etc. (Shrouti and Nandkumar, 1994: 22).

They work longer hours, are virtually denied provision of any social security beneﬁt

like protection under Employees’ State Insurance (ESI) and provident fund (PF) laws.

The recommendations of the second NCL (2002) will be disappointing to employers

in this regard; for it has recommended continuance of provisions related to prohibition

of contract labor in core activities. The commission has further recommended that if

contract labor has to be temporarily employed in core activities, it must be

remunerated at the rate of a regular worker engaged in the same organization doing

work of a similar nature. This move is being vehemently resisted by the employers.

4 The existing labor laws have different applicability in terms of industries and

employees covered. Also, different sets of administrative mechanisms and dispute-

resolving quasi-judicial bodies have been envisaged under various acts. For example,

the deﬁnition of a worker is different under the IDA and the Factories Act. The term

“wages” has been differently deﬁned under different acts. Some laws cover employees

receiving monthly wages as low as rupees 1,600 per month (e.g. the Payment of

Wages Act, 1936); others cover even clerical and administrative employees (e.g. the

Employees’ State Insurance Act 1948; the Provident Fund Act, 1952; the Gratuity

Act 1972); for some there is no wage limit for coverage (e.g. highly paid pilots are

workmen under the IDA). A plethora of case law has been delivered by the judiciary

to clarify these complexities in variegated situations. This has made the grasping of

labor laws a very complex affair (for a detailed discussion, see Debroy, 1996). In fact,

labor law complexity has converted union leaders into full time pleaders, who have

set up labor law practice as a vocation (Saini, 1995a).

5 Keeping in mind the ambiguities involved, harmonization and uniﬁcation of labor

laws is an important area of reform. However, almost no serious efforts are being

made to tackle this precarious situation. The National Labor Law Association (NLLA,

1994) came out with a proposal to enact a National Labor Code 1994 (draft), which

should be a laudable effort so far as its uniﬁcation agenda is concerned. But if one

looks at its contents it has tried to take labor relations back to the welfare state era,

which was not acceptable to the government as well as the employers. Hence, this

proposed code stands shelved.

These are some of the critical issues in labor law reform which have to be addressed by

the state as well as other stakeholders to facilitate shifting of labor–management relations

assumptions from confrontational to cooperative mode.

Vocational education and training

Vocational education and training in India are divided into two subsystems. At the central

(federal) level, while the vocational education is under the control of the Ministry of

HRD, vocational training is basically regulated by the Ministry of Labor. Partly, the

128 • Debi S. Saini and Pawan S. Budhwar

former ministry also exercises some control even in matters of training. Further, some

35 ministries of the central government are involved in providing and supporting some

kind of training in their respective areas of operations (Saini, 2003). Vocational education

is provided at the senior secondary stage in schools. This is over and above engineering,

management and other technical education that takes place under the overall supervision

of the University Grants Commission (UGC) and the All India Council of Technical

Education (AICTE), both of which are central statutory bodies. State governments also

exercise control in matters of accreditation of education at the engineering diploma level.

Among the specialized vocational training institutions, more than 4,000 industrial

training institutes (ITIs) are being run today; of these, 1,654 are run by government and

2,620 are run privately. Altogether, they have a training capacity of 750,000 students

(Saini, 2003). Apart from these, the Apprentices Act 1961 has been applied to some

notiﬁed industries. The Act obliges the employers covered under the Act to engage

apprentices in certain predetermined trades as well as those holding degrees and

diplomas as per speciﬁed ratio. This scheme, however, is working much below the

projected capacity, for want of proper enforcement. Various government ministries

and NGOs are running vocational training schemes for the informal sector. Apart from

these, companies in public and private sectors are also involved in providing skills

training and their upgradation. In the “Best 25 Employers in India” survey of 2002

conducted by Hewitt Associates, the average annual training hours in these organizations

range from 24 to 120 (these hours are 24 in Indian Oil Corporation, a public sector

organization, 47 in Infosys Technologies, 60 in Reddy’s Laboratories, 64 in Smithkline

Beecham, 86 in Tata Steel, 95 in Reliance, 71 in Tata Engineering, and 120 in

LG Electronics).

After the initiation of economic reforms, the issue of skill upgradation and development

has assumed critical signiﬁcance in enabling the Indian economy to enhance its

competitive strength. The export promotion model puts a much higher level of primacy

on these issues than did the model of import substitution adopted earlier. Productivity,

exports and economic growth depend on the quality of technical education and training

imparted apart from programs of promoting attitudinal change and process sensitivity

among employees. The performance of the existing system of state-regulated vocational

training in the country is far from satisfactory (Adams and Krishnan, 2003). India has lost

a valuable opportunity of occupation-based knowledge and skills in a more systematic

manner at a very crucial stage of its economic development; interestingly, countries such

as Singapore have been far more successful in developing competitive performance

through enforcing comprehensive needs-driven schemes of skill development (Debrah et

al., 2000).

It should be understood that for a country of India’s size and economic proﬁle it is

utopian to expect miraculous poverty-alleviation results merely through the promotion of

organized industrial development. The complexity of the problem requires concerted

efforts for ensuring a more meaningful vocational training system for the unorganized

(including the informal) sector which employs 92 percent or more of the Indian

workforce. Of course, even industry is far from happy about the availability of requisite

HRM in India • 129

skills for the organized sector, and a better skill development system is needed for the

organized sector as well.

It is noticeable that private training-provider institutions have been able to grow with a

good degree of effectiveness and have some remarkable success stories (Adams and

Krishnan, 2003). The government-run ITIs, on the other hand, are functioning under

several constraints and this should be kept in mind while planning for effective training

strategies. A recent workshop on problems of delivering effective training in the country

identiﬁed the following factors as critical, most of which were found wanting in the

present training implementation framework: autonomy (operational, ﬁnancial), quality of

skills delivery, dedication of staff, holistic approach, focus on speciﬁc target groups and

skills, freedom of admission and staff policy, effective management, adequate fees,

employability of skills, marketability of products, capacity building of providers,

networking, needs assessment, local resource base, and scientiﬁc support in training and

technology design. It emphasized focus on soft skills apart from technical and job skills.

From the self-employment perspective, aspects such as latest technology, bookkeeping,

and market practices were identiﬁed as focus areas (Adams and Krishnan, 2003).

As discussed above, the original idea of the setting up of the National Renewal Fund

(NRF) in July 1991 NEP was an important step in providing a social safety net to labor

affected by the globalization policies. The fund was to be utilized, among other things,

for imparting training as a key plank for facilitating the reforms process. But in its actual

working, its focus remained conﬁned to funding the Voluntary Retirement Scheme

(VRS) as a means of retrenching public sector employee’s, consequent to the downsizing

program of the government (Mishra, 2001). There is then a need to develop a

skill-agenda at the macro level that involves professionally organized programs, duly

funded by suitable agencies. The second NCL (Government of India, 2002) has

emphasized the need for a modular approach in designing and imparting vocational

training so that the individual aspirants receive inter-related multiple skills eventually to

contribute to enterprise ﬂexibility. This will help keep pace with the fast-changing

technologies based on computerization and the IT revolution. The commission also

emphasized a competency-based training system to provide avenues for competence

assessment and certiﬁcation at all levels of learning. This approach underscores

developing speciﬁed competencies rather than the length of training time.

To operationalize these ideas, the commission has recommended the setting up of an

independent regulatory authority. This body is intended to set standards of competence to

be achieved at different levels of each trade. The government is collaborating with GTZ

(an agency of the German government) to design a suitable law that will facilitate

training as per the peculiar social and economic needs in the country. A law is soon

expected to be introduced in Parliament to this effect under the name of the All India

Authority of Vocational Training Act (AIAVT). This legislation is being designed to

overcome various existing arrangements. If enacted, it will help reorient the existing

ITI system to changing technological requirements. It is also expected to be an

experience in professional excellence in the governance structure of the vocational

130 • Debi S. Saini and Pawan S. Budhwar

training system in the country (for salient features of this proposed law, see Saini, 2003).

However, it has been rightly emphasized that these efforts can be successful if they are

well-knit and dovetailed in an appropriate “macroeconomic policy to maintain adequate

aggregate demand and pace of economic growth, speciﬁcally in the non-agricultural

sector” (Mathur, 2002: 17). This is one of the main challenges for HRD at the macro

level that the country faces today. It remains to be seen whether the government is able to

deviate from the past and show the requisite political sagacity in developing a workable

skill-development agenda to facilitate the globalization process as well as poverty

alleviation. The need of the hour is the government’s commitment to a demand-driven,

ﬂexible and need-based training program guided by a professional rather than rule-based

approach.

Shifting agenda in the twenty-ﬁrst

century: possible directions for HRM in India

In the present competitive business environment the Indian HR function faces a

large number of challenges as already discussed. To survive and ﬂourish in the new

dispensation, drastic changes are required at the national, organizational and individual

levels. Some of these seem to be taking place, though possibly not with the required rigor

and not quite in the right direction. One serious problem while making such judgments

and analyses is the availability of reliable empirical research evidence.

The national level

The previous section highlighted some of the main national factors which signiﬁcantly

inﬂuence HRM in India (see also Budhwar and Sparrow, 1998, 2002a). Early indications

suggest that the nature and accordingly the impact of most of the national factors

(especially different institutions such as trade unions, legal framework, different pressure

groups and the dynamic business environment) on Indian HRM is going to change. The

legislations have to be amended so as to suit the present economic environment and help

both workers and employers in the “real” sense. The stance of the unions is expected to

become more cooperative. The dynamic business environment is further going to dictate

the nature and type of HRM systems suitable for the country. With the rapid

developments in the software and IT-enabled services (ITeS) sector and an increased

emphasis on business process outsourcing (BPO), one may expect the emergence of

sector-speciﬁc HRM patterns. For example, this will be the case for knowledge-based

industries such as software and contact centers (see Budhwar and Singh, 2003).

HRM in India • 131

The organizational level

At the organizational level the following is expected.

A strategic approach to HRM

Research evidence (see Budhwar and Sparrow, 1997, 2002b; Budhwar and Khatri, 2001)

regarding the strategic nature of HRM in Indian national ﬁrms suggests that there is a low

representation of the personnel function at board level, and few organizations have

devised formal corporate strategies. Of these, a handful seem to consult the personnel

function at the outset (this compares to a norm of around 50 percent in European

organizations), many involve personnel in early consultation while developing corporate

strategy and many also involve personnel during the implementation of that strategy. It

seems that the status of the personnel function in India has improved over a short span of

10 years or so. The number of personnel specialists moving to the position of CEO has

increased over the last few years, such that one out of every six CEOs of the top ﬁfty

Indian companies has been reported as a personnel specialist (Venkata Ratnam, 1996).

On the other hand, it seems that Indian ﬁrms are witnessing a signiﬁcant devolvement of

responsibility of HRM to line managers. This is noticeable in the areas of pay

determination, recruitment, training, industrial relations, health and safety and

expansion/reduction decisions. Moreover, Indian ﬁrms have been showing an increased

emphasis on training and development of HR (see Budhwar and Sparrow, 2002b).

However, if a strategy of devolvement is not associated with a closer integration of HRM

into the business planning processes, it may create a situation of chaos in organizations as

they attempt to cope with HRM implications of liberalization. Hence, the way forward is

the adoption of a more strategic approach to HRM. Perhaps this agenda is already on the

move and is being put into practice (see Agarwala, 2003; Singh, 2003). Certainly, this is

the case with the MNCs operating in the country (see Budhwar and Björkman, 2003).

Structured and rationalized internal labor markets (ILMs)

The existing literature suggests the existence of unique ILMs in Indian organizations,

based on social relations, political afﬁliations, political contacts, caste, religion and

economic power (see Budhwar and Khatri, 2001). However, considering the present

dynamic business environment, Indian organizations need to pursue more rationalized

HRM practices and build strong ILMs (which should solely emphasize performance and

be less inﬂuenced by the aforementioned social, economic, religious and political

factors). There are some indications regarding such developments (in the form of

increased emphasis on training and development, preference for talent in the recruitment

and performance-based compensation), however, these tend to be more in the MNCs or

the private sector. Globalization dynamics require that there is a need to speed up merit-

and performance-based decision-making in all sectors.

132 • Debi S. Saini and Pawan S. Budhwar

Open to change, sharing and learning

In the present competitive business environment, radical changes are taking place

and it is difﬁcult to keep track of many such changes. The new economic environment,

although presenting a number of threats to local ﬁrms, also offers many opportunities

to learn, collaborate and adapt to the new context. To make the best use of existing

conditions, Indian ﬁrms need to be ﬂexible and demonstrate readiness to change. Regular

interaction with competitors and relevant stakeholders is becoming a necessity in the

modern networked organizations. In this regard, much may be learnt from HR managers

working in MNCs operating in India who are very open and ﬂexible in their approach to

managing human resources. For example, a recent research investigation with sixty-ﬁve

top HR managers in as many foreign ﬁrms operating in India (see Budhwar and

Björkman, 2003) reported that local ﬁrms are more rigid to change, less transparent in

their operations, provide less learning opportunities and operate on traditional ILMs.

However, the HR managers also perceived that the scenario is rapidly changing and such

a gap between the working of MNCs and local ﬁrms is going to decrease in future. This

should be one of the main agenda for Indian ﬁrms. The liberalization of economic

policies, globalization realities and the operating practices of foreign ﬁrms will all put

pressure on Indian ﬁrms for a more professional performance. The increasing number of

Indian students graduating from the developed countries and going back to India will also

contribute a great deal towards resorting to a greater degree of professionalism by

visionary Indian ﬁrms.

Crossvergence of HRM

With the arrival of a very large number of MNCs to India one may expect an active

mixing-up of different management systems (such as the Japanese or American way of

doing things). In such conditions, there will be a greater possibility of standardization

of managerial roles across different ﬁrms. This is an outcome of the globalization

exigencies (see Debrah and Smith, 2002) or some kind of crossvergence, i.e. blending

of work cultures (due to the active interface of diverse groups), that is taking place in

India (see Ralston et al., 1993; Gopalan and Stahl, 1998). Hence, one may expect cultural

convergence and overlap among different types of ﬁrms operating in the country.

Already, Japanese and many American ﬁrms operating in India are able to adopt their

respective HR practices in their operations with minor modiﬁcations (see Budhwar and

Björkman, 2003).

The individual level

Many Indian educational institutions (such as the Indian Institute of Management and

Indian Institute of Technology) are known to be producing world-class graduates.

Considering the rapidly changing business environment and the emergence of a large

HRM in India • 133

number of MNCs in the country, a paradigm shift in the mindsets of individuals is

evident. For example, tendencies for a strong preference to work in a reputed public

sector organization, lifelong employment, making available only limited jobs for females,

and so on, are all changing fast. The Indian worker has either preferred for a secured

employment in the sluggish public sector or has been hostile to the exploitative practices

of the family-run private enterprises. The HRM policies of the foreign companies have

exercised considerable power in inﬂuencing this scenario. For example, the professional

customer handling by the Citibank has been positively inﬂuencing the public sector banks

in the country that now have to operate in a competitive environment. The Indian

managers view these practices as benchmarks. Further, most foreign ﬁrms and an

ever-larger number of local ﬁrms emphasize the need to attract talent. They are

increasingly adopting formal, structured and rational approaches to attract, acquire and

retain talent. This has signiﬁcantly inﬂuenced the behavior both at the individual and

organizational levels. The opportunities provided by the new sectors such as software,

contact centers and ITeS on the one hand and the MNCs on the other have encouraged

females to come and join the mainstream workforce. Such developments are expected

to continue and will eventually help transform the adoption of HRM practices in the

country.

Conclusion

This chapter highlighted the state of people-management policies and practices in India

and their roots in the country’s historical background, environmental framework,

institutions, contexts and styles. The analysis shows that there is remarkable progress in

the professionalization of HRM in the organized sector; this is happening despite the

tendency towards a shrinking percentage of the organized sector employment in the

country. Attempts towards greater professionalism may be attributed partly to the

progressive policies brought about and pursued by the MNCs and the professionally

managed Indian organizations, including some of the public sector enterprises (see, for

example, Prasad, 1996; Uppal and Singh, 2001). The attitude towards business practice in

general is changing, and people are realizing how far they need to change so as to cope.

Among others, the key problems that have adversely inﬂuenced the management of HR

in India include lack of a vision for skill and competency development, the rigidity

caused by the labor law framework, the hierarchy-driven mindsets of employers, the

government’s indecisiveness in matters of privatization and dis-investment, and fragility

of political coalitions that adversely affect the need to take bold decisions.

Another important factor affecting the HRM policies is the deceleration in the

employment growth in the organized sector and the massive underemployment in a labor

surplus economy. This increases the power of employers, and enables them to shape their

HR strategies towards cost reduction. Thus a greater reliance may be placed on

employment of peripheral than core employees. With the weakening of the employee

power, the HRM practices vis-à-vis this section of employees are bound to reﬂect hard

134 • Debi S. Saini and Pawan S. Budhwar

devices including the resort to lower minimum standards of employment and commission

of unfair labor practices (ULPs).

It is noticeable that the role of HRM managers is transforming from being the child of the

Industrial Disputes Act to being responsible for culture building, communication, change

management, performance management and measuring effectiveness of HR systems and

interventions. Within the organized sector, however, the HRM practices are quite varied

depending upon a diverse factors. The majority of management schools, however, have

not yet responded to the challenges of the new environment in terms of evolving

appropriate courses, even as the professionals have responded well to the challenges by

using the most modern interventions. A shift is noticeable in the attitude of the

government, from dispensing social justice to ensuring the success of the export-

promotion model of development. Interestingly, this has been possible to quite an extent

despite the rigid labor law framework, for it is the governmental power which activates

that framework. A rapidly growing industry of HR professionals has emerged, which is

increasingly becoming sensitive to the needs of aligning HRM with business needs and

strategies. Apart from the strategic performance of the traditional HR functions, new

transformational themes are being identiﬁed (Saini, 2000; Varkky et al., 2001). These,

among others, include concepts like “People Capability Maturity Model,” work–life

balance, diversity management, six sigma and strategic leadership.

Some of the key challenges before the Indian state include the success of the second

generation economic reforms which involve changing the legal framework, including

streamlining the working of the unorganized sector and providing a workable model of

competency and skill development at the national level. It will be interesting to see how

the new government, after the forthcoming 2004 elections, responds to the demands of

this task, which has been on the reform agenda for more than a decade. Once the reforms

in this sector take place, the matured HR professionals industry in the country is growing

fast enough to respond to the emergent organizational justice issues, especially in

professionally managed organizations. With the passage of time the number of such

organizations is bound to increase. An era of people management issues being guided by

appropriately carved-out HRM policies and practices is foreseeable, and the hitherto

adversarial model of employee justice dispensation promoted by the present legal

framework is likely to become weakened over time.

As noted earlier, Hofstede (1991) has attributed moderate uncertainty avoidance and

power distance to Indian business conﬁgurations. This tends to defy initiative and thus

proves counter to creativity. If HRM function grows fast it can help alter these cultural

realities as well. Many MNCs are practicing progressisive HRM practices in their Indian

locales, which will help foster transparency and creativity to be benchmarked by

progressive Indian organizations. For example, delayering has taken place in Indian

organizations such as ICICI. In many Indian organizations bosses are being addressed by

ﬁrst name. Undoubtedly, however, internalizing soft HR as a way of organizational life is

a complex task and one must refrain from indulging in platitudinous exhortations in this

regard. Creating world-class competitors is an uphill task. It necessitates building

HRM in India • 135

“transaction governance capacity” (TCG) and requires that the economy upgrades itself

(Prahlad, 1998). MNCs have multiple options and the country needs tremendous

investment in capacity-building to attract them. They will also contribute towards a faster

dawn of the era of soft HRM as a way of organizational life that will help expedite the

realization of the goals of efﬁciency, productivity, trickle-down effect and economic

prosperity.

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HRM in India • 139

HRM in Thailand

SUNUNTA SIENGTHAI AND CLEMENS BECHTER

Introduction

This chapter provides an account of the historical development of HRM, industrial

relations, and personnel management in Thailand. It discusses the changes in the role

and the signiﬁcance of HRM from a traditional payroll function to a business partner in

the business operations of a country which is still struggling to achieve a sustainable

economic development. Following this, it analyzes the key factors inﬂuencing the HRM

practices in Thailand. To trace the current development of HRM practices, the authors

have discussed the impacts of HRM policies and practices in some sample organizations

based on a questionnaire survey undertaken after the ﬁnancial crisis. Then, they offer

their observations of the challenges to be faced by HRM, and conclude.

Historical development in

HRM/IR/PM/personnel administration

The HRM function of ﬁrms in developing countries such as Thailand has experienced a

rather slow growth and development. Until recently, most companies still had a so-called

“traditional” personnel management (PM) which is only a systematic approach and

basically perceived as the payroll function. In this section, the development of personnel

or HRM in Thailand is described.

Studies related to personnel management issues in Thailand have not received much

attention except in the area of industrial relations (IR) where government policy

formulation is involved and mainly commissioned by international organizations such as

the International Labor Organization (ILO). The government has not intervened at the

micro level of business ﬁrms’ management. Only in the case of the labor movement and

labor–management conﬂict in deadlock does the government enter the scenario. Thai

labor law somehow has not been enforced effectively in all business enterprises and thus

was used more as a guideline for compliance of ﬁrms through their personnel

management.

The inﬂuences of military-dominated regimes in Thailand have led to a unique pattern

of HRM and development practice for more than 50 years. The use of cheap, mostly

uneducated labor was a key element of comparative advantage, particularly for internal

investors, and a necessity for the promotion and maintenance of an unorganized

workforce, weak trade unions and dominant employer authority. This has led to hierarchy

between employer and employees in the organization as observed in the public

organization administration. In addition, this was also a reﬂection of the fact that the

economy was then based substantially on the labor-intensive manufacturing activities

where unskilled and semi-skilled workers were the main workforce. The adequacy of

“class consciousness” among workers, bringing about reliance on rural labor, and the

centrality of Buddhism to the Thai culture, the practices of “middle-path,” that is, no

advocation for extremity, has contributed to the unique HRM and industrial relations

framework of Thailand (Siengthai, 1993).

Public administration and

public enterprise management in Thailand

The ﬁrst few ﬁve-year national economic plans, which started in 1961, saw substantial

government investment initiatives in developing the basic infrastructure for the country.

These have become large public enterprises which generate many employment

opportunities for the population. They have also become something of an outlet for the

capable high government ranking ofﬁcials or politicians from the dominant parties as

administrators and members of the board of advisors. Most of the public enterprises

have played a role as the engine of economic growth in the early years of economic

development of Thailand. Although the number of public enterprises has been reduced

mainly through government privatization policies, the notion of public management as

opposed to traditional public administration has not been realized. However, together

with the regionalization and globalization movement, organizational change and

development has become the main focus of these public enterprises, especially after

the ﬁnancial crisis which forced the Thai government to effectively implement the

privatization program in spite of the strong resistance from these state-owned enterprise

labor unions. Not until foreign direct investment started to ﬂow into the country did

modern management become the more common practice. This of course was in line with

the fact that many people were educated in foreign countries, particularly in the home

countries of the multinational companies or joint ventures. In addition, business schools

were established in the country to offer training for certiﬁcates and degrees. Thus, a

supply of management-educated workforce to the demand in the business sector was

sufﬁciently effective. Hence, even within the HRM areas, more well-trained professionals

have been available in the last two decades.

The labor movement in Thailand

On reﬂection, the threat by the unions has been signiﬁcant since 1973 when Thailand

changed its political system from militarily dominant to democratic; since then, no more

142 • Sununta Siengthai and Clemens Bechter

coup d’états have happened. During 1973–1975, there were many workers’ strikes;

unionization was their strategy to demand change in their terms and conditions of

employment. Under the military government (1958–1973), the number of strikes and

workers involved started to increase, especially during the second National Economic

Development Plan (1969–1974). The number of strikes substantially increased in the

following ﬁve-year plan, both in terms of workers involved and man-days lost. At the

time, the country was started out on labor-intensive manufacturing activities, such as

textiles. Understandably, the terms and conditions of employment as well as the physical

work environment were not very good. Most of the business enterprises were mainly

family businesses. Employers were likely to be of Chinese origin where the management

style was rather autocratic. Workers were paid minimum wages, which were barely

sufﬁcient to take care of the whole family. Thus, this led to the formation of unions to

demand for changes in the employment contract. The impact of the unions using

industrial weapons such as strikes led to the necessity for a ﬁrm to have a formal

personnel manager as well as personnel department within the organization. As the

statistics suggest, the effectiveness of the union as an organization and the importance

of the issues being bargained can be implied from the number of workers involved in the

strikes and man-days lost each year. The fact that many union members could participate

in the strikes and for a long time, reﬂected the unions’ strengths and the ﬁnancial

resources they had been able to obtain. Some of the unions also had linkages with the

international union organizations, making them more effective in terms of bargaining

power. During the second stage of economic development in Thailand, where export-

oriented policy was implemented, and at a time when Thailand experienced an economic

boom (1987–1996) recorded by the Board of Investment (BOI), the number of strikes

reduced initially and then increased again in 1992. It should also be noted that from 1986

onwards, employers started to use industrial weapons such as lockout to initiate

productivity bargaining with the company unions, employees’ associations or unions.

This was due to the ﬁerce competition from the emerging economies, leading to more

demanding work schedules and changes in work organization to increase productivity.

In addition to this, many industries, such as the electronics industry, had already

introduced the just-in-time production system and hence the necessity to maintain

good labor–management relations. Thus, if we look at the HRM practices in different

sectors of the economy, we may also ﬁnd different levels of effectiveness of such

practices. It is further observed that after the ﬁnancial crisis, the number of strikes was

reduced. However, the number of workers as well as man-days lost was still substantial.

Government policies and HRM/IR development in Thailand

The labor movement in Thailand was very strong in the public enterprise sector. Many

public enterprise unions have been very well established under the Public Enterprise

Labor Relations Act. However, in 1990, this act was demolished. Hence, all the public

enterprise unions became regulated under the general Labor Relations Act 1975, just like

any other labor unions in the private sector. In 1990, the Social Security Act was passed.

HRM in Thailand • 143

However, coverage has still not included unemployment insurance; only sickness,

accidents out of the workplace, being handicapped due to accidents in the workplace,

old age (retirement) insurance and maternity leave. The inﬂuence of the government in

HRM and IR practices has been signiﬁcant in its legal initiatives. After the ﬁnancial

crisis, many public enterprises come under the privatization scheme which required

organizational restructuring, and so the unions’ role in the organizations has become

somewhat weak.

Thus, when the enterprise has to close down or lay off some employees, the company

union could probably no longer operate and maintain its entity. At the higher level of

labor organizations, the number of labor federations and labor union councils are found to

be rather stable with some minor changes. Trade union organization progressed much

further in the public enterprise sector than in the private sector proper. About two-thirds

of union members work for public enterprises, with a union density rate of around

60 percent. However, with the government policy to deregulate and privatize by 2006,

agreed in the ASEAN forum, the union has become low proﬁle and inactive in some

cases. On the other hand, the HRM divisions of these organizations have become more

active as a partner to change.

Management development and the HRM/IR interface

With the establishment of industrial estates to promote foreign investment, the transfer

of management knowledge among member ﬁrms within certain industrial estates

became more effective, as did the possibilities of effective union avoidance strategies.

Needless to say, personnel management function played a signiﬁcant role in reducing the

interruption in the manufacturing process of ﬁrms in question. Personnel managers,

particularly those with many years of work experience, were sought after. In terms of

supply, many public universities had started to offer personnel administration or

management as a ﬁeld of study from the early stage of national economic development.

With the weak industrial relations system in the country and the very fast changes from

autocratic political system to democratic system through protest and civilian revolt in

1973, it is understandable that there was urgent need for specialists who could handle the

workers’ issues. In addition, as workers were somehow given a sense of democracy

without any training on how to conduct such participation, they felt their industrial

weapon was best voiced by large numbers of workers going on strike. Thus, the

professionals in workers’ management must then understand the political element of the

issues. This may explain why personnel administration or management in Thailand seems

144 • Sununta Siengthai and Clemens Bechter

1 Remarkably, one of the very first programs was launched by the Faculty of Political Science

of Chulalongkorn University. This is only to observe that the traditional personnel administration

in fact derived its strong tradition from this ﬁeld of study while the approach may be totally different

from that of business administration.

to have its tradition from the political science approach. When the private sector grew

larger, the ﬁeld of management studies was offered ﬁrst in the school of business or

faculty of commerce and accountancy in the public universities and later in the private

universities both at the undergraduate and graduate levels.

Many companies already had professionals practicing HRM by the time the Labor

Relations Act was proclaimed in 1975.

The role of these professionals and hence the

personnel department was highlighted with their contribution in reducing work stoppages

in the workplace and to make sure that the companies complied with labor law. In

addition to this responsibility, the personnel department was also to keep track of the

payroll. Since the Fifth National Economic and Social Development Plan (1982–1986)

and the Sixth Development Plan (1987–1991) when the HR development was

emphasized, HRM gained a more signiﬁcant role in business operations.

The role, importance and degree of partnership in HRM

In this section, we will discuss the changes in the role and functions of HRM and then

present the ﬁndings from a questionnaire survey of the degree of partnership of the

HRM department.

Recent theoretical work in business strategy has given a boost to the prominence of HR

in generating sustained competitive advantage. According to the resource-based view of

the ﬁrm, ﬁrms can develop sustained competitive advantage only by creating value in a

way that is rare and difﬁcult for competitors to imitate. Although traditional sources of

competitive advantage such as natural resources, technology, economies of scale, and so

forth, create value, the resource-based argument is that these sources are increasingly

easy to imitate, especially in comparison to a complex social structure such as an

employment system.

In the past decades, Thailand has witnessed signiﬁcant changes in her economic and

social development processes. The three main sectors of the economy, namely, the public

sector proper, the public enterprises, and the private sector have undergone changes over

the years, under successive governments. The political developments in the country have

certainly led to many critical factors that have stimulated private sector growth; not only

internal factors that contribute to change but also external factors such as globalization,

requirements from the international agencies, i.e. the World Bank, the ILO, and other

United Nations agencies, and so on. The most signiﬁcant inﬂuence of the decade was the

recent ﬁnancial crisis that took hold of Thailand’s economic development. Many mergers

and acquisitions as well as the need to downsize to increase company competitiveness

have led to the signiﬁcant change in the role and impact of HRM practices in Thailand.

HRM in Thailand • 145

2 The Labor Relations Act 1975, provides a concrete structure for the labor unions development.

The act guarantees freedom of association, collective bargaining, lays down procedures for

settlement of labor disputes and prohibits unfair labor practices.

Globalization and the changing roles of HRM

The ways in which enterprises are managed to achieve organizational goals and HRM

and IR initiatives in this regard, are affected by the globalization process which brings

many rapid changes in the competitive environment, particularly that represented by the

advancement in the new information and communications environment (ICTs). Changes

in IR practices (rather than in institutions and systems) such as increased collective

bargaining at the enterprise level, ﬂexibility in relation to forms of employment as well

as in relation to working time and job functions have occurred as a result of such factors

as heightened competition, rapid changes in products and processes and the increasing

importance of skills, quality and productivity (Silva, 2002). These factors have also had

an impact on HRM policies and practices. In managing change, the key elements include

employee involvement in effecting change, greater customer orientation, and ensuring

that the skills of employees are appropriate to the production of goods and the provision

of services acceptable to the global market. As such, managing people in a way so as to

motivate them to be productive is one important objective of HRM.

The increasingly signiﬁcant role of HRM in achieving management objectives is reﬂected

in the transformation of the personnel management function (Silva, 2002). Over the last

two decades, this function was often marginalized in terms of its importance in

management activities and hierarchy. It has evolved from a concentration on employee

welfare to one of managing people for the best possible productivity of the employee.

The former role has been emphasized in the Buddhist context as it seems to be embedded

in the family values and some Buddhist values for management such as compassion,

kindness and some others.

The changing management approach can be through methods

that provide employees with both intrinsic and extrinsic rewards. Therefore, today, far

from being marginalized, the HRM function becomes recognized as a central business

concern; its performance and delivery are integrated into line management; the aims shift

from merely securing compliance to the more ambitious one of winning commitment.

Therefore, HR investment has become one of the main business strategies of ﬁrms in

creating their competitive advantage. These initiatives are associated with, and maybe are

even predicated upon, a tendency to shift from a collective orientation to the workforce

management to an individualistic one. Accordingly, management looks for “ﬂexibility”

and seeks to reward differential performance in a differential way. Communication of

managerial objectives and aspirations takes on a whole new importance.

146 • Sununta Siengthai and Clemens Bechter

3 There is one principle of management taught in Buddhism called “Brahmvihaara 4.” This

principle says that those who are the leaders of others either in the household or in the workplace

should practice the following: Met-taa (compassion), Garunaa (kindness), Mudhitaa (sharing

the joy of success of others); and Ubekkhaa (let go and accept that it is up to the other’s karma,

when one cannot be of any further help to others even when one has already tried very hard to

be so).

HRM as a business partner

To investigate whether HRM function is regarded as a business partner in the ﬁrm

operation, an exploratory and empirical study was undertaken (Siengthai and Bechter,

2001). The survey was conducted in Thailand during 1999–2000 with a sampling of

ﬁrms of 200-plus employees. It was found that the majority of ﬁrms, i.e. 63.4 percent

consist of 200 to 999 employees; large-sized ﬁrms by Thai industry and labor

standards. Most of these ﬁrms have been established for over 10 years and operate in

the manufacturing industry. The majority’s sales revenues in 1999 were from 100 to

4,999 million bath. More than half of these sample ﬁrms are local Thai ﬁrms and the rest

are joint ventures, with Japan-related ﬁrms dominant and some wholly foreign

multinational corporations.

From the regression analysis, it was found that many HRM practices were signiﬁcantly

and positively related to the level of innovation in the industry (Siengthai and Bechter,

2001: 48). The same database is used to investigate the business partnership that the

HRM may have within the ﬁrms. The Cronbach’s Alpha Reliability Test Results of the

variable (top management support variable – MGT) is 0.8620. With the scale 1–5 for

each statement related to the perception of top management of the role of HRM within

their ﬁrm, we found that in general, the respondents, who are mostly HR directors, other

functional managers and some managing directors, agree (4.05) that the top management

in their organization think that the HR strategy is an important component of an

innovation strategy (Mgt3, see Table 8.1). Most of the respondents are not sure but

tend to agree (3.66) that their top management values HR more than other resources

(e.g. ﬁnancial, Mgt4). They also are not sure but tend to agree (3.96) that their top

management believes that HR policies are a source of competitive advantage (Mgt5).

Finally, most of them are not sure but tend to agree (3.49) that their top management

HRM in Thailand • 147

Table 8.1 Top management’s perception of the HRM function in Thailand

Aspect N Mean S.D.

Top management:

• believes that human resource (HR) strategy is an important 166 4.05 0.8110

component of an innovation strategy (Mgt3)

• values human resources more than other resources (Mgt4) 166 3.66 0.9881

• believes that human resource policies are a source of 166 3.96 0.8661

competitive advantage (Mgt5)

• considers the HR manager a strategic partner in formulating 166 3.49 0.8220

and implementing business strategy (Mgt7)

considers the HR manager to be a strategic partner in formulating and implementing

business strategy (Mgt7).

Thus, it can be concluded that most of the HR function in these sample ﬁrms is still not

regarded as being a signiﬁcant partner in business strategies and implementation changes.

Key factors inﬂuencing HRM practices in Thailand

In this section, an analytical framework can be developed for further investigation on the

development of HRM in Thailand. Some further discussion is made for some of the main

variables (see Figure 8.1).

148 • Sununta Siengthai and Clemens Bechter

External Environmental Factors:

Economic

Politics

Law

Societal values – national culture,

beliefs, religion

Growth of foreign or joint-venture sector

Stages of IR system development

Internal Environmental Factors:

Organizational culture

Top management (leadership) support

Business strategy

Organizational life cycle

Organizational size

Organizational ownership

Organizational age

Gender composition

Organizational Human

Resource Management

Practices in Thailand

Figure 8.1 Key factors inﬂuencing HRM practices in Thailand

Thai cultural inﬂuences on HRM practices

Some of the Thai cultural norms that are now well recognized among expatriates include

the following: kreng jai (Siengthai and Vadhanasindhu, 1991); bunkhun (reciprocity of

goodness; exchange of favors); jai yen yen (take-it-easy); mai pen rai (never mind);

sanuk (fun) and nam-jai (being thoughtful, generous, and kind combined). Certainly,

these norms are social values emphasizing harmonious social relations and consideration

for others (Kamoche, 2000: 455). They tend to reinforce the hierarchical structure

(patron–client system) in the society as well as in the workplace. It therefore can be

expected that in the small to medium-sized family enterprises which are still run by the

ﬁrst generation of founders, the HRM practices tend to be reactive rather than proactive

or systematic when compared to the more developed and large-sized family enterprises

where professional staffs are more prevalent.

The inﬂuences of these values are now being challenged as workers are more educated

and more skilled. This is suggested by a study done by Kamoche (2000) who examined

the HR challenges associated with the industrial expansion during the period of transition

from the boom era to the subsequent economic downturn that saw the collapse of the

economy in 1997. Based on in-depth interviews with managers across eleven major

industrial sectors, his observations of ofﬁce and factory practice analyze the difﬁculties

ﬁrms face in acquiring, developing, and retaining a competent workforce. His ﬁndings

suggest the following: ﬁrst, there is a need for managers to re-examine their attitudes

towards subordinates, especially with regard to their assumptions about low creativity/

innovativeness. Loss of valuable expertise has in the past taken place when employees

quit in search of “more challenging jobs,” a common explanation for labor turnover.

Although the need for job security has now seemingly resolved the rampant job-hopping

for the time being, it is important to institute more effective retention mechanisms in

anticipation of an economic recovery. Such mechanisms should be complemented

by genuine efforts to raise competence levels including allowing more scope for

innovation. More speciﬁc HR initiatives include a more realistic commitment to training

and career development, providing meaningful feedback on a timely basis, formalizing

practices that currently rely too heavily on subjective criteria and balancing the need to

“control” with the need to “develop,” especially for ﬁrms operating under the traditional

model.

Economic and social

development in Thailand from 1960 to 2002

The economic and social development in Thailand became the formal mission of each

government since 1961 when the ﬁrst National Economic Development Plan was

formulated. However, the HRs or social development concern did not come into

consideration until the Third Plan (1973–1978) when the notion was incorporated into

the national planning and was recognized as the National Economic and Social

Development Plan.

HRM in Thailand • 149

After about two decades of the planned economic development, Thailand made a sharp

turn in its economic development process in 1987 (Siengthai, 1996). Between 1988 and

1990, it exhibited three consecutive years of double-digit growth and kept the growth

rate over 6 percent annually up until 1997. Manufacturing emerged as a leading sector

contributing to this economic growth both in terms of value added and export earnings.

This is a totally different direction when compared to the period between 1977 and 1987.

The source of growth then stemmed mainly from domestic demand and the engine of

growth was primarily from import substitution.

The explanation for the main determinant of Thailand’s accelerated growth in the past

decade was the 1985 appreciation in the value of the yen, which made Japanese

production more costly. The Japanese companies were then forced to look for new

lower-cost production locations. In 1987, Japanese investment approved by Thailand’s

Board of Investment (BOI) exceeded the cumulative Japanese investments for the

preceding 20 years. Thailand had in fact become the largest recipient of Japanese FDI

in ASEAN. Needless to say, the inﬂuence of so-called “Japanese management practices”

was observed after a certain turbulent time in industrial conﬂicts at the beginning of their

ﬁrst wave of investment in Thailand. In the late 1980s, other newly industrialized

economies (NIEs) also relocated their production bases to Thailand.

The export of Thai manufactures was based on “low wage” labor and abundant natural

resources. Until 1980, Thailand was considered a relatively land-abundant country. The

closing of land frontiers, towards the end of the 1970s, has encouraged labor migration

to urban areas, primarily to Bangkok. The ﬁrst group of laborers released from the

agricultural sector were the female workers who had provided a large pool of trainable

and inexpensive labor. This, in fact, became the main factor contributing to Thailand’s

comparative advantage in the 1980s. Currently, shifting of production bases is taking

place as a result of the trade preferential treatment of the major export markets such as

the USA.

Domestically, the shift of Thailand’s production and export structure in the last decade

towards more dependence on industry (manufacturing) and services also changed the

country’s comparative advantage vis-à-vis other countries over the course of

development. Although Thailand may still have an advantage in its agricultural sector,

which is very large, i.e. over 60 percent, its semi-skilled labor-intensive manufactured

exports have been declining rapidly. This is due to the fact that there are more newcomers

in the labor-intensive industries in the world market, such as those countries in East and

South Asia.

During the economic boom period, a tight labor-market situation was experienced,

particularly in construction and agriculture. Substantial foreign labor was imported

into the casual labor market (Siengthai, 1994). The same situation applies to skilled

labor. There are industry-speciﬁc shortages of workers with secondary and vocational

education. These are typically in areas where large-scale and formally organized

enterprises are located. At the professional level, the shortage of university-trained labor

with scientiﬁc or technological background is well documented. This reveals the

150 • Sununta Siengthai and Clemens Bechter

mismatch in demand and supply both in terms of quantity and quality. Excess demand in

this market had been partially met by imported engineers and technicians from Taiwan,

the Philippines and South Asian countries. Thus, during this period, HRM strategy has

had to deal with an international and diverse workforce. In addition, much job-hopping

and personnel poaching has been evidenced, particularly a substantial intersectoral

mobility from the public to the private sector, especially academicians teaching certain

subjects and who are needed by private sector ﬁrms. The earnings gap between the

private and the public sectors has widened. The push of economic growth came

signiﬁcantly from foreign direct investment (FDI) as the government set up the Board of

Investment to promote investment and to create employment for its working population.

The Thai economy has grown rapidly and has become increasingly internationalized.

During the Sixth Plan period, Thai economic growth has skyrocketed with gross domestic

product (GDP) expanding at an average of 10.5 percent per year, twice the Plan target,

representing the highest average growth rate of the past twenty-ﬁve years. Furthermore,

the economic structure has become more outward-oriented and internationalized, as

indicated by the increase in the proportion of international trade to GDP from 60 percent

in 1986 to 80 percent by 1991 (NESDB, The Seventh Economic and Social Development

Plan, 1992–1996).

Thailand, however, enjoyed rapid economic growth for only about a decade until

mid-1997 when the ﬁnancial crisis took place. The ﬁnancial crisis was attributed to

two main causes: lack of transparency and accountability (Campbell, 2000; Erickson and

Kuruvilla, 2000; Lee, 2002). The report made by the World Bank suggested that such

failings in Thailand’s public and private sectors was a major cause for the nation’s

political, economic, and social crises, arguing that a system based on the principles of

good governance and greater social responsibility would have averted the crisis, and

succeeded in creating more sustainable and equitable development (Lee, 2002: 281).

Thus far, the economic recovery has not been fully realized. In addition, many

restructuring programs are still on-going in various traditional sectors in the economy.

These major changes in organizational restructuring together with the advent of new

information and communications technologies (ICTs) have led to changes in the role of

HRM in most leading ﬁrms as well as the recognition of its impact on the organizational

effectiveness.

In sum, key factors which have brought about the high growth rates before the ﬁnancial

crisis in mid-1997 include growth of the export sector, investment and tourism, all of

which had grown considerably faster than the projected rates.

Current economic conditions in Thailand

As can be seen from Table 8.2, the country is evidently recovering from the ﬁnancial

crisis. Private consumption is increasing gradually, which will induce more investment

for production and services. In general, GDP is increasing at a positive rate. The

external debt of the country is reducing. Trade balance is positive. The population

HRM in Thailand • 151

grows steadily at about 1 percent per annum. The same applied to labor force growth.

Unemployment is reducing. Wage levels are reﬂected in the minimum wages in each

region of Thailand which are also rising (Table 8.3). This shows the higher purchasing

level and ability to pay on the part of the employer. In addition, inﬂation has jumped

from 1.7 to 5.7 in 2002. Thus, it is rather startling and calls for attention on the part of

the government. However, it is likely that with the government’s reinforcement on

corporate good governance and self-sufﬁcienct economic development policies, Thailand

is likely to be able to achieve a sustainable economic development growth in the next

decade.

Organizational structure

There have been changes in the structure of many organizations in the recent past. Many

large organizations have restructured and implemented the business process re-

engineering to cope with the ﬁerce competition which comes with the ICTs. These

changes have been implemented to improve the efﬁciency and reduce costs of operation.

Organizations have attempted to become ﬂatter, hence the notion of empowerment and

broadbanding in compensation management noted in many cases. The changes in

organizational structure also lead to the need for multi-skilled employees, so avoiding

workforce redundancy. Large organizations in the service sectors, such as banks and

particularly some small and medium-sized banks, have developed their HR systems in a

similar way to the government bureaucratic system (Lawler and Siengthai, 1997).

In the case of Thailand, public enterprises and foreign multinational enterprises (MNEs)

initially played the leading role in promoting the country’s development. However,

indigenous ﬁrms, many of which are MNEs in their own right, have been dominant in the

economy (Lawler et al., 1997).

Within the set of foreign MNEs, the relevant distinction is between the policies pursued

by Japanese subsidiaries and those pursued by subsidiaries of western MNEs. In many

ways, these systems are consistent with stereotypical notions of western and Japanese

styles of HRM, although there are modiﬁcations necessitated by the Thai environment. In

addition, efforts by western and Japanese MNEs to impose HRM systems in an

ethnocentric fashion in their Thai operations have, on occasion, generated signiﬁcant

cultural clashes in the workplace.

Indigenous Thai ﬁrms fall into at least two categories with respect to HRM policies.

Most private sector ﬁrms began as family-owned enterprises closely tied to the

Sino-Thai community (Lawler et al., 1997). There are a number of large ﬁrms that

continue to be managed in this manner, and the employment and personnel practices

that these companies pursue are typically quite distinct from those companies with a

broad base of investors, especially publicly traded ﬁrms (Thai corporations). A third

category within the set of indigenous ﬁrms consists of numerous state-owned

enterprises.

152 • Sununta Siengthai and Clemens Bechter

Table 8.2 Thailand’s economy at a glance

1999 2000 2001 2002 2003 (Q1)

Population (millions, average) 61.80 61.88 62.31 62.96 63.21

Labor force (mil.)

b 1

32.72 33.22 33.92 34.25 34.37

Unemployed

0.49 283.7

GDP at 1988 Price 2,872.0 3,005.4 3,063.7 3,224.6 n.a.

(%) 4.4 4.6 1.9 5.3 n.a.

GDP at current price (baht, billions) 4,637.1 4,916.5 5,123.4 5,433.3 n.a.

(%) 0.2 6.0 4.2 6.0 n.a.

Growth of GDP

4.4 4.6 1.8 0.7 n.a.

GNP per capita (baht) 72,981.0 77,551.0 80,083.0 84,246.0 n.a.

Trade balance (US$, billions) 9.3 5.5 2.5 3.4 1.9

Current account balance (US$, billions) 12.5 9.3 6.2 7.6 3.0

Balance of payment (US$, billions) 4.6 –1.6 1.3 4.2 –2.0

Private consumption

2,591,129.0 2,751,901.0 2,903,664.0 n.a. n.a.

Total external debt (US$, millions) n.a. 79,715.0 67,511.0 59,456.0 n.a.

Balance of payment on current account (% in GDP) 10.1 7.7 5.4 3.8 n.a.

Inﬂation 0.3 1.6 1.7 5.7 n.a.

Sources: Department of Local Administration and National Statistical Ofﬁce

1 Population for 2002 was recorded on 25 April 2003. And ﬁgure in parentheses represents percentage changes from the same period of the previous year.

2 Since 1996, the concept of “Labor Force” was revised to cover persons with the age of 15 years and over, as opposed to the original concept of 13 years

and over.

a All ﬁgures from BOT unless indicated otherwise.

http://www.bot.or.th/bothomepage/databank/EconData/Thai_Key/Thai_Key.xls

b http://www.nso.go.th/eng/stat/lfs/lfstab8.htm

c http://www.adb.org/Documents/Books/Key_Indicators/2000/tha.pdf

Thus, the difference of ownership of ﬁrms may well have a signiﬁcant impact on the

HRM policies and practices in Thailand. Another empirical study undertaken by

Kongchan (2001) in the past ﬁve years found that among the 215 sample companies,

HRM in the majority of Thai companies was found at divisional level both in the

manufacturing and service sectors. The main responsibilities were to take care of basic

functions of HRM: recruitment and selection, training and development, and so on. He

found that there was no difference between manufacturing and service sector in

recruitment and selection. Selection process mostly involved both HR managers and line

managers. The most popular recruitment sources were walk-in applicants, followed by

employee referral and newspaper advertisements. Interview was most frequently used as

a selection device. With respect to training and development, there was some difference

between that in the industrial and service sectors. In the industrial sector, the majority of

them had deﬁnite plans for training programs, both long term and short term, while in the

service sector, the majority of the companies had only short-term plans.

Development of the IR system

Prior to 1975, workers associations had already been established. However, trade unions

had been legalized since 1975, and strikes legal since 1981. The trade union movement

has been weak, both in coverage and in workplace industrial relations. Most unions are

recognized at the enterprise level. Union membership has not been growing extensively

and rapidly, in fact, it has been declining recently; only a few industrial unions are in

operation. For the past two decades, Thai unions have been encountering various

obstacles both in terms of employers’ recognition and their own operations. More than

90 percent of unions are currently in ﬁnancial difﬁculties, with inter-union rivalry, lack

of training for union members, non-cooperation from members, union leaders’ conﬂicts,

intervention of union activities. Lack of ﬁnancial resources, in particular, means that

unions are reliant on either larger unions, federations, councils or outside organizations

for assistance (Siengthai, 1999).

Currently, in the Thai context, collective bargaining is not effectively resorted to as an

ideal process of decision-making between employer and employees. Most conﬂicts are

154 • Sununta Siengthai and Clemens Bechter

Table 8.3 Minimum wage of some selected provinces in Thailand (baht per day)

1999 2000 2001 2002

Bangkok, Samutprakarn,

Nonthaburi and Pahumthani 162 162 165 165

Phuket and Nakorn Pathom 162 162 162 165

Chonburi 140 140 143 146

Chiangmai, Phang Nga and Ranong 140 140 143 143

Rayong 130 130 130 133

resolved only when employees resort to the power structure, which acts as a third party to

intervene and thus make their demands to the employers materialize. Based on the

principle of collective bargaining, employer and employees should attempt to negotiate

between themselves. Both parties should respect the mutual rights and duties of each

other, act with sincerity and in good faith, realize the factual situation, and make every

effort to resolve the problems by means of negotiation in lieu of other means which may

create conﬂict between both parties.

Here again, the concept of patron–client is apparent. Most of the workers’ organizations

have to demonstrate or publicize conﬂict in order to gain support from the public and put

pressure on employers to concede to their demands. For most non-union member

employees, when they are not satisﬁed with their jobs or are unfairly treated, often they

choose to quit rather than to bargain with their employers. This is more evident when the

Thai economy is experiencing an economic boom.

As far as the target of joint consultation and collective bargaining with conciliation-based

harmony between management and employees and company stability are concerned, the

difference in roles between consultation and collective bargaining will be insigniﬁcant.

What the management should be aware of is the potential abuse of such management

prerogatives. From a study undertaken (Siengthai, 1999), it was found that the

management in many enterprises has delegated more rights and authority in decision-

making to their subordinates. For example, trade union participation in recruitment,

orientation, disciplinary procedures, working conditions, labor relations improvement,

and so on.

Thailand has not yet reached a the good industrial relations system because of the lack of

conﬂict resolution mechanisms that can provide satisfaction to both employers and

employees (Siengthai, 1999). Many conﬂicts at the enterprise level have involved many

people and caused unnecessary industrial productivity loss. In addition, the employees’

organizations (unions) themselves still have a number of problems to be solved.

HRM in Thailand before and after the ﬁnancial crisis

This section discusses the HRM practices in the state enterprises, Thai local ﬁrms and

those of the multinational corporations operating in Thailand. The data are based on the

interviews and survey undertaken with some state enterprises,

in-depth interviews with a

sample of ﬁrms as well as from the surveys and case studies conducted in various

industrial sectors in the Thai economy previously.

HRM in Thailand • 155

4 This forms part of the results of the previous studies undertaken by this author and some by

others on the State Railways Authority of Thailand, Petroleum Authority of Thailand,

Electricity Generating Authority of Thailand (EGAT), Krungthai Bank, Telephone Authority

of Thailand (TAT).

HRM in the public enterprises

Many of the public enterprises have been very well established. Most of them seem to

adopt the personnel administration policies and practices from the “proper” public sector.

The compensation and training programs are more intensive than the public sector. The

government has privatized more than 40 public enterprises and reduced the number of

SOEs from more than 100 to 59 (Indhapanya, 2001). However, SOE reform has not been

undertaken as part of a concerted, board economic reform effort.

In terms of compensation, many top-performer public enterprises

have brought in the

concept of a “balanced scorecard” (Kaplan and Norton, 1996) which emphasizes the

balance of various management functions in the organization by retaining ﬁnancial

measurement as a critical summary of managerial and business performance. This

concept highlights a more general and integrated set of measurements that link current

customer, internal process, employee, and system performance to long-term ﬁnancial

success. The government’s privatization scheme has led to the critical role of HRM. This

is largely due to the fact that all of the Thai public enterprises are unionized. Thus, the

implementation of the privatization has been handled with high sensitivity to the workers’

needs as represented by their unions. The positive-sum approach reﬂected in more

intensive HR development activities to provide re-training for those who experience

obsolescence in skills has been observed. In some cases, the early retirement or the

mutual separation program has been offered to employees based on individual

performance appraisal.

HRM in Thai local ﬁrms

It may be said that virtually all the private Thai ﬁrms began as family-owned and

controlled enterprises (Lawler and Siengthai, 1997). To date, some of the Thai larger

corporations are still managed by the wealthy families. Historically, most of the Thai

ﬁrms were also established by Chinese immigrants. Hence, it is not surprising to ﬁnd that

the ideology of the “Chinese management system” is one of social control. These

organizations tend to be hierarchical and autocratic, but formal systems of control such as

standard operating procedures and well-deﬁned organizational structures are generally

absent (Lawler and Siengthai, 1997: 75). The control mechanism reﬂects the status

differences in Thai society rather than any intentionally imposed system. Thus, even

though Thailand is a Buddhist society, the entrepreneurial Chinese families have

introduced some degree of Confucian ideology into the workplace. These practices for

Chinese family-owned enterprises are, however, complemented by traditional Thai

cultural practices in the workplace (Siengthai and Vadhanasindhu, 1991).

156 • Sununta Siengthai and Clemens Bechter

5 The Ministry of Finance of Thailand has set up some key performance indicators for public

enterprises where some of the top performers will release more autonomy in terms of ﬁnancial

management.

However, in the past decade, the economic boom before the ﬁnancial crisis had led to the

development and growth of the private sector of the economy as evidenced by local ﬁrms

becoming public companies and listed in the Securities Exchange of Thailand (SET).

The rapid growth of the economy was also brought about by foreign direct investment in

the form of multinational enterprises and joint ventures.

An empirical study undertaken by Kongchan (2001) found that among the 215 sample

companies, HRM in the majority of Thai companies was found at divisional level both

in industrial and service sectors. The main responsibilities were to take care of basic

functions such as recruitment and selection, training and development, and so on.

Recruitment and stafﬁng

Kongchan (2001) found that there was no difference between manufacturing and

service sector in recruitment and selection. Selection processes mostly involved both

HR managers and line managers. The most popular recruitment sources were walk-in

applicants, followed by employee referral and newspaper advertisements. Interview was

the most frequently used selection device. However, as it was found earlier in another

study, if the organization is highly visible in the economy, such as a bank, there will be

little difﬁculty in attracting well-educated and well-trained applicants (Lawler and

Siengthai, 1997). Particularly since the ﬁnancial crisis, the labor market is a buyers’

market. Thus, it is not surprising that many organizations may now resort to reactive

recruiting strategies, unlike earlier, when most large business organizations had to

implement proactive recruiting strategies such as campus recruiting. Yet, with the

availability of the new ICT environments, many ﬁrms have started e-recruiting by posting

their job vacancies on a website as well.

With respect to stafﬁng, the process in family enterprise organizations is simpliﬁed

by its reliance on familial relationships. Thus, virtually all higher level positions in an

organization are occupied by family members (Lawler et al., 1997). While family

members generally ﬁll almost all of the upper-tier positions in these organizations,

middle and even lower-tier positions are typically ﬁlled by those who have connections

with family members. Unless these organizations are rapidly expanding, recruiting is

generally not a major problem, as turnover tends to be slight. When it is necessary to hire

from outside the family, these ﬁrms rely almost exclusively on referrals from trusted

individuals (family members, close family friends, inﬂuential business or government

ofﬁcials, or current employees). Indeed, lower-tier workers are often recruited from the

relatives of current workers or domestic servants. This process of using personal or

family connections to locate a job is referred to in Thai as mee sen (literally “to have

strings”).

HRM in Thailand • 157

Training and development

With respect to training and development, in an earlier study of the banking industry

which concentrated on local banks, it was found that most in the sample provide

orientation programs for their new employees (Lawler and Siengthai, 1997). Later on,

these employees are expected to be acculturated into the bank’s system through on-the-

job training. Banks generally provide formal training programs for employees at the

supervisory level and up (Siengthai, 1989). From the surveys as well as casual

observations, large organizations generally have their own training centers and provide

formal training programs. Whereas for the executive development, these large

organizations also provide formal training programs as well as sending their executives

abroad for short-term training programs. It is interesting to observe in the banking

industry that there are variations in sophistication of training across major banks. For

small and medium-sized banks, they have organized continuing training programs for

their middle-level managers from all branches. These are usually called “Mini-MBA”

and are about 300 hours of intensive training (Lawler and Siengthai, 1997). They are

usually run jointly with the schools of business of some particular universities. In

smaller-sized banks that are not included in our interview survey, where the personnel

department does not have its own training facilities, employees at the supervisory level

are usually sent to the training programs offered by the universities. In general, bank

employees who want to pursue their graduate studies may do so but very few receive

ﬁnancial support from the banks. All banks now prefer to hire their employees with

bachelor’s degrees.

It is interesting to observe the changes in the workforce composition before and

after the ﬁnancial crisis. Before the ﬁnancial crisis in mid-1997, with the competition

from non-bank institutions in the labor market for the same pool of skilled workforce,

many banks in Thailand had lowered their employee qualiﬁcations requirement to a

vocational college diploma in the business administration area. This certainly

necessitated more focus on HR development activities to maintain the bank’s

competitiveness. In the previous two decades (before the crisis), there had been

job-hopping, particularly at entry level and some at middle-level management,

where employees left to join non-bank institutions which provided better offers. To

ensure that they will recuperate from their investment in training their personnel, some

banks have requested that their employees sign a contract that requires them to pay

back in terms of time or cash if they quit the organization after receiving training.

However, after the ﬁnancial crisis, it was observed that many local banks received more

applicants with higher degrees, such as MBA degrees or even those graduated from

abroad.

Needless to say, all banks enjoy an abundant pool of professional applicants

nowadays. But ironically, they need to handle at the same time the so-called “redundant”

workforce.

158 • Sununta Siengthai and Clemens Bechter

6 From the ﬁeld interviews recently undertaken.

In a recent survey undertaken by Kongchan (2001), it was found that with respect to

training and development, there was some difference between the manufacturing and

service sectors. In the manufacturing sector, the majority had deﬁnite plans for training

programs both short term and long term, while in the service sector, the majority of

companies had only short-term plans.

Performance appraisal

For performance appraisal, the majority of both manufacturing and service sectors had

performance appraisal once a year (Kongchan, 2001). Some of them had performance

appraisal twice a year. The main objective of the appraisal was as a basis in pay-rise

decision-making, followed by performance improvement. The persons responsible for

appraisal in most companies were immediate supervisors. Both qualitative and

quantitative criteria were used in performance appraisal.

In a study of HRM in the banking industry before the ﬁnancial crisis, it was found that

most banks in the sample had an annual performance appraisal, some, twice a year. For

some banks this is for the HR development purposes. Most banks use their performance

appraisals for administrative purposes, such as for pay-rise and promotion considerations.

Large banks generally have very elaborate systems of performance appraisal, such as

self-evaluation versus supervisor evaluation. However, this is not very common. Large

banks, whose systems are very well-designed, provide feedback to their employees after

they have been evaluated. If the subordinates do not agree on any points, they can appeal

to their supervisor and to the upper management. All banks have a formal system of

employee performance appraisal in that they have forms designed to measure or appraise

employees for particular qualities or competencies. Some may emphasize teamwork,

creativity, business code of ethics, and so on, other than interpersonal skills, managerial

skills or technical skills.

Career planning

In terms of career planning, it was found that there were no career planning programs in

most industrial companies. In service companies, the majority of them had career-

planning programs but they were not systematic.

Compensation

In the study by Lawler and Siengthai (1997) on the Thai banking industry, compensation

in the sample banks varied. Most banks followed the market rate in each market segment.

For example, the Thai local banks have their own market rates which are different from

those of foreign banks. Thus, in order to be able to attract the job applicants, most banks

HRM in Thailand • 159

will follow the market rates and will vary their fringe beneﬁts to make their offers more

attractive than their counterparts in the banking industry. The issue of external equity of

pay seems to be an important one at the entry level. However, once employees of a bank,

they will also be compensated for their special skills, such as computer programming,

accounting, or such. In general, for the Thai local banks, promotion from within has

created a large internal labor market. In contrast, the internal labor market is not so

structured in the foreign banks. All banks provide bonuses to their employees but

generally no other ﬁnancial gains. They do not have proﬁt-sharing plans. Some incentive

plans may be observed in that most banks now consider their branches as their sales

points and have these operate as proﬁt centers. Thus, those which perform well will

receive a larger percentage to be allocated to their own subordinate in the branch at the

time of performance appraisal. So it may be said that limited gain sharing is practiced.

Kongchan (2001) found in his survey that most companies both in manufacturing and

service sectors offer incentives on an individual basis. The criteria used for evaluation

are productivity. The incentive and reward are perceived as equitable to other companies.

In term of preparation for globalization, most of the manufacturing companies have

implemented some changes in the work system and processes while service companies

have focused on HR development. Many manufacturing companies use quality circles

(QC).

Labor–management relations

In the study by Lawler and Siengthai (1997), it was found that most banks in the sample

have unions; only some local banks such as the Bangkok Bank of Commerce and the

Thai Danu Bank do not.

In all foreign banks in the sample, there are unions. However,

unions are usually organized at the bank tellers and non-supervisory level. According to

the Labor Relations Act 1975, employees at the supervisory level cannot become union

members. It may be said that unions in the banking industry are generally weak and their

collective bargaining with the employers mainly involve wages and fringe beneﬁts. The

unions are not very militant. The formation of bank unions is usually through a bank

employees’ “network.” In many banks in the sample, unions have been long established.

It may be said that their relationship with the management has been collaborative (Lawler

and Siengthai, 1997). In one case (Bank of Asia), a union was newly formed after the

160 • Sununta Siengthai and Clemens Bechter

7 In the study (1997), the HR managers or assistant managers of the following banks were

interviewed: Thai local banks – Bangkok Bank of Commerce, Bank of Asia, Krungthai Bank, Siam

Commercial Bank, Thai Danu Bank, and Thai Farmers Bank; for foreign banks – Bank of America,

Chase Manhattan Bank, Citibank, N.A. and Sakura Bank, Ltd. The interview was actually carried

out in 1994. After the ﬁnancial crisis, some of the local banks have been acquired and merged with

foreign banks, i.e. Thai Danu Bank is now DSB Thai Danu after the merger with DBS (Singapore),

while Bangkok Bank of Commerce was transformed into Thailand Assets Management Co. under

the government policy directives.

bank entered the Security Exchange of Thailand and the bank’s shareholder structure

was changed. The owner withdrew from the management activities and promoted a

professional manager to the top executive position (managing director). Furthermore, the

bank started to recover after a long period of proﬁt loss. It was because of this, together

with the structural change of the bank, that the HRM indicated that the union had then

become militant. However, some cultural elements seem to facilitate their relationship

with the management. For example, the union representatives addressed the manager

by their seniority in age and work experience in their interaction with the management.

Thus, a certain level of consideration was given to the management side. This makes the

management feel they can negotiate and work out an agreement which would satisfy

the needs of both sides. The impact of deregulation policy to increase competition in

the labor market has also made many banks more responsive to their employees’ needs

so that they can maintain their workforce. Some banks have also brought unions into

their participative system of management (Lawler and Siengthai, 1997).

HRM in the multinational enterprises

There are many MNCs and joint ventures in Thailand, but the major investor MNCs

are those from Japan and the USA. In the earlier days of foreign investment in Thailand,

most investments were in the form of foreign direct investment whereas nowadays a

substantial proportion of investment is also in the form of equity. The US ﬁrms were

among the ﬁrst group of investors who came to Thailand and in fact had established

a special treaty with the country to have 100 percent ownership.

It was found that in terms of recruitment, the western ﬁrms prefer to buy skills from

outside to ﬁll in the existing openings (Lawler et al., 1997). Foreign ﬁrms, on average,

tend to favor those with US degrees. However, there has been more practice of promoting

from within and ﬁlling in the vacancies by the employment agencies’ search. This means

that there is an opening bid for the positions available, as opposed to internal promotion

in the Japanese joint-venture ﬁrms. Furthermore, Japanese management tends to invest

heavily in on-the-job training for their employees at all levels, while in the American

ﬁrms, there tends to be more training and development at mainly managerial and

professional levels. Some multinational ﬁrms in Thailand, such as those in the

construction industry, will recruit new employees through apprentice programs offered

to students who have performed satisfactorily during their training period, meeting the

requirements and demands of the company. In addition, they have their own training

centers. Technicians and experts from parent companies come to train engineers,

foremen, and supervisors as the demand for certain new skills or knowledge arises.

Companies also send their employees abroad for technical and marketing training,

normally to Asian countries such as Singapore, Philippines, Malaysia, and India.

However, after the ﬁnancial crisis, the companies have had to cut the budget for this

purpose. Staff in head ofﬁce are permanent but those who work only for short-term

projects are laid off after completion if new projects are not in the ofﬁng, although

HRM in Thailand • 161

normally, they are transferred to new projects where possible. The companies have a

ﬂexible policy towards the transfer of contracted employees from one project to another

as well as from one place to another. Therefore, this ﬁnding implies that, while there is a

broad career path for the employees in Japanese ﬁrms, there is a narrower career path in

American ﬁrms. For example, a worker in the Japanese ﬁrm can be trained on the job and

eventually reach supervisory level; in rare cases, particularly in the early days, can that

employee with the most outstanding supervisory skills climb up to a lower level

managerial position. This, however, was in the days when Japanese joint-venture

companies were not so much favored by Thai workers. On average, this is seldom the

case in American ﬁrms, because they tend to prefer specialization more than the general

skills preferred by Japanese ﬁrms. This ties into the fact that in Japanese ﬁrms,

compensation is linked to seniority or length-of-service with the company, simply

because on-the-job training means the company has invested in the individual a broad

range of skills to tap into later during length of service to the company. It is also a means

to maintain these employees with the company. On the contrary, seniority or length-of-

service within ﬁrms does not play a great role in the US joint ventures in Thailand. Here

ﬁrms do not generally invest much in training at the lower levels; more so for the higher

level employees. This has created a dual structure of wages or pay in the American ﬁrms,

obviously determined by a different policy on training or investment in human capital,

but also explained by it being usually harder to ﬁnd the right experiences in the labor

market, compared to the lower level skills and experiences where the number is more

plentiful. In terms of evaluation or appraisal, there is a different approach. In the US-

based ﬁrms, there is a tendency to have performance evaluation aimed at short-term

results while in the Japan-based ﬁrms, the evaluation is more long-term. So, even though

there is periodic evaluation, it is intended as a feedback mechanism for individuals to

improve their performance rather than used as a determinant of continuation of contract.

For the US-based or western ﬁrms, wages or compensation are usually higher than the

market wage rates. Therefore, these western ﬁrms generally do not experience difﬁculty

in acquiring the best skills available in the market. This is different from the Japanese

ﬁrms which are about the same size as Thai local ﬁrms, but as job security is preferred,

they also attract the workforce. Over time, there have been improvements in the

management practices of the Japan-based ﬁrms in Thailand.

Clegg and Gray (2002) investigate the Australian expatriate management issues in

Thailand. They examine the role of HR policies in ensuring that the right people are

chosen to represent MNCs in overseas locations as in the provision of pertinent support

policies, such as preparation for overseas assignments and cross-cultural training. Their

sample is composed of Australian expatriates in Thailand. The questionnaire survey was

conducted by members of the Australian–Thai Business Council in Thailand in 1999. The

ﬁndings provide some insights for expatriate management policy, including the notable

conclusions that the market for expatriates is changing and becoming more demanding

and that the imperatives of the emerging global market for human capital require a much

more structured approach to expatriate management development. For the selection

process, attention was paid to cultural aspects of the work environment. Not enough

162 • Sununta Siengthai and Clemens Bechter

attention, however, was paid to the team dynamics based on the selected team members

(Clegg and Gray, 2002: 612). In their survey, the results reveal that a third of respondents

had their spouses involved in the selection process. In terms of performance appraisal

processes, most of the respondents judged that their technical skills and maturity to cope

with a foreign posting were key factors in gaining them the position they currently held.

For a signiﬁcant majority of respondents (i.e. 65 percent), a host-country manager was

involved in the appraisal process. In regard to the added stresses of the foreign

environment in the performance appraisal process, many respondents noted that the

compensation covered this facet of the expatriate experience while an appraisal was

purely on ﬁnancial results, i.e. the “bottom line.” The appraisal looks at the achievement

of objectives within this context.

With respect to compensation, there are a variety of different approaches regarding

expatriates. Factors inﬂuencing the differentials between the expatriates and those

working at the headquarter ofﬁce include personal and upheaval, cultural incongruities

that must be managed and often political risks faced. These result in the structure of a

package being considerably different than for an equivalent role in Australia. The issues

include currency denomination, provision of housing and additional perquisites to

compensate for the change in lifestyle.

Kongchan (2001) found in his comparative study of HRM between local Thai ﬁrms and

the multinational corporations (MNCs) as follows. The units which are responsible for

HRM in Thai and multinational companies are mostly found at divisional level, with the

divisional manager as the one who is responsible for the main functions. In particular,

HR division in American companies more than other companies is involved in strategic

planning, followed by European companies, and Thai companies. HR division in

Japanese companies is involved in strategic planning less than others. In terms of HRM

planning, no difference is found between Thai and multinational companies. Most of the

HR executives are involved in strategic planning at high level and most of the companies

consider HR as a very important factor in strategic planning. In terms of HR planning,

no difference is found either. Generally, the process starts with the unit that needs more

staff submitting its request to the HR department. However, manpower decisions are

mostly made by high-level executives or committee. The higher participation in

manpower planning in terms of having representatives from all divisions concerned with

such decision-making processes is, however, higher in the American companies. In terms

of the recruitment and selection process, American-related companies are found to

delegate more of the selection decisions to line managers. With respect to recruitment of

executives, most companies utilize both internal and external sources. For external

recruitment, American and European companies use recruiting ﬁrms in higher percentage

than Thai companies, who prefer personal referral to other approaches. At operational

level, Thai, Japanese, and European companies mostly perform their own recruitment,

while American companies conduct their own recruitment as well as using outside

services. For Thai companies, walk-in applications are most popular, followed by internal

search. For Japanese companies, the following approaches are used: walk-in applications,

newspaper advertisements, and campus recruitment. In American companies, walk-in is

HRM in Thailand • 163

the most popular approach but internal searches are also used. American companies are

found to use training and development for long-term planning more than other ﬁrms.

With respect to performance appraisal, there is no difference between Thai and

multinational companies. Most of them have appraisal once a year with a major objective

being payrise, followed by performance improvement. Both qualitative and quantitative

criteria are used in performance appraisal. Most of the companies reported that they

informed their employees of objectives and criteria. In addition, they also have training

for appraisers (Kongchan, 2001). American companies provided involvement of

employees in the appraisal process in higher percentage as compared to other companies

and clearly had more career planning programs than others. Most of the Japanese

companies did not have career planning programs. This could have been due to the fact

that most of them are basically manufacturing units and operational bases much larger

than the professional level employees. Thai and European companies have reported

having career planning programs but not formalized ones. In terms of reward systems,

there was no difference between Thai and multinational companies (Kongchan, 2001).

Productivity or performance was mainly used as a basis for rewarding. In terms of

preparation for globalization, changes in work process or system were mostly used by

Thai and Japanese companies. Americans emphasized on HR development while

European companies focused on IT and communication improvement more than other

approaches.

Current development of HRM in Thailand

Since the Asian ﬁnancial crisis in 1997, the HRM issues have been given more

importance than ever. In the public sector, the Ministry of Education is being developed

under the Reform Program. There is a plan by the current government to merge the

Ministry of Education with the Ministry of University Affairs so that the overall planning

and implementation of educational programs can be fully integrated and allow more

efﬁcient and effective use of the national resources. It is hoped that the system of

education will be more adaptable to the needs of the labor market and changes in

technology. It is hoped that the new system will be able to produce the basic skills and

enhance the potential workforce to be able to adapt to the needs of the society and

economy.

In mid-1997, when Thailand was severely hit by the ﬁnancial crisis, many companies had

to restructure and downsize. Cases of lay-offs were experienced by many of them who

had been playing in the international markets either through exporting their products,

investing overseas, or even making loans from international sources through the BIBF

ofﬁce. In addition, most of these ﬁrms were well-established ﬁrms that were now in their

maturity and the market was saturated. Thus, they suddenly found themselves faced with

the necessity to go through these rapid changes in the environment. Together with the

international agreement on trade, all this has led to the more active and signiﬁcant role of

HRM within ﬁrms. Moreover, the professionalism of HR managers has also been

enhanced substantially.

164 • Sununta Siengthai and Clemens Bechter

A study of one large conglomeration in Thailand

suggested that the redeﬁned business

strategy of dividing the ﬁrm into two main business activities, namely, full-cycle

agriculture and technology-related business, has led to more investment in human

resources as part of the company’s policies (Chawewatanasskul, 1998).

Studies on business ﬁrms’ HRM strategies and practices have revealed that, for those that

do have business strategies, they adjusted their HR strategies and practices to cope with

the economic crisis (Laohathanakul, 1999; Vorapongse, 2001). For example, with respect

to recruitment, most organizations had settled retrenchment, turnaround strategies by

recruiting only certain necessary positions and the selection process had become very

rigorous. They became more strict in the probationary evaluation of the new employees.

In the real estate sector (Vorapongse, 2001), for example, most ﬁrms have recruited more

employees mainly from the external labor market to support the expansion of the

company. This is on the basis of speciﬁc qualiﬁcations, knowledge, competence, and

experience. In terms of remuneration, most companies have suspended or reduced

monthly payments, bonuses, annual salary increases, overtime, strict overtime payments,

reductions in work hours/days, payment for time not worked, sub-contraction, or/and

reduction in welfare or activities. Vorapongse (2001) found that in the real estate sector,

most companies set the compensation level according to the standard of living. Bonuses

are paid depending on the proﬁts made. With respect to welfare and fringe beneﬁts, most

organizations provide welfare and fringe beneﬁts, some of which are required by law and

some not. Performance appraisal is based on the proﬁts made by the company and

performance achieved by the individual employees (Vorapongse, 2001). Laohathanakul

(1999) found that these companies have turned to in-house training and on-the-job

training as a result of the recession. These HR development policies have also been

evidenced by the public enterprises under the privatization scheme, such as the

Telephone Organization of Thailand (TOT), The Communications Authority of Thailand

(CAT), the Electricity Generating Authority of Thailand (EGAT), and so on. (Bothidaht,

2001; Kongsanchai, 2001; Chirarattananon et al., 2002). They have also attempted a

workforce redeployment and/or job rotation. However, lay-off is used as the last resort

for most ﬁrms.

Many organizations, both private and public enterprises, have currently made use of the

new ICTs to enhance the efﬁciency and effectiveness of their HRM practices. Many have

started to have the so-called “e-HR.” Others are following suit but with the attempt to

ﬁrst restructure their organization. It may be said that, for most large-sized ﬁrms, the

following HRM strategies have been proposed:

1 early retirement program;

2 redeployment program;

3 more effective performance management;

4 core competencies appraisal program.

HRM in Thailand • 165

8 This is the Charoen Pokaphand Group which is one of the largest corporations in Thailand.

Perhaps, one good thing for ﬁrms faced with ﬁnancial crisis is that the phenomenon of

job-hopping is not a problem any more. Certainly, with some scarce skills, job mobility is

still high. Most ﬁrms are now trying to maintain the core workforce and outsourcing of

some activities is more common. In fact, casual observation suggests that many large

corporations have started to divest some units into another legal entity. This results in

both downsizing and increased efﬁciency of operation due to a higher level of autonomy

of decision-making and speed of market services. The divestiture is, in a sense, more of

the network organizations’ creation. As in the beginning, most of the projects or bidding

will be granted to the divested unit. Later on, when this is better organized both in terms

of services and human resources, more variety of services are then available to the market

in general. This means that the HRM function also has to be separated from the parent

organization. It may or may not follow that of the parent organization as the nature of

the business may not be the same; this also explains why the split would be an advantage

in terms of HRM.

Some business organizations have now changed the title of “human resource department”

to that of “resourcing department.” This seems to suggest that the traditional concept of

personnel management and even that of just HRM take on a broader perspective. This is

in line with the view which advocates that an organization will gain its competitive

advantage through development and sustainability of its renewable and inimitable

resources like HR.

However, as has been observed, in the business operations, the HRM function of ﬁrms

in Thailand has experienced a rather slow growth and development. Until recently,

most companies still had a traditional personnel management which was only the

systematic approach and basically perceived as the pay-roll function. On the part of

the private sector, business companies are now incorporating HR issues into their

strategy formulation more than they used to. This is partly due to the following

(Siengthai, 2002: 34):

1 The market scenario changes rapidly. Firms are unavoidably faced with rapid changes

in the external environment. Many which are now engaged in the export markets will

have to be more strategic in their perspective as they will need to cope with some

external shocks.

2 In addition, with the availability of information technology and telecommunications

infrastructure known as new information and communication technologies (ICTs),

ﬁrms can now be more responsive to their customers through these technologies which

enhance better communication between producers of goods and services and their

customers.

3 As the country is moving towards the higher technology production level and more

quality service industries, human resource management is becoming a more critical

success factor of such a development path.

4 With the advent of new technologies, ﬁrms are also ﬁnding themselves incapable of

taking the opportunities because their existing workforce have not been trained or

upgraded in term of skills to cope with technology. The changes brought about in the

166 • Sununta Siengthai and Clemens Bechter

new economy, therefore, present a challenge for them to bring human resource

management into their focus.

5 Innovation and productivity improvement will be the important issues for ﬁrms to

enhance their comparative advantage in the global market.

6 Another aspect which Thailand has yet to achieve is a good industrial relations system.

Currently, there is still a lack of conﬂict resolution mechanisms which provide

satisfaction to both employers and employees.

7 Last but not least, Thailand has always experienced a high rate of female labor force

participation. In the last decade, women managers also have increased in number in

various sectors, particularly those in the service industries. It is, therefore, another

agenda for the human resource managers to pay attention to the issue of workforce

diversity so that an organization will be able to utilize its human resources effectively

for organizational performance.

The challenges faced by the HRM function

Many challenges are brought about by the globalization process to the HRM function.

At the regional level, industrialization and globalization has been expected to bring about

the convergence of HRM/IR systems (Lee, 2002: 278). It may be summed up as the

management of change for the organization. The HRM function must be more proactive

and take initiatives in this new role as a business partner. Among these changes are the

deregulation policy or privatization scheme by the government as the external

environmental changes, the restructuring or downsizing policies of ﬁrms, the advantage

of the new ICTs and ﬁrm policies to exploit it, the shift from low-wage to high-wage and

high-skilled labor as well as the need for management development to cope with these

changes, the workforce diversity which comes with the globalization process and the

regionalization process allowing free ﬂow of products, capital and labor; and at the micro

level of ﬁrm operation, the need to link between the HRM and the ﬁnancial performance

of the companies, organizational innovation and productivity improvement, the

empowerment of employees, project-based contracts, the management of workforce

redundancy, the bipartite labor–management relations, and so on.

There is a need for Thailand to move away from the notion of low wages as a source

of competitiveness and begin to invest more in the development of a skilled workforce,

calling for far-reaching reforms in the educational system (Kamoche, 2000). Such efforts

are likely to be hindered by existing cultural norms. For example, the hierarchical

nakrian–ajarn (student–teacher) relationship turns the student into a passive recipient of

knowledge and probably creates a culture of dependence in which the student (or in this

case employee) is taught that it is impolite to question the ajarn (or employer). If the HR

is to make a signiﬁcant contribution to economic recovery and industrial development, it

will be important to institute change that creates more inquisitiveness and a willingness to

challenge conventional wisdom in education, and more scope for management and

employees to engage in constructive dialog as to how best to tackle their difﬁculties. This

will entail reviewing the sustainability of existing patterns in organizational paternalism.

HRM in Thailand • 167

However, with the government policy to deregulate and privatize by 2006, which has

been agreed in the ASEAN forum, the union has become low proﬁle and to some extent

inactive. On the other hand, the HRM divisions of these organizations have become more

active as partners in that change process.

As observed in recent years, the impact of the ﬁnancial crisis is still prevalent. The

government as well as the private sector organizations are still working on the recovery

of the economy. Together with the ﬁerce competitive environment, it is foreseen that

organizations will unavoidably keep on shedding the redundant workforce that has

resulted from bringing in more labor-saving technology such as IT and the automation of

certain services functions in the organization. Even though the introduction of such

technology will create the need for some certain skilled labor, the workforce needed

would not be equivalent to the earlier period of economic development. The other

implications of this is the increase in overhead costs as the higher skilled employees will

also imply higher wages and salaries, hence, the need for organizational restructuring to

become ﬂatter and for large corporations to continue to enhance customer responsiveness.

The dual economy in Thailand will become more evident as there will be a digital divide

between organizations which now take advantage of the new ICTs and those which are

still run by the traditional management approach and are basically small-scale family

business enterprises where there is no formal HRM system. For those which are now

moving into more high-tech-led operations, the new competitive landscape will

necessitate that they resort to more of the individualized terms and conditions of

employment for higher skilled and scarce employees.

A discernible trend in management is observed to be towards a greater individualization

of the employer–employee relationship (Silva, 2002). It implies less emphasis on

collective and more emphasis on individual relations. This is reﬂected, for instance, in

monetary and non-monetary reward systems. In IR, the central monetary reward is wages

and salaries, one of its central themes (effected by collective bargaining) being internal

equity and distributive justice and, often, standardization across industry. HRM

increasingly places emphasis on monetary rewards linked to performance and skills

through the development of performance and skills-based pay systems, some of which

seek to individualize monetary rewards (individual bonuses, stock options, and so on).

HRM strategies to secure individual commitment through communication, consultation,

and participatory schemes underline the individualization thrust, or at least effect, of

HRM strategies. On the other hand, it is also legitimate to argue that HRM does not focus

exclusively on the individual and, as such, does not promote only individual employment

relations (Silva, 2002). Though much of HRM is directed at the individual, at the same

time there is a parallel emphasis on teamwork, whether in the form of quality circles or

functional ﬂexibility, and above all, on the individual’s commitment to the organization,

represented not just as the sum of the individuals in it, but rather as an organic entity with

an interest in survival. The potential conﬂict between emphasizing the importance of the

individual on the one hand, and the desirability of cooperative teamwork and employee

commitment to the organization, on the other, is glossed over through the general

assumption of unitarist values (Silva, 2002).

168 • Sununta Siengthai and Clemens Bechter

The concept of the HR system as a strategic asset has implications for both the

characteristics and the effects of such a system. Strategic assets are “ the set of difﬁcult

to trade and imitate, scarce, appropriable, and specialized resources and capabilities

that bestow the ﬁrm’s competitive advantage” (Amit and Shoemaker, 1993: 36). Becker

et al. (2001: 3–4) assert that the development of HRM practices can be represented as the

following evolutionary processes: (i) the personnel perspective; (ii) the compensation

perspective; (iii) the alignment perspective; (iv) the high-performance perspective.

According to them, “the personnel perspective” refers to practices by ﬁrms which hire

and pay people but do not focus on hiring the very best or developing exceptional

employees. “The compensation perspective” refers to ﬁrms that use bonuses, incentive

pay, and meaningful distinctions in pay to reward high and low performers. “The

alignment perspective” is represented by senior managers who see employees as strategic

assets, but they do not invest in overhauling HR’s capabilities. Therefore, the HR system

cannot leverage management’s perspective. Finally, there is “the high-performance

perspective” where HR and other executives view HR as a system embedded within the

larger system of the ﬁrm’s strategy implementation. The ﬁrm manages and measures

the relationship between these two systems and ﬁrm performance.

On reﬂection, in the case of Thailand, we may be able to say that the development of the

HRM function and the perception of the other departments in the majority of ﬁrms are

more likely to have developed to the second stage or that of compensation perspective.

However, the globalization process has brought about changes in its role and its image is

now being perceived more as a business partner in large organizations.

Conclusion

This chapter has provided the historical development of HRM, IR, and personnel

management in Thailand. It discusses the changes in the role and the signiﬁcance of

HRM from a payroll function to a business partner in the business operations in the

country which is still struggling to achieve a sustainable economic development. The

empirical evidence suggests that currently, although the role of HRM practices has

become more highlighted as contributing to achieve competitive advantage of the ﬁrms,

the top management perception of this function as a business partner is still not very

positive as most of the survey respondents suggest. Following this, the key factors

inﬂuencing the HRM practices in Thailand are identiﬁed. The authors then offer their

observations of the challenges ahead to be faced by HRM and also provide the readers

with some websites (see p. 172) where information on HRM practices and development

in Thailand may be accessed for future reference.

In sum, most of the HR functions in these sample ﬁrms are still not regarded as a

signiﬁcant in their business strategies and change implementation. Thus, it is suggested

that the HR managers should try to enhance their professional competencies. They

should have the understanding of the overall business and communicate more often and

HRM in Thailand • 169

effectively with the chief executive ofﬁcer (CEO) and other executives of the company

by being more proactive in their HRM.

Acknowledgments

The authors would like to express their thanks and appreciation to many executives

and managers who have contributed through provision of time and insights in various

in-depth interviews conducted over the years. Their thanks are also extended in

particular to John J. Lawler and John D. Kasarda as well as many others with whom

they have had research project collaboration in the past. The authors appreciate Decha

Dechawatanapaisal, Siliphone Sisavath, and Sittichai Noibua for their library research

assistance and some ﬁeldwork. Part of this study has been funded by the Asian Institute

of Technology as an initiation research grant to which they owe their gratitude and

appreciation. Finally, they thank the anonymous referees for their comments and

suggestions.

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HRM in Thailand • 171

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Useful websites

In recent years, the boom of IT has also enhanced the ability of the HRM association and other

organizations that are involved in the manpower planning, HR development and professional

development activities to share and offer their knowledge, information and services to the public at

large. The following websites in Thailand are currently active:

Personnel Management Association of Thailand (PMAT): http://www.pmat.or.th

Thailand Management Association of Thailand (TMA): http://www.tma.or.th

Ministry of Labour Protection and Social Welfare: http://www.mol.or.th

Bank of Thailand (BOT): http://www.bot.or.th

National Statistical Ofﬁce of Thailand (NSO): http://www.nso.or.th

Federation of Thai Industries (FDI): http://www.fdi.or.th

172 • Sununta Siengthai and Clemens Bechter

HRM in Vietnam

TRUONG QUANG AND LE CHIEN THANG

Introduction – the quest for competitiveness

After many years of protracted wars and postwar readjustment and orientation, Vietnam

started to rebuild its institutions in the early 1990s. There are many reasons for this late

but critical undertaking. The quests for sustainable development and integration into the

world mainstream both require a well-functioning governance apparatus with people

working in all sectors and at all levels. Human resource management (HRM) particularly

is recognized as one of the most important factors contributing to the country’s overall

competitiveness and long-standing socioeconomic achievement.

In this respect, an attempt to link competitiveness with management competence could

be meaningful (Quang, 2001). For instance, the World Economic Forum (WE) published

a survey of world competitiveness in 2001. Table 9.1 shows that Vietnam was ranked

sixtieth, down from ﬁfty-second in the previous year, which is quite in keeping with its

rankings in human development (HD) and the human development index (HDI), despite

a better score in the education index (IG). As suggested, for example, by continuing loss

of competitive advantage to Thailand (The Nation, 25 June 2001), Vietnamese companies

will have to take immediate and concrete measures focusing on human assets to improve

their inferior positions in the international markets.

Building and managing human resources (HRs) strategically have been the center of

concern for many organizations in the world in the face of increasing global competition

and in the relentless search for sustainable sources of competitive advantage. Likewise,

the criticality of human assets to business success has been stressed in recent years by

government authorities and managers in Vietnam. This new trend has surely been driven

by the initial achievement of the renovation policy (doi moi), which came into effect in

early 1987 and aimed at transforming the country from a rigid centrally planned system

into a more ﬂexible market-oriented economy. The structural reforms necessitated by this

campaign have revealed several impediments, including the deﬁciencies in the existing

system of personnel or HRM that have been blamed for slowing down the pace of the

country’s development and integration process. Nevertheless, so far, little seems to be

have been done about understanding the way in which HRs are managed (Kamoche,

2001), and whether or not there exists an linkage between HRM and organizational

effectiveness.

The shortage of knowledge and practice of HRM has been well manifested in the slow

development of restructuring reforms of government apparatus and state-owned

enterprises (SOEs), especially the equitization process (the Vietnamese version of partial

privatization) and the mediocre performance of the majority of organizations in Vietnam,

public and private alike. It is also reﬂected in the magnitude of problems that foreign

investors have had to confront in Vietnam with regard to human issues in management as

a result of the mismatch between expectation and reality.

174 • Truong Quang and Le Chien Thang

Table 9.1 Vietnam’s competitiveness and human development indices

Country Competitiveness Human Human Education index

ranking (CR)* development development (EI)**

ranking** index (HDI)**

Finland 1 10 0.930 0.99

USA 2 6 0.939 0.98

Norway 6 1 0.942 0.98

UK 12 13 0.928 0.99

Belgium 19 4 0.939 0.99

France 20 12 0.928 0.97

Japan 21 9 0.933 0.93

China 39 96 0.726 0.80

Taiwan 7 – non-UN non-UN

Hong Kong 13 23 0.888 0.83

Korea 23 27 0.882 0.95

Singapore 4 25 0.885 0.87

Malaysia 30 59 0.782 0.80

Thailand 33 70 0.762 0.84

Philippines 48 77 0.754 0.91

Vietnam 60 109 0.688 0.84

Indonesia 64 110 0.684 0.79

Cambodia – 130 0.543 0.66

Laos – 143 0.485 0.52

Myanmar – 127 0.552 0.75

(* = in 2001, N= 75; ** = in 2002, N = 174)

Sources: IMD, 2001; UN Human Development Index, UNDP Human Development Report, 2002

Note: The UNDP uses the Human Development Index (HDI) to measure the quality of life of nation, as a

more meaningful way to complement the comparison based on GDP/head. A nation HDI is composed of

life expectancy, adult literacy and GDP per capita. The HDI of Vietnam was 0.539 (1995), 0.644 (1997),

0.671 (2000), 0.682 (2001), and 0.688 (2002) respectively out of 174 countries.

A study of the characteristics of Vietnamese sociopolitical and economic structure and

the development of the country’s economy in transition might help to shed light on the

critical issue of HRM.

Cultural and political structure

In relative terms, China, Japan, Korea, and Vietnam are considered part of the same

cultural region, inﬂuenced by a common Confucian heritage (Hung et al., 1999). These

cultures tend to be more collectivist and hierarchical than western cultures (Hofstede,

1997). In addition, authors studying Vietnamese cultural values show a judgmental

consensus that the Vietnamese culture is typiﬁed as high power distance (acceptance of

authority), high collectivism (value group membership), moderated uncertainty avoidance

(value security), and high context (Swierczek, 1994). As suggested by Hofstede (1998),

for countries once under Chinese rule, Vietnamese culture is reﬂected in large power

distance but medium to weak uncertainty avoidance.

Recent studies suggest that contemporary Vietnamese culture is experiencing a subtle

change from its traditional culture as a result of socioeconomic development in the last

few decades. Ralston et al. (1999), in a comparative study of the managerial values of

Vietnamese managers with those of Chinese and US managers, found that the

Vietnamese were higher on collectivism than the other groups but a recent moving

toward a market-oriented economy from an historical communistic economy and

Confucian cultural philosophy has resulted in a mixed set of values that incorporates

both old and new, and which may be characterized as a paradoxical composite embracing

both Collectivism and Individualism (Ralston et al., 1999: 670). Other authors reckoned

similarly that despite the inﬂuence of socialist ideology, Vietnamese employees in the

postwar period tend to veer towards individualism in that they have no common goals nor

shared objectives and emphasize individual achievement (Quang, 1998; Tuan and Napier,

2000).

The discrepancy in cultures between regions and the shared heritage of long periods of

colonialization (under the Chinese and the French) and internal conﬂicts have left their

mark on all types of organizations in terms of leadership and management styles, and

managerial practices. A blend of such “good” behaviors and practices as “the noble

man,” “hierarchy,” “mandarin career,” “respect for seniority,” and “middle of the way”

(Chinese); “divide and rule,” “elite system,” and “individualism” (French); “grassroots

democracy” and “delegation” (American); and “egalitarianism” and “collective decision

and responsibility” (socialism) may still be seen ubiquitously in all organizations

throughout the country.

The cultural tradition and the sociopolitical environment as described above are reﬂected

in several aspects of the organization/employee relationship such as adherence to rules,

common values and norms, less individual-oriented pay, and harmony (Zhu, 2002),

which will be discussed in more detail later.

HRM in Vietnam • 175

Politically, Vietnam is still basically a one-party system with the Communist Party of

Vietnam (CPV) in absolute control since 1954 in the north and since 1975 in the whole

country. The CPV is itself positioned at the top with its politburo and permanent

secretariat. The CPV Central Committee is the all-important decision-making body,

under which all local committees constituted by party members are located. Both the

politburo and secretariat, together with the Central Committee, control and guide the

National Parliament (Legislature), the Cabinet (Executive) and other satellite

organizations such as the Fatherland Front, the Trade Union, the Youth/Women/ Farmers

Associations, and more. This parallel structure goes all the way down to village level,

where the executive people’s committees and people’s council, all closely linked to the

Party’s local committees, are established. Elections, which occasionally take place, are

all to be understood within such a political structure. The CPV Congress, which is held

once every ﬁve years, decides on the course of strategic orientation, to the national

political programs, to foreign policies to be carried out by all organizations and

individuals in the society.

The political system in Vietnam is based on consensus and collective decision-making

(tap trung dan chu or democracy centralism), which are the principal tenets of socialism.

The dominance of the CPV and the rule of the socialist principles still have strong

inﬂuences on all activities of Vietnamese society and business with regard to structure,

culture, and HRM.

Socioeconomic structure

Vietnam is certainly not a poor country in terms of human resources. It has a large

population of c. 80 million (in 2000), a 94 percent literacy rate, and a dynamic and

relatively well-educated workforce. The total labor force is c. 38.2 million, more than

half of them under 25 years of age. The gender distribution is 50.6 percent female and

49.4 percent male (International Data Base, 2002).

The young and imbalanced population structure in favor of females has shaped the

composition and conditions of the Vietnamese workforce, which is characterized by high

unemployment pressure, signiﬁcant women gender expectations, labor ﬂexibility and

mobility.

As shown in Table 9.1, Vietnam’s human resource development index (HRDI) is

comparatively high and continues to improve over the years as the leverage of the

continuing reform process. As a matter of fact, due to the HDI achievement status,

Vietnam is no longer considered an “underdeveloped country” by UNCTAD in 2003,

despite a still modest GDP per capita of US$420, which is still far below the required

level of US$1,035 (Vietnam News Agency, 16 May 2003). This leads to a mismatch

between supply and demand in the labor market. One of the clearest examples of this

paradox is that, while a large proportion of the manufacturing industry makes extensive

utilization of cheap and unskilled labor, many essential sectors of the economy have been

left untapped due to a serious lack of skilled labor.

176 • Truong Quang and Le Chien Thang

To be sure, Vietnam has achieved signiﬁcant economic improvement in recent years,

which is widely attributed to the success of its doi moi policy. The on-going economic

renovation campaign has profoundly changed the country’s business landscape, ﬁrst by

freeing the state from direct involvement at the enterprise level with management of the

economy and then by giving enterprises greater autonomy to cope with the move towards

a market economy. The major drives are to streamline the state-owned enterprises,

unleash local private sector potential and attract foreign investment. The economy has

responded favorably to the new treatments. The GDP grew slightly at 3.6 percent in

1997, immediately after the introduction of the new policy, and continued to accelerate

at a rate of between nearly 5 and 6 percent in the next four years before it soared to a

level of 8 percent between 1992 and 1994. Noticeably, the economy experienced the

most dynamic period when the GDP growth rate almost reached the 10 percent mark in

1995 and 1996. Unfortunately, the well-publicized Asian crisis in 1997 put a brake on

this improvement and brought down the GDP growth rate to 8.2 percent, then to 4.8

percent in 1999. The economy showed signs of gradual recovery when the GDP growth

rate jumped to 6.8 percent in 2000 and re-emerged with a ﬁrm increase of 6.8 and 7

percent in the ensuing years (Vietnam Economic Times, 2003).

The long period of constant growth and the comparatively stable political conditions

have been the two most important factors in attracting a growing number of foreign

investors and engaging the private sector in the country’s development process in the

last decade.

Nevertheless, in spite of signiﬁcant achievements due to the doi moi policy, most of the

Vietnamese economy still rests largely on agriculture and industry. The service sector has

begun to gain ground only in the last decade, especially in hospitality and foreign trade

sectors. The irrational distribution of human resources is reﬂected in the ofﬁcial plan as

demonstrated in Table 9.2, given the growth in the service sector.

HRM in Vietnam • 177

Table 9.2 Sectoral composition and distribution of labor in Vietnam

2001 2005 (plan)

% Share of GDP

Agriculture 23.3 20.0

Industry 37.8 38–39

Services 39.0 40–41

% Labor utilization

Agriculture 60.5 57–58

Industry 14.4 20–21

Services 25.1 20–23

Source: CIEM, 2002; GSO, 2002; MOLISA, 2002; TBKTSG, 16 January 2003.

In terms of ownership, the current Vietnamese economic structure represents three main

sectors: state-owned, domestic private (non-state), and foreign invested. Organizations in

each sector differ substantially in ways of people management, as has the impact of HRM

effectiveness on organization performance. On the other hand, since state-owned

enterprises (SOEs) are still considered the backbone of the country’s economy, HRM

practices in Vietnam bear many characteristics of this sector up until now.

In 1999, the state-owned sector contributed the highest to GDP (49 percent), followed by

the private sector (41 percent), and foreign-invested sector (10 percent). In order of

importance, the three sectors provided 9, 90 and 1 percent of total employment

respectively, of which the non-state sector (the household and farm sector) still occupies

a large part (Table 9.3).

From the above ﬁgures, the state-owned sector generates roughly 5.5 percent to GDP per

1 percent of the total workforce employed on average, while this number is 5.1 percent

for private companies and 17 percent for foreign-invested companies. By and large, these

ﬁgures suggest a better level of productivity in the foreign-invested sector as a result of

the high degree of HR utilization as compared to other sectors. In the absence of available

ﬁgures for subsequent years, it is difﬁcult to make a projection on the productivity

improvement of each sector. However, despite its small size and start-up position, the

growing number of private enterprises in current years demonstrates a surge in the

output/workforce ratio of this sector.

Management system before the renovation period

Prior to 1986, Vietnam followed a centrally planned economy, in which the Central State

Planning Committee determined resource allocation in the whole country. Accordingly,

performance targets were distributed to the production units following a rigid

bureaucratic and hierarchical management system. Managers in the state enterprises (no

178 • Truong Quang and Le Chien Thang

Table 9.3 GDP and employment by type of ownership in Vietnam, 1999

% of GDP GDP by ownership Employment by ownership

Share in 1999 Growth ’96–’99 Share in 1999 Growth ’96–’99

Total GDP 100.0 7.0 100.0 3.4

Public (state and collective) 49.4 6.9 9.0 1.5

Non-state (total) 40.5 5.1 90.4 3.4

Household and farms 33.2 4.9 89.0 3.3

Private companies 7.3 9.7 1.4 12.1

Foreign-invested 10.2 18.1 0.6 38.5

Source: NCSSH, 2001: 33–34.

private business was allowed) strictly complied with orders coming down from the

center, having very little room to exercise their own leadership and management

competencies (Quang and Vuong, 2002). SOEs did not necessarily acquire labor with

the adequate set of skills and were invariably overstaffed because labor administration

arranged employees for individual ﬁrms (Doanh and Tran, 1998). It is understandable,

therefore, that enterprises did not have much latitude to motivate or discipline their

“own” employees/workers since the latter were not directly recruited and managed by

them. The enterprise’s function of personnel management only focused on basic activities

such as distribution of wages, provision of welfare and routine promotion of workers and

cadres (can bo cong nhan vien) from lower ranks to higher ranks according to centrally

set regulations. In the absence of a contractual employment basis, the reward system had

only an indirect relationship to enterprise and individual labor effort (Zhu, 2002). Under

these circumstances, HRM in modern terms was neither known nor practiced.

The key features of such management systems in the pre-doi moi period are evident in

Table 9.4.

Until the reuniﬁcation of the country in 1975, HRM western-style was practically non-

existent in all types of organization in Vietnam in terms of concept and practice. In fact,

under the centrally planned system, in which private ownership was not permitted, there

existed no such distinction between the public and private sectors since the state was the

HRM in Vietnam • 179

Table 9.4 Characteristics of the management system before the renovation period in

Vietnam

Items Characteristics

Planning term Short range (1–2 years)

Control devices Punching clocks; frequent observations

Quantity control

Some quality control (minor)

Authority deﬁnition Unclear

Degree of decentralization/delegation Low

Leadership style Paternalistic; autocratic

Trust and conﬁdence in subordinates Medium; “men of the system”

Personnel policy Not stated; not transparent and regulated

Communication pattern Top-down

Training programs Mostly on-the-job training; often not

effective and relevant to jobs

Motivation Monetary and psychological

Employee morale Not always high

Absenteeism Low

Productivity Low

Source: Quang and Vuong (2002).

sole owner of all means of production and employer of all enterprises. All employees

or workers were operating according to a uniﬁed set of disciplines and were rewarded

the same country-wide. Even after having undergone several phases of the “enterprise

re-structuring” which started almost simultaneously with the renovation campaign, many

organizations and enterprises have still been struggling to do away with the “bad”

practices of “full employment” (bien che), “subsidy” (bao cap), “collective

responsibility” (trach nhiem tap the) and the like in order to opt for a more effective

system of management.

The heritage of a rigid system has gradually given way to more relevant concepts and

practices in management, as the Vietnamese economy has been moving closer to a

market-oriented economy, albeit with “socialist principles” as described in the next

section.

HRM in transition

As the country has aimed at ambitious targets for development (e.g. to become an

“industrialized” country in 2020) and integration (e.g. to become an ofﬁcial member

of WTO in 2005), the current development pattern shows many deﬁciencies to be

overcome. The fact is that Vietnam is not short of labor in general, but of skilled

personnel, capable of handling work required in developed industries (Quang, 1997).

This requires a shift in basic thinking and practices of HRM in a system that had been

deep-rooted in a “collective ownership” system for many decades. A review of the

HRM evolution throughout the phases of the country’s transition into a market-oriented

economy will help clarify this change.

1975–1990: a “command” personnel administration

Although the overall campaign to renovate the country’s economy had already started in

early 1987, the real impact was only experienced at the beginning of the 1990s. Under the

“command’ system, management of HRs was also centralized. Each enterprise had a

personnel department (often called “organization department,” Phong To chuc) which

concerned itself more with political and social issues than functional activities. Its main

tasks were to keep employee records and to deal with promotion, salary, and beneﬁts at

all levels, including the management of the enterprise. The working principles of this

system were centralization, secrecy, relationships, and experience (not professionalism).

Ideally, the head of the department was a compromise ﬁgure for all parties involved,

including the party cell, the enterprise management, and the peripheral organizations,

such as trade union chapter and other representative associations.

To ensure organization stability, the system guaranteed lifetime employment for all,

which provided job security for the employees, but made it inﬂexible for managers in

stafﬁng decisions. Key positions in the enterprises were ﬁlled up by discharged

180 • Truong Quang and Le Chien Thang

revolutionaries and returning graduates from the Soviet Union or Eastern Europe, more

on political merit than professional qualiﬁcations. As it was based on the “promotion

from within” principle, little attention was paid to external sources of recruitment and

selection. Word-of-mouth, connections and employee’s referral were the most practiced

methods. Job advertisement in the media was not available since advertising was not

possible until the market concept was adopted. Family history proﬁle and contribution

record to the revolution was carefully scrutinized in the selection process and retained

in the long-term memories of the heads of department for future promotion and

appointment. The pay system was centrally ﬁxed and standardized for all levels to ensure

egalitarism. Pay and merit increase were not based on performance, but on seniority,

responsibility, and personal judgment. Merit increase was seen as a “distribution of

favor” from both the giver and the receiver. No formal appraisal session was planned or

held on a regular basis. Training only took place in on-the-job forms, and personal

development and career planning were neglected, with the exception of approved

potential high-ranking persons. Employee relations were grounded in the socialist basic

principle of “collective ownership,” which was extensively exhorted to nurture a sense of

responsibility and commitment of the workers to their organization.

As it was generally agreed, this mechanistic and egalitarian approach in managing people

did not stimulate personal creativity, productivity, and devotion to the common causes of

the organization. The poor performance and low level of employee satisfaction in the

state-owned sector, with more than a half of SOEs being loss makers or marginally

proﬁtable (World Bank et al., 2000: 30), was in part attributed to the failure of this

system. The urgent need to turn SOEs into more effective and efﬁcient enterprises to

support the country’s transitional move have paved the way for the second, but more

promising, stage of HRM in Vietnam.

1990–the present: learning and building a HRM system

Facing a near-bankrupt economy, the government of Vietnam (GVN) initiated a set of

radical reforms to overhaul the whole economy in late 1986. The private companies were

recognized for the ﬁrst time as an integrated part of a “multi-sector” economy in parallel

to an overall restructuring of the existing SOEs. In 1988, the government took a step

further to welcome foreign investment in an effort to achieve not only quantitative, but

also qualitative growth. In the last decade, there have been some positive movements

toward improving the organizational effectiveness and human resources development

which are described below:

● The number of SOEs has been reduced from 12,000 in 1990 to about 5,300 in 1999.

Many of them were consolidated, merged or equitized (a Vietnamese version of partial

privatization) for better performance or dissolved due to ineffectiveness (World Bank

et al., 2000). As a condition for their existence, the remaining SOEs were urged by the

government or tried themselves to work more effectively by adopting modern

managerial techniques and improving their competitiveness.

HRM in Vietnam • 181

● Only a few years after the promulgation of the Enterprise Law (Luat Duanh nghiep),

which allows private enterprises to operate on a “level playing ﬁeld” along with other

sectors of the economy, the number of newly registered private companies has risen

to 75,000, providing jobs to 2 million people by the end of 2003. More interestingly,

the private sector has surpassed the privileged public sector in contributing about

40 percent of the country total GDP as compared with 38 percent by the SOEs

(Nyugen, 2003).

● The continuing efforts of the GVN to make Vietnam an attractive destination for

foreign investors have resulted, during a period of ten years (1990–2000), in 2,501

projects with a total capital of US$ 36 billion from more than 700 companies and

multinational corporations from 60 countries all over the world (World Investment

Report, 2001). In 2000, FDIs contributed 12.7 percent to the country’s GDP and

provided 350,000 jobs nation-wide (Vietnam 2001 Economic Report, 2003). The

inﬂux of foreign investment has brought modern technologies and managerial

expertise into the country, providing “role models” for other sectors in terms of

management effectiveness.

Although the enterprises in the three sectors share the same concern about improving

performance, there are substantial gaps in the levels of practicing HRM due to difference

in the business objectives, historical background and operating conditions of each

enterprise.

Role and status of personnel management and/or HRM

Certainly, the advent of a large number of foreign companies into the Vietnamese

market within only a short period of time has effectually changed the business

landscape of this country, especially in the perception and the practice of effective

management. Western managers and Vietnamese counterparts often show a sharp

discrepancy in their philosophy and the way they manage the human resources stock

in their companies.

As noted by a researcher, Vietnamese companies are guided by the harmony of

long-term relationship and mutual responsibility. In this setup, the employer is

expected to take care of employees who show their full commitment and loyalty to the

employer (Kamoche, 2001). A direct result of this distinction is that, while foreign-

invested companies are striving to bring western practices into organizations, SOEs

(in many cases a business partner of joint-ventures) usually do not emphasize formalizing

the best HR practices but instead put the company’s “social obligations” above the

“economic needs” as traditionally required in the “corporate family” concept. Failing

to appreciate the need for compromise between these two distinct cultures and business

practices might lead to internal conﬂict and waste of resources. In case one side attempts

to impose “best practice” on the other and is blamed by its business partner of being

“ethnocentric,” it could even be a reason for breaking up the business venture (Quang,

1998b).

182 • Truong Quang and Le Chien Thang

The difference in the levels of HRM practices in the three sectors are as follows:

1 In the state-owned sector: Despite its dominant position in the economy and all the

privileges enjoyed from the government, the management effectiveness of the majority

of SOEs is far from at desired levels. There has been little improvement to the current

HRM system due to management incompetence and high resistance to change.

2 In the private sector: Many of the SMEs are initiated and run by young, dynamic, and

ﬂexible entrepreneurs. They are willing to work better, eager to learn, but often lack

managerial and strategic experience, especially in the area of HRM, to consolidate

their business development after the start-up phase. Due to lack of capital, they also

overlook the beneﬁts and necessity of training and development.

3 In the foreign-invested sector: Joint-ventures and 100 percent-owned foreign

companies stand out for the most advanced HRM practices. With the exception of a

few cases, in which the joint venture suffers from internal conﬂict with its local

partner, a fully-ﬂedged HRM department is set up and professional HRM activities are

carried out following international standards (mostly from the headquarters).

Current HRM practices in Vietnam

Modernization of HRM has just recently started to gain momentum in Vietnam. In fact,

in tandem with the marketing concept, HRM has been included in the MBA teaching

curriculum as a core subject, ﬁrst introduced in 1993 by foreign-aided programs such as

the Swiss-AIT Management Development Program (SAV, ﬁnanced by the Swiss

government) and the Centre Franco Vietnamien de Formation à la Gestion (CFVG,

ﬁnanced by the French government) (Quang, 1997: 276). These programs, followed by

several other government-to-government and institution-to-institution programs, offer

regular and short training courses that facilitate the development of key skills of future

managers based on market economy principles and modern managerial techniques. The

inﬂux of foreign investment into the country has added another dimension to the

Vietnamese business environment by introducing western-style HRM principles and

practices in their daily operations. The discrepancy in HRM practices between sectors

may be seen in the ways the enterprises acquire, utilize, develop, and maintain their

human resources.

Recruitment and selection (R & S)

In a society where mutual trust is the norm, as in Vietnam, the use of personal contacts

and referrals should be preferred because existing employees would only recommend

those whom they know well, or else they would put their reputation at risk. Along with

economic development, modern methods have been adopted to optimize the process

effectiveness. Many companies resort to a wide range of recruitment options to improve

their competitive advantage: meeting with students, participating in the university annual

HRM in Vietnam • 183

career days and “employment markets,” offering internship opportunities, posting job

openings directly at colleges, using recruitment agencies’ facilities, and placing

advertisements in the media (Saigon Times Weekly, 2002a, 2002b; Saigon Times, 2002).

Recruitment centers, which involve an “unknown” third party, invite skepticism in the

eyes of HRM managers and are not used very often, although they might provide a large

number of applicants, for example, for labor-intensive works.

Prior to 2002, foreign companies were required by Article 132 of the Labor Code to

recruit local workers only through a registered employment agency. In practice, many

ﬁrms recruited employees directly and then formalized it later with the agency. To tackle

this loophole, the revised Labor Code allows foreign-invested enterprise to recruit

Vietnamese employees either directly or through a third-party agency on the condition

that it must notify the local Labor Management Ofﬁce of all new hires (Vietnam

Economic Times, 2002; Vietnam News, 2002). Along with the economic change, the labor

market has shown a signiﬁcant shift toward more open views, especially among the

youth, on greater, more ﬂexible and prevalent opportunities than just stability, as before

(An, 2002).

As selection criteria, companies usually look for academic records, long-term

commitment, and discipline. To be more speciﬁc, discipline is understood as the

deference to authority, dependability, and punctuality. Long-term commitment is highly

valued because weathering a long wartime period has imprinted in Vietnamese the need

to establish a trusting relationship (Kamoche, 2001). Experience is widely said to be the

key to selection decision. However, this is not always a reliable factor as many

companies have found only later that the newly recruited “experienced” people did not

work well (Saigon Times, 2002). To avoid such a blunder, corporate employers in Ho Chi

Minh City prefer to recruit fresh graduates from colleges and provide intensive and

practical training as a substitute for experience requirement. Beside qualiﬁcations-related

criteria, kinship and nepotism may come actively into play when decisions are made in

local companies. In private companies, place of birth may be favorably considered by

recruiting executives, because it provides a psychological attachment and a sense of

solidarity.

An interview is the only formal selection method used in most enterprises. Under the

public pressure to make it more transparent and equal, efforts to further formalize

selection procedures include complex entrance examinations and a lengthy

introduction/training period, especially in government agencies and state-owned

enterprises. SMEs often start up with core personnel drawn from close friends or family

members of the company founders without going through any formal selection steps, but

often confront serious employment problems in the growth phase. On a better footing,

well-established companies like P&G, Unilever, British Tobacco Co., Johnson &

Johnson, etc. frequently launch aggressive campaigns to recruit young graduates at

college campuses, use appropriate tests and interviews to screen applicants and set up

their own assessment centers to select potential managers for their HR needs. The MNCs

are in particular motivated to “localize” their operations by recruiting local nationals in

184 • Truong Quang and Le Chien Thang

order to reduce excessive overheads caused by high expatriate content and to convey a

“good citizen” image to government ofﬁcials (Quelch and Dinh-Tan, 1998).

Generally speaking, stafﬁng activities in Vietnamese enterprises are not as effective

as in foreign-invested companies (Vietnam Economic Times, 2001). Since SOEs still

enjoy several kinds of subsidy and protection from the government, many of them

employ an excessive number of workers and become victims of their own “full

employment” commitment. This is aggravated by a high ratio of senior workers who

have not yet reached the mandatory retirement age but cannot be re-trained for the new

job requirements (Vietnam Economic News, 8 June 1999). Under the pressure of the

current restructuring campaign, it is likely that those SOEs with overstafﬁng problems

will give recruitment and selection a high priority in their agenda.

The effectiveness gap in stafﬁng is further apparent in the management appointment

process between sectors. While HRM managers in the private and foreign-invested

sectors are given full authority in management stafﬁng, high-level appointments in the

state-owned enterprises are still handled according to government-prescribed procedures

(Tan Duc, 2001). Accordingly, the prime minister appoints both the members of the

board of management and the CEO, while the “owner” minister holds the decision on

the positions of director and deputy directors of state-owned corporations and enterprises.

More often than not, the CEO has limited authority in the matter of management stafﬁng.

She or he can appoint a head of department only after a consensus is reached with the

party cell secretary and other concerned people who together form the locus of power in

the enterprise. A direct consequence of this is internal conﬂict, sectarian views, and

authority crisis, which might prevent the enterprise leadership from mobilizing human

resources effectively in achieving the common goals.

Training and development (T & D)

Until recently, cheap labor used to be claimed by the GVN as one of the main sources of

the country’s competitive advantage to lure foreign investment. This perception has been

adjusted toward the real needs of the market, since the critical question of labor

productivity was virtually left out of consideration.

In fact, there is a serious shortage of skilled labor in Vietnam to support the drive toward

better performance of enterprises and the country development process. According to a

report by the HCMC Department of Labor, War Invalids, and Social Affairs (MOLISA),

only about one third of the enterprises in operation are satisﬁed with the qualiﬁcations of

their new recruits (Saigon Times Weekly, 2002c). Criticism aims at training institutes and

universities for being unable to meet the real market demand for technical and managerial

skills (Kamoche, 2001). Another report by the Ministry of Sciences, Technology, and

Environment in 2000 put the blame on the incompetence of the current system: large in

number but weak in quality, a team of “old guards” (60 percent of university graduates

are over 45, and the average age of professors and associate professors is 57, while there

HRM in Vietnam • 185

is no team of young and capable experts to replace them), concentrated in urban areas

(80 percent in HCMC and Hanoi), with outdated facilities and equipment (far inferior

than in most enterprises), and disconnected from the industrial and business community

(MOSTE, 2000). In many business entry projects, foreign companies felt that shortage

when they ﬁgured out that local managers and workers needed training before they were

capable of meeting performance standards. Their response was, therefore, focused on

extensive pre-job training activities (Schultz et al., 2000).

While the academic community in the country strongly supports the use of training as an

effective measure to improve ﬁrm performance (Dinh, 1997) and the key to the survival

and success of SMEs (Ho, 1999), the business community differs in their viewpoints

about training. Managers at foreign-invested companies tend to see training as a

motivational tool and as an investment that has a strong chance of being recouped

(Saigon Times, 2002). On the contrary, SOEs view training as an expense and hence tend

to keep the budget allocated for it as small as possible; they also fear that well-trained

employees would leave the company for better paid jobs in foreign-invested companies

(Quang and Dung, 1998). To be fair, the companies have no laws on which to rely in case

employees whom they have trained decide to quit before the expiration date of their

contract (Hai Ly, 2001).

Training objectives are perceived distinctively by sectors. A recent survey undertaken by

the National University of Economics in Hanoi in 2001 to evaluate the quality of

employees in state-owned and foreign-invested companies has shown that, while the

former are usually concerned with diplomas, the latter are more concerned with the

workplace results (Vietnam Economic Times, 2001).

In general, training has been widely used by companies in Vietnam; however, they

differed in the use of training options. A survey done by Webster and Tausig (1999)

found that 93 percent of the surveyed SMEs provided in-house training for freshmen

and off-the-job training was also used. Most SMEs rely only on informal training

due to budget constraints (Tran and Le, 1999). More varied training types, such as

sending people to seminars, workshops, conferences, or on intensive short courses are

offered in larger companies. In a survey of 162 SOEs located in HCMC and neighboring

provinces, 32 percent of the respondents expressed the opinion that training and

development are considered a means to provide employees with some kind of

compensation, especially when such training (often under the form of a study tour) is

conducted abroad (Quang and Dung, 1998). In foreign-invested companies, sending

people abroad for training and applying more advanced and standardized techniques in

training, e.g. orientation, job rotation, simulation and so on are widely applied, where

headquarters HRM practices have been brought in with the venture.

There are several factors that may hinder the effectiveness of training efforts, but cannot

be easily explained. For example, since the Vietnamese generally value education and

show a strong willingness to learn, it should be easy to convert training outcomes into

operating performance. In reality, after having acquired the new knowledge and skills,

they often show resistance to apply them or to take risks for fear of failure (Kamoche,

186 • Truong Quang and Le Chien Thang

2001). In any case, the beneﬁts of training are well known by all enterprises across

sectors. A recent empirical study in Hanoi revealed a positive association between

training coverage and perceptual performance in 200 surveyed SMEs (Pham, 2001).

Another study conducted in Ho Chi Minh City also demonstrated that in those industries

such as plastics, where competition is especially high, private ﬁrms used to take

collective initiative to identify their training needs and adopt proper methods to upgrade

the skills of their managers and workers as a means of enhancing their competitiveness.

More prosaically, the study revealed that many of the needed skills for top, middle and

line managers are HRM-related (Swierczek and Lan Anh, 2000). Similar development is

equally apparent in a state organization, which realized the strategic role of HRM and

built a management development program for its future managers on that premium

(McDaniel et al., 1999).

It is also worth noting that local companies beyond the state sector have started to

build their competitive edge by investing in human resources. A survey of thirty newly

“equitized” companies pointed to signiﬁcant improvements in employee’s managerial

skills and productivity as a direct result of their investment in training (Vietnam

Economic News, 26 April 1999).

Performance appraisal (PA)

Performance appraisal is pivotal in HRM as it provides the necessary yardstick for

company management to form decisions on motivating, developing, and retaining HRs.

It is certainly no less important for Vietnamese companies in search of better quality

products and optimal productivity.

In this respect, different PA systems are used in local and foreign companies. SOEs

are well known for their tradition of egalitarism, where the PA system is based on central

guidelines called Emulation Standards (tieu chuan thi dua). While this system shows its

attractiveness in its simplicity, public awareness, and ease-of-use, it does little to

motivate employees as it provides only a little cash and honor certiﬁcates as rewards for

excellent performance. In addition, performance assessment in SOEs depends very much

on the agreeableness of the subordinate–manager relationship (Kamoche, 2001); such

subjectivity is apparently aimed at maintaining harmony in the organization rather than

stimulating internal competition for progress. More often, peer evaluation is used to rate

employee performance so as to determine the level of bonuses the latter should receive

at year-end. The intention of this system is to create peer pressure which would

encourage cooperative efforts among colleague workers, but it can hardly be realized in

reality as peer evaluation does poorly in separating between high and low performers.

There are two explanations to this phenomenon: (a) the Vietnamese culture values

face-saving, which makes people reluctant to rate others unfavorably in front of others as

it should be, and (b) everybody considers bonus as a chance to increase her/his income.

It is, therefore, understandable that, although many SOEs have claimed to have appraisal

systems, the existing systems are the target of frequent complaints. The problems most

HRM in Vietnam • 187

frequently mentioned by 47 respondents in the survey of 162 SOEs mentioned above

include prejudice, favoritism, insufﬁcient knowledge of employee performance, ignored

outcomes, time consuming, deteriorating relationships among workers (Quang and Dung,

1998: 98–99).

On the other hand, most private companies tend to evaluate their employee performance

on both formal and informal criteria (Vo and Dinh, 1997). Also, feedback can be

provided by an appraiser, but in an informal manner. The Vietnamese were said to prefer

direct feedback, so long as it is conﬁdential (Kamoche, 2001). As in foreign-invested

companies, the outcomes of the job performance evaluation is taken into consideration

for compensation, training, career development, and promotion, particularly where

assigned targets have been consistently achieved.

Compensation and welfare

As the general living standard in Vietnam is still low, remuneration policy can be an

effective tool for companies to motivate their employees. Although there might be

different applications between industries and regions, the levels of wages in all SOEs

depended primarily on the educational qualiﬁcations and the length of service of the

employee, rather than on his/her performance. Enterprises in the public sector have thus

little discretion in designing an effective reward package to motivate their employees and

reinforce desired behaviors.

In the 1990s, the doi moi reform brought substantial change into the system by allowing

SOEs for the ﬁrst time to determine the pay level according to their ability to pay (Zhu

and Fahey, 1999). As a general practice, the employee now receives a pay package

including a basic wage, which actually constitutes of only a small portion of a person’s

total income, the larger part coming from beneﬁts and bonuses. The basic salary of an

employee is formed by a combination of position, seniority, and the minimum wage

regulated by the MOLISA. Merit pay is scheduled at relatively ﬁxed periods of service of

the person in the company. The other part depends on the individual and the company

performance in the given year. In effect, the change brought about by doi moi has

widened the pay differential between the lowest and the highest earner in SOEs from

3.5 times in the early 1980s to 13 times in the late 1990s.

But as mentioned above, the minimum wage bore little resemblance to reality as the

emphasis was instead put on other parts of the employee’s income. Interestingly enough,

many SOEs were found to have paid substantially higher than the JV’s required

minimum wage of US$35 (Kamoche, 2001). This is understood as a necessary reaction

of SOEs to halt the “brain drain” brought about by endless searches for qualiﬁed

personnel by foreign companies. As a solution to this “job-hopping and poaching”

phenomenon (Kamoche, 2001) and to consolidate employee “loyalty,” it is suggested that

the current compensation policies should be totally changed to enable SOES to attract

and retain local talent, and hire foreign experts, especially in the ﬁelds of audit and

188 • Truong Quang and Le Chien Thang

consulting services (CIEM, 22 January 2003). On the other hand, compensation equality

can be an issue in JVs where expats are usually brought in to perform certain tasks in the

beginning phase of the venture. For example, local experts in ﬁfteen surveyed JVs

complained that they only received a fourth or a ﬁfth of their foreign colleagues’ salaries

for the same work (Lai and Nguyen, 2000).

In 2002, different minimum wages were set for enterprises in the main three sectors. For

SOEs, it was set between VND 210,000 (US$14) and VND 525,000 (US$37.50) with a

basic top wage of VND 630,000 (US$42) a month if the year-on-year revenue growth

of the enterprise was more than 5 percent. As a part of the government’s wage reform

project aiming at optimizing labor productivity, the GVN has recently announced that

from 2003 onwards, enterprises in all sectors will be given full freedom to set their own

wage levels (Vietnam Investment Review, 2002). As a guideline for the public sector, in

the MOLISA’s Directive No. 12 in January 2003, the GVN readjusted the minimum

wage from VND 210,000 to VND 290,000 (Hong Khanh, 2003a) and up to VND

300,000 per month in 2005, acknowledging that the old level only covered 75 percent

of the worker’s “basic need.” This is far too low compared to the non-state sector, where

an accountant is paid monthly VND 3–4 million, an IT expert in a foreign oil exploration

company about VND 7 million net, or an engineer in a soft drinks factory more than

VND 10 million (Dang, 2002). The subsequent Directive 14 issued by MOLISA in June

2003 further complicates the issue of leveling wages between sectors. Accordingly, the

monthly minimum wages are now ﬁxed at VND 626,000 (US$40) for those foreign

companies located in Hanoi and Ho Chi Minh City; VND 556,000 in other urban areas

like Hai Phong, Bien Hoa, and Vung Tau; and VND 487,000 in other places (Hong

Khanh, 2003b).

In any case, the situation in the private sector is believed to be more rational in using

basic wage rates and bonus to compensate for employee efforts (Hoang, 1995). While

several kinds of bonuses are provided in the form of cash in the majority of enterprises,

others also use non-monetary measures to boost employee’s motivation. For example,

Vietnam Yellow Pages does not offer its employees a higher salary than other SOEs

and foreign-invested companies, but it guarantees to treat all new recruits equally and

empower them properly to fulﬁll their tasks (Tan Duc, 2003).

As the competition for better qualiﬁed personnel has reached a higher level, enterprises in

both state and non-state sectors are trying to include other beneﬁts in addition to their

compensation offering. As in foreign-invested companies, many ﬁrms are offering a Tet

(Vietnamese New Year) bonus equivalent of at least one month’s salary for all employees

who have been working with the ﬁrm for more than one year; plus additional beneﬁts

such as social security insurance, health insurance, transportation, and meal allowances.

Altogether, the beneﬁts and all the “social equality contribution” items can amount to as

much as 20–30 percent of salary rates (Gross and Lepage, 2002). There is also a growing

tendency among local companies to link pay to individual performance and engage the

employee’s long-term commitment to the companies by stock options and partnership in

ownership.

HRM in Vietnam • 189

Another positive outcome derived from the ongoing reform in employment relations is

changing the welfare system into a social insurance system (Norlund, 1993). According

to Decision No. 12/CP, issued on the January 26 1995, ﬁrms have to contribute social

insurance for their workers, comprising 20 percent of total wages, of which the ﬁrm

contributes 15 percent and the individual employee 5 percent. In addition, health

insurance makes up 3 percent of total wages and ﬁrms are to cover the full contribution.

It is reported that the majority of SOEs, as well as a large number of foreign and domestic

private enterprises are complying with the government regulations and setting up

insurance funds for their employees (Zhu, 2002: 119, 126).

Industrial relations (IR)

In Vietnam, trade unions are a ubiquitous feature of organization (Kamoche, 2001),

which is grounded in the socialist concept of “collective ownership.” Under such a

system, the trade union chapter in the ﬁrm is supposed to work together with the

management, other representatives of the “people’s organizations” (e.g. youth and

women’s associations) and the leadership of the Communist Party cell for the mutual

beneﬁts of the workers, the business, and the society. Accordingly, labor issues are

governed by the Labor Code of 1994 which provides for collective bargaining, the right

to strike, protection of worker’s rights, and the procedure for dispute resolution

(Kamoche, 2001: 643). However, the advent of foreign investments in the last decade has

made the employer–employee relationship more of a trade-off exercise than a permanent

agony. A survey into the current IR situation in foreign-owned companies in Vietnam

reckoned that, with the exception of one US company, all the ﬁrms have a union chapter.

The union density is also high, by any standards, ranging between 70 and 100 percent.

Many of these ﬁrms have mutually reached a collective agreement (Zhu, 2002: 129, 130).

Obviously, a smooth and cooperative labor relationship beneﬁts both the business and the

government as it lays the ground for stability needed for further economic development.

Nevertheless, labor conﬂicts as a result of cross-cultural difference, business intention

and management styles, and so on are not rare, especially in the JVs (Quang, 1998).

According to the General Confederation of Trade Unions of Vietnam, since January

1995, there were in total 422 strikes in the whole country, of which 64 took place in

SOEs (15.2 percent of total), 229 in foreign-invested companies (54.3 percent), and 129

in other non-state enterprises (30.5 percent) (Tan Duc, 9 January 2003). Interestingly

enough, the same source noted that, although the demands raised in the strikes could be

justiﬁed, they all were “spontaneous” reactions of the workers and “not organized and led

by the labor unions” according to the prescribed labor regulations and procedures. Most

of the reported strikes were concerned with unsatisfactory levels of salaries, bonuses or

overtime pay and abuses of workers’ dignity. The most frequent were concentrated in the

period prior to and after the Tet holidays and mainly in HCMC and the neighboring

provinces such as Binh Duong and Dong Nai in the southern part of Vietnam. In

particular, the strikes hit most in those invested companies from Taiwan and South

190 • Truong Quang and Le Chien Thang

Korea, very well-known for subcontracting businesses using cheap labor such as

footwear, garments, and food processing (Tan Duc, 9 January 2003: 17). In any case, as

long as the GVN still insists on treating the trade union movement as an integral part of

the employment relationship, the collectivist, harmony-seeking, and union-supportive

culture may pose a challenge to JVs (Kamoche, 2001), which are required to allow a

trade union chapter in the enterprise’s premises.

HRM in the new conditions

As the country is gaining momentum in economic development, Vietnamese companies

and public have increasingly emphasized the role and importance of HRM in general and

HR managers in particular. Indeed, the recent changes brought about by the “enterprise

re-structuring” and FDIs have made profound impacts on HRM and HRD (Zhu, 2002) in

all organizations of the country. This can vary from one organization to another,

depending on their type of ownership.

To underline this point, a small cross-sector survey (N=30) was undertaken recently by

these authors with the members of the Club of HRM Practitioners in Ho Chi Minh City

to probe the relationship between the organization’s corporate culture and the HRM

effectiveness, based on three elements: awareness, practice, and strategic recognition of

HRM. The preliminary result is shown in Table 9.5. Ostensibly, the level of HRM

practice status, which is generally low in the public sector but higher in the private sector,

largely depends on how much the enterprise recognizes the role of HRM, puts it in full

practice and reﬂects it in the corporate long-term strategy.

The criteria for gauging the HRM current status are based on three levels:

1 Awareness: – understanding the strategic role of HRM;

– there is a physical HRM department/function.

2 Practice: – the HRM handle all or part of the HRM activities;

– the level of professionalism in organization (staff, process, procedure,

etc.).

HRM in Vietnam • 191

Table 9.5 HRM status across sectors in Vietnam (N=30)

Sector Awareness Practice Strategy

Government agencies Low Low Low

State-owned companies Low–Medium Low Low

Private-owned companies Medium Low Low

Joint ventures High Medium–High Medium–High

100% foreign-owned companies High High High

3 Strategy: – the head of HRD department sits on management board;

– HRM strategy is integrated in the company’s strategy;

– HRM department plays an important role in development and

implementation of the company’s strategy;

– the company’s strategy is focused on HR development.

The role of the HRM manager

Regarding the awareness of the role of the HR manager, another survey of local

companies, undertaken in 2002, explained the complexity of the issue. Usually, local

companies did not have a HR manager position, but a combined function called

administration and personnel manager (Truong phong Hanh chanh va Nhan su).

In practice, personnel managers focus only on administrative, even secretarial, works

concerning personnel administration, but rarely are involved in key decisions concerning

HM matters, such as HR planning, recruitment and selection of new personnel,

compensation policy, and training and development. They also lack the essential

knowledge and skills on HRM to perform the professional tasks well. Due to the secret

nature of the perceived work, coordination or communication with other departments is

almost non-existent. More often than not, the company’s director handles the personnel

matters himself, hence limiting the head of the personnel department to merely

formalizing the decisions made by the director (Chien, 2002; Tan Duc, 2002). On the

whole, the majority of these respondents, representing 208 cross-sector enterprises,

showed a better development trend in recognizing the role of the HRM Department in

Ho Chi Minh City, where the country’s business is most concentrated and more

advanced than in other parts of the country (Table 9.6).

192 • Truong Quang and Le Chien Thang

Table 9.6 Awareness vs. actual HRM activities in Vietnamese companies (N=208,

HCMC)

Activities Importance Current

ranking * status**

HR planning 10 9

Develop and implement compensation plan 9 5

Develop and manage HR budget 8 6

Training and development 7 10

Performance appraisal 6 7

Employee relations 5 2

Develop and maintain corporate culture 4 8

Recruitment and section of HRs 3 4

External relations 2 3

Administrative management 1 1

Source: Chien (2002: 13); Note: 1–10 scale (1 = least important, 10 = most important); * level of

importance (awareness); ** level of application (reality).

A more optimistic picture may be observed in the foreign-invested companies. The fact

that 95 percent of the members of the self-established “Club of HRM Managers”

(Cau lac bo Giam doc Nhan su)

are working for foreign-invested companies indicate

that these ﬁrms are more aware of the role of HRM and hence have more interest in

expecting HRM best practices. In the discussions with them, it emerged clearly that the

HRM managers play an important role in the company organizations and are highly

appreciated by the company management and employees. HRM managers in this sector

are not conﬁned only to handling salary and recruitment activities, as are their

counterparts in the state-owned sector, but have more roles to play (Thuc Doan, 2002).

As members of the board of directors, the HR director/manager in foreign-invested

companies is also involved in the overall strategic planning.

In spite of positive developments in the last ﬁve years, the initiatives taken by local

enterprises with regard to HRM have still been either piecemeal or not driven by a clear

strategic vision. HRM techniques or principles such as job analysis, HRIS, quality of

work life (QWL), ergonomics, dual career, outsourcing, employee retention, career

development, job rotation, succession planning, developmental appraisal, or even pay for

performance, should be put in full play and in good combination so as to create optimal

impact on the ﬁrms’ effectiveness.

Needless to say, the recognition of HRM’s strategic role and its full integration into the

corporate strategy in all phases will augur well for better performance of both the

enterprise (micro level) and the country (macro level).

Key challenges to HRM in Vietnam

The quest for quality improvement to support the country’s continued drive for economic

development and economic integration will present the as yet under-developed HRM

with both opportunities and challenges in the coming years. The following are the most

remarkable developments in HRM in Vietnam that will continue in the years to come:

1 Proactive search for qualiﬁed personnel: Under the pressure of competition, local

ﬁrms, private and SOES alike, are taking more proactive moves in ﬁnding the best

pool of applicants. They cooperate more closely with universities and training

institutions in creating nursery grounds for the “best of breed,” by granting

scholarships for students with good academic performance, providing internship

opportunities, participating in job fairs, organizing “open house” to market the

HRM in Vietnam • 193

1 There were 95 members in mid-2002, representing a wide range of enterprises in all sectors,

but mostly from foreign-invested companies. The members use the Internet to exchange

views on critical HRM issues currently facing them and help each other to ﬁnd a proper solution

from their practical experience. The e-mail contact address of the Club is: nam_nguyen

@cargill.com.

company, and announcing job openings widely in the media. In the late 1990s, these

activities were considered peculiar only to foreign-invested companies (Nam Hoang,

2000).

The shift in both perception and practice in recruitment could be explained by the

tighter labor market for skilled employees. The emphasis on the criticality of HRs for

business success (Kamoche, 2001), the high labor demand initiated by the steady

growth of the economy, and the availability of attractive job opportunities abroad have

emerged as key drivers for this new type of competition (Chanh Khai, 2002; Ngoc

Minh, 2002).

2 More attention on employee retention: At a conference on exchange of managerial

experience among Vietnamese companies with top-quality prizes in 1999, three main

concerns were most mentioned, one of which was the issue of retaining skilled and

qualiﬁed employees (Huynh Kim, 1999). To underline the importance of this aspect

on the company livelihood, Vietnamese managers have started to provide training and

discuss career development with employees, and to build a corporate culture and

teamwork in the company, next to monetary instruments.

3 Using training and development as a means to build competitive edge: While training

was seen as one of the most indispensable activities to develop HRs in foreign-

invested companies since their ﬁrst day at work, local companies mostly relied on

recruiting trained employees to acquire their HR stocks. Until recently, training and

development was taken for granted by the business community as the responsibility

of the government. The ﬁrst public effort to call for companies to participate in

training was made by a businessman with academic talent at the end of 1996

(Do, 1996). Local companies now consider training a necessary investment with

good payback on future employee productivity. More companies are making proper

reserves in their budget to send people to off-the-job short training courses, ﬁnancing

employee long-term studies or ﬁnding ways to outsource their in-house training needs.

4 Building HRM professionalism: Along with the growing awareness of the critical role

of HRM, both the government and the business community, fully-ﬂedged HRM

departments have been added to company organizations with clariﬁed functions and

tasks. This gives rise to the development of a generation of trained professionals in

HRM. In HCMC alone, there are no less than twenty foreign-initiated MBA programs

which, together with local universities, introduce the concept of modern HRM in the

teaching curriculum of business education. Today, many young graduates are seeking

HRM careers in companies as their committed profession. They are, in effect, the

vanguards who bring changes into the management system by means of practicing all

HRM activities in a professional way.

Other factors may also be attributed to this change. It is generally perceived that

there is a considerable gap between what the companies require and how the students

are being trained by the system. Therefore, training provided by the companies is now

seen as a necessary tool not only to ﬁx this mismatch, but also to reward and retain

people.

5 Emphasizing the task of management development: Local enterprises should have

concrete and effective plans to prepare for management succession and a future stock

194 • Truong Quang and Le Chien Thang

of managers in order to meet the growing need for competent and professional

managers. This can be done by a combination of altering and adapting the teaching

curriculum of the current MBA programs to the real needs of the market, campus

recruitment of dynamic and promising graduates, training programs and job rotation

for management potential, and creating a favorable environment for the mobility of

seasoned managers from “good” to “bad” enterprises through headhunting services.

6 Partly easing or fully lifting government control and intervention on the HRM

activities of enterprises: for example, the setting up the minimum and maximum

wages and in the appointment of high level positions, so that ﬁrms can have a free

hand to link compensation to performance and hire qualiﬁed managers from all

available sources as the need arises, including foreign experts.

It is understandable that more and more enterprises in Vietnam have been focusing on

capitalizing their human assets in the face of intensifying competition. In the long run,

only companies which have paid proper attention to HRM, among other strategic

adjustments, will reap the beneﬁts of their efforts and survive the complex test of

globalization in the years to come.

Conclusion

This chapter provides an overview of how HRM has emerged over time as a critical

issue, both in qualitative and quantitative terms, in all organizations in Vietnam. Due

to long periods of external colonialization and internal conﬂict, the concern for proper

management of the most valuable asset has been given due attention only after the

country decided to jettison the system of central planning and subsidy. The old, rigid

system was then replaced by a more ﬂexible and market-oriented structure, well-known

to the world as the doi moi policy, to jumpstart the country’s bid for quick development

and economic integration, which puts a premium on recognizing the right of private

ownership, stimulating individual productivity, and rewarding individual contribution to

the overall achievement of the organization, public and private alike.

As a matter of fact, the advent of signiﬁcant foreign investment at the beginning of the

1990s has provided “good” models of well-functioning organizations under the forms

of joint ventures and fully owned enterprises, and triggered the sense of urgency for the

local ﬁrms to follow. To be fair, it should be mentioned that the SOEs, which form

the driving force and represent the majority of the national economy, had pioneered

with the “enterprise restructuring” campaign to streamline their cumbersome structure,

downsize their unproductive workforce, and introduce more effective managerial

methods in order to regain their position in the markets. However, since most of these

SOEs (including the “equitized/privatized” enterprises) are so desperately and deeply

rooted in the past heritage, they are not ﬂexible and innovative enough to take advantage

of the new momentum and to emerge as “equal” players in the increasingly competitive

business environment. On a comparative basis, the newly established domestic private

enterprises, despite their disadvantageous position as latecomers, have beneﬁted the most

HRM in Vietnam • 195

from the “good” models of effective management thanks to their smaller size and

willingness to learn.

To this effect, the analysis of the HRM development in the post-renovation period

has underlined a signiﬁcant difference, yet explainable, in the levels of adopting and

practicing modern principles of managing human resources in the state sector (public

agencies and SOEs) and the non-state sector (foreign-owned enterprises and domestic

private enterprises). Several cited surveys indeed show that there is a wide gap between

these enterprises in terms of HRM effectiveness, with a clear preference for the

foreign-invested enterprises based on their long and well-proven practices in both home

and host countries.

In the ﬁnal analysis, all organizations in Vietnam, no matter in which status, position

and stage of development they are, have begun to realize the important and/ or strategic

role of HRM in the process of regaining, building or sustaining their competitiveness

in the face of a market expanding toward more global integration. Arguably, such a

condition requires a total transformation of the whole organization, industry, and nation,

in which HRM is the most critical success factor of all, especially for an economy in

transition like Vietnam.

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century,” Vietnam Development Report 2001, 14–15 December.

World Investment Report (2001) Promoting linkages, New York and Geneva: UNCTAD.

Zhu, Y. (2002) “The reform and human resource management in Vietnam,” Asia Paciﬁc Business

Review 8 (3): 115–134.

Zhu, Y. and Fahey, S. (1999). “The impact of economic reform on industrial labor relations in

China and Vietnam,” Post-Communist Economies 11 (2): 173–192.

198 • Truong Quang and Le Chien Thang

Useful websites

Newspapers and Journal:

Lao Dong (The Worker Journal): http://www.laodong.com.vn

Nguoi Lao Dong (The Worker

Weekly): http://www.nld.com.vn

Saigon Times Weekly: http://www.saigontimesweekly.saigonnet.vn

Tuoi Tre (Youth Daily Weekly): http://www.tuoitre.cum.vn

Vietnam Economic Times: http://www.vneconomy.com.vn

Vietnam Investment Review: http://www.vir.com.vn

Home Pages

Vietnamese Human Resources

Club: http://www.vnhrclub.com

Vietnamese Labor Law: http://www.hcmste.gov.vn/ldldhcm/cac-luat/luat-ld/luat-ld.htm

UNDP Vietnam: http://www.undp.org.vn

World Bank Vietnam: http://www.worldbank.org.vn

HRM in Vietnam • 199

HRM in Malaysia

KAMEL MELLAHI AND GEOFFREY T. WOOD

Whilst there is little doubt that there has been a convergence of HRM practices in key

areas – most notably in a general weakening of security of tenure – national

particularities persist. This reﬂects the nested nature of social institutions. This chapter

demonstrates that in Malaysia a range of authority mechanisms prevail at community,

national and international level, shaping economic and social outcomes. This explains

the continuance of various national forms of business practice, and, indeed, the unequal

performance of different nations.

In recent years, it has become increasingly accepted that employees represent a core

component of organizational capacity, and that the manner in which various human

resource functions are carried out reﬂects wider organizational and social realities.

The differing performance of ﬁrms, industries and nations in part reﬂects distinct

approaches to handling employment relations and management, and the manner in

which in-ﬁrm practices diffuse and are replicated across a speciﬁc economy to organize

collaboration, and provide protection against overly-opportunistic behavior that might

erode economic and social solidarity (cf. Marsden 1999).

Despite the shock of the Asian ﬁnancial crisis of the late 1990s, and subsequent pressures

towards deregulation along neoliberal lines – which, in theory at least, entails treating

labor no more or less than any other commodity – the practice of HRM in Malaysia

continues to exhibit a number of distinctive features. These include targeted afﬁrmative

action policies, paternalism (at both governmental and ﬁrm level) and active state efforts

to promote the competitiveness of selected areas of industry. In this chapter we introduce

the key features of Malaysia’s political economy, and locate the practice of HRM therein.

This is followed by an assessment of the various external pressures with which the

system has had to contend, recent trends, and potential challenges facing HR and general

managers within this emerging economy.

Political context

Malaysia is a federation of thirteen states with a parliamentary system of government

based on periodic multiparty elections in which the ruling National Front coalition has

held power since 1957. The Malaysian government is a coalition of communally based

political parties with the United Malays National Organization playing a pivotal role

(Todd and Peetz, 2001: 1367).

The need to maintain a satisfactory relationship between the three main ethnic groups

has dominated political, economic and social policies in Malaysia since World War II

(Todd and Peetz, 2001: 1367). Malaysia is a multi-ethnic society consisting of

61.7 percent Malays, 27.2 percent Chinese, 7.7 percent Indians and 3.4 percent

others (Malaysia, 1985). It has a population of just over 23 million. Malaysia gained

her independence from Britain in 1957. Soon thereafter, Malaysia embarked on an

ambitious industrial development program, with a strong emphasis being placed

on diversiﬁcation and sustainability. Whilst a market system dominated by ethnic

Chinese persisted, targeted interventions in the industrial sector resulted in the increasing

production of secondary and tertiary goods. On independence, Malaysia had inherited

a well-developed infrastructure, an efﬁcient administrative system, and a thriving primary

export sector. However, the country remained an economically, politically and socially

polarized and unbalanced multi-racial society. Race was identiﬁed according to economic

activities. Crudely described, “Malays were paddy cultivators, Indians as rubber tappers,

and Chinese as businessmen” (Abdullah, 1997). While the Chinese held economic power,

the Malays held political power but with very little economic power. Abdullah (1997:

192) notes that

the more salient and signiﬁcant demographic feature of Malaysia – especially in the early

years of independence, and which, to a relatively lesser extent persists today – was the

association of ethnic identiﬁcation and economic activities and geographic areas, namely

rural and urban.

This led to the development of a plural society “which lives side by side, yet without

mingling into one political unit” (Furnivall, 1956: 304: quoted in Abdullah, 1997: 192).

Abdullah (1997: 189) notes that such “professional categorisation” drawn along ethnic

lines has not only implied social compartmentalization but also economic stratiﬁcation.

The latter led to the development of a pluralistic society characterized by “differences,

jealousies, suspicions and even animosities but in which people yet lived or had to live, in

the same country” (Abdullah 1997: 196). The Malays, the majority and original people,

felt that they were deprived from obtaining education, and employment in the thriving

industrial and mining sectors.

The tensions between the different ethnic communities ﬁnally erupted on 13 May 1969

with the destruction of life and property. The government assumption that by increasing

the overall size of the national income, most of the ethnic problems would be alleviated,

proved unrealistic (see Snodgrass et al., 2003). The response of the Malaysian

government to the 1969 disturbances was twofold: on the one hand, an increasing

authoritarianism with minimal tolerance or dissent; on the other hand, a paternalistic

stance towards the bumiputras, presenting itself as “the protector” of their interests.

Long-serving Prime Minister Dr Mahathir has justiﬁed the latter as follows:

202 • Kamel Mellahi and Geoffrey T. Wood

In Malaysia it would have been easy to give a free hand to the very dynamic and business

oriented non-indigenous Chinese Malaysian to develop and enrich the country. But then

the indigenous people would remain poor and have a sense of deprivation. They would be

bitter and angry and would rise against people whom they would regard as foreigners who

had stolen wealth that rightly belongs to them. They would destroy the wealth which had

been created and the country would fail to develop. In the end everyone would lose and the

country would have to beg for foreign aid and accept the conditions imposed.

(Mahathir, 1999)

Recasting racial segmentation and

enhancing growth: key government policy interventions

The 1969 disturbances led directly to the introduction of the New Economic Policy

(NEP) in 1971. The NEP was, quite simply, a twenty-year plan aimed at raising the status

of poor bumiputras (ethnic Malays and other native races) to economic parity with the

Chinese minority, through afﬁrmative action targets. The NEP aimed to ensure that ethnic

Malays achieved at least 30 percent representation in all occupations by 1990

(Jayasankaran, 1999: 52). In return, Chinese businesses received explicit guarantees that

a market-based system would be retained (Le Roux, 2001: 216).

The NEP shifted the focus from pure economic development to economic advancement

of the ethnic Malays. The NEP was based on the premise that the best way to achieve

economic development without ethnic strife was through targeted afﬁrmative action

policies in the urban areas, coupled with rural development initiatives aimed at improving

the material conditions of the indigenous population (see Kuruvilla and Arudsothy, 1995;

Le Roux, 2001). For instance, according to the NEP, any ﬁrm which went public had to

meet the NEP requirement of at least 30 percent bumiputra ownership. As a result the

bumiputra-owned proportion of share capital in Malaysian limited companies rose from

4.3 percent to 20.3 percent during the 1971–1990 period (Lucas and Verry, 1996).

Another objective of the NEP was to assist the creation of a Malay business class.

For instance in 1970, Malay businesses accounted for 14.2 percent of business in

Malaysia; by 1980 the percentage increased to 24 and reached 30.5 percent in 1985.

The growth rate of Malay business is nearly double the growth of non-Malay business

expansion (Noordin et al., 2002: 46). Throughout the 1970s, the economy grew at an

average annual rate of 7.8 percent. Unemployment during the NEP period averaged

around 6.5 percent. Within two decades, the proportion of the population living in

poverty was reduced from more than half to about one tenth, with the emergence of an

indigenous business class (Le Roux, 2001: 217). However, despite political intervention

through the NEP’s afﬁrmative action, the identiﬁcation of ethnic grouping with

occupation and industry still persists (Todd and Peetz, 2001: 1367). The average

household income for bumiputras remains lower than that of the Chinese and Indian

communities, although the former enjoyed the fastest income growth from 1970 to 1989

(Lucas and Verry, 1996).

HRM in Malaysia • 203

In 1981, Malaysian Prime Minister Dr Mahathir Mohamed proclaimed the Look East

Policy doctrine. Simply put, Malaysia would look to Japan as its primary economic

development model. Malaysian engineers and technicians were sent to Japan for formal

training (Elger and Smith, 2001: 461). In practice, only limited knowledge transfer took

place. Even in Japanese ﬁrms operating in Malaysia, there continues to be considerable

divergence not only from the Japanese model, but also from the actual operations of their

parent company in Japan. This underscores the continued importance of local economic,

political and social conditions (ibid.: 460).

In contrast to the limited effects of Look East, ofﬁcial afﬁrmative action policies

continued to have a far-reaching impact. In 1990, the NEP was succeeded by the National

Development Plan (NDP), this time a 10-year policy intervention. The NDP speciﬁed

that a range of key posts should be ﬁlled by bumiputras. Although the NEP’s 30 percent

target had not yet been achieved, the NDP introduced new plans for extending afﬁrmative

action through the sale of selected state assets to bumiputras and via the allocation of

government contracts (Morris et al., 2001). The NDP was supplemented by a further

policy intervention, “Vision 2020,” a plan to accelerate industrialization through sector

restructuring, technology upgrading, human resource development and industry linkages.

Long-range goals included doubling GNP every 10 years and achieving global

competitiveness in high-tech industries by the year 2020.

Since the adoption of the NDP and Vision 2020, growth has been the government’s

primary strategic economic objective. The growth strategy in the 1990s was based on

capital-intensive investment, aimed at supporting improvement of labor productivity and

income growth. The privatization of public services and infrastructure continued as a

means of improving efﬁciency and reducing the burden on the budget. Skills upgrading

and technology development were needed to support the productivity-oriented strategy.

In this context, HR development became a key component of the new development

strategy. Other strategic objectives were poverty reduction, improvement in quality of life

and sustainable development. An Industrial Master Plan (IMP), launched in late 1996,

addressed issues to sustain and enhance growth in the manufacturing sector.

Conﬁdence in the Malaysian model was severely dented by the Asian ﬁnancial crisis of

1997. The Malaysian Ringgit severely depreciated, whilst growth declined from some

from 8 percent in 1997 to –5 percent in 1998. Conversely, unemployment rose from

2.6 percent in 1997 to 4.9 percent in 1998 (Todd and Peetz, 2001: 1368).

In reaction, the government established the National Economic Action Council (NEAC)

in January 1998 to manage the impact of the crisis. In August 1998, NEAC published the

National Economic Recovery Plan (NERP) which deﬁned a short-term crisis

management strategy. Overall, NERP aims to restore economic development by

stimulating domestic demand, maintaining progress in the social sectors and protecting

the poor. The plan sought to promote a range of long-standing policy objectives:

ameliorate the hardship from poverty; promote bumiputra equity ownership; expand

employment opportunities; meet the challenge of expanding tertiary education; and

address graduate unemployment. However, the plan also called for greater deregulation,

204 • Kamel Mellahi and Geoffrey T. Wood

above all in making state corporations more competitive, and for the inﬂux of foreign

workers to be curbed (NERP, 1998). While underlying contradictions were not

necessarily solved, the Malaysian economy rapidly recovered, albeit at the cost of

increased indebtedness (ibid.).

Training, development, competitiveness and investment

Malaysian economic development is one of the few success stories, a story of export-led

industrialization. Malaysia has recorded strong productivity growth since the late 1980s

and 1990s, the 1997 ﬁnancial crisis notwithstanding. Productivity increased by 5 percent

during the 1991–1995 period. This in part may be ascribed to a strong emphasis being

placed on skills development. A manpower survey conducted by the federal government

in 1965 (with the assistance of the United Nations) indicated that there was a shortage

of trained professionals, especially among the bumiputras (Morris et al., 2001). This

led to a rapid expansion in technical training. By 1994, Malaysia had emerged

seventeenth in national competitiveness according to the World Competitiveness Report,

a rating buoyed up by the high priority placed on research and development (R&D) and

on skills development and training initiatives. Malaysia has developed from a largely

commodity producer to a predominantly industrialized country: the manufacturing

sector accounted for around 35 percent of GDP. Malaysia has become an important

center in the global electronic production network (SocGen, 1997, quoted in Noordin

et al., 2002: 46).

Malaysia relies heavily on foreign direct investment (FDI), attracted by a stable economic

and political business environment, combined with a friendly IR environment as well

as taxation allowances. Few investors seem deterred by the Mahathir government’s

increasing authoritarianism. Within the manufacturing sector, foreign ﬁrms account for

44 percent of manufacturing value added and 76 percent of manufacturing exports in

1992 (Hill and Athukorala, 1998, cited in Todd and Peetz, 2001: 1368). Malaysia is

“an important platform for low-cost mass production” complementing higher value

manufacturing in mature industrial societies (Elger and Smith, 2001: 462).

Ofﬁcial policy holds that foreign investors will provide a valuable infusion of managerial

knowledge, supplementing the promotion of heavy industries through direct government

involvement. The Heavy Industries Corporation of Malaysia (HICOM), a public sector

holding company, was formed in 1980 to go into partnership with foreign ﬁrms in setting

up industries in what were perceived to be strategic sectors such as steel, paper,

petrochemicals and automobiles. This directly contributed to a sizable budget deﬁcit

during the 1980–1986 period. The global economic slowdown during the late 1980s

exposed Malaysia to vagaries of world market ﬂuctuations and resulted in an enforced

reduction in the deﬁcit, resulting in HICOM’s activities being scaled back. The volatile

and uncertain global economy paved the way for a series of radical policy reforms, which

placed a greater emphasis on the role of the private sector.

HRM in Malaysia • 205

The Promotion of Investment Act of 1986 introduced new and more generous packages

and incentives for foreign investors. This, and similar incentives, have encouraged

successive waves of investment in standardized mass production. However, there is only

limited scope for more complex variants of production activity, given the continued

emphasis on cheap labor and managerial autocracy (Elger and Smith, 2001: 461). For

example, Elger and Smith (2001: 460) found that Japanese-owned plants were

characterized by routing mass assembly and machine minding by semiskilled operatives,

supplemented by small groupings of maintenance workers, with little room being

accorded for innovation. While sometimes present, quality circles have done little to

broaden work roles or responsibility. However, in spheres of activity where

competitiveness depends on cheapening labor, lower cost centers such as China are likely

to prove more attractive in future (ibid.: 461). A real danger exists that, while proving

increasingly uncompetitive in the sweatshop stakes, Malaysia lacks the managerial

capacity and institutional precedents to move away from autocratic Fordism to more

highly value added production paradigms. Based on an extensive multinational study

(encompassing Malaysia) Przeworski et al. (2000) conclude that autocratic political

institutions result in a higher wage gap; highly paid and skilled production and service

sector work is more likely to be found in democracies. An autocratic political

environment may make for robust growth, but is also likely to make for labor repression

and a slower growth in personal incomes (ibid.). Quite simply, under autocracies, it is

easier to ensure labor quiesence without having to make meaningful concessions in the

form of higher wages and better working conditions that would necessitate the adoption

of higher value added production paradigms.

Setting labour policy: the Ministry of Human Resources

Since independence in 1957, the Malaysian government had a key role in the design and

implementation of personnel policies and practices. One of the key reasons is that the

government is the single largest employer in the country. In 1983, one out of every 14

workers in the country was employed by the public sector. By 1994, the number of

employees in the public sector had reached more than 850,000 (Yong, 1996). The role of

the Ministry of Human Resources during the 1970s was to develop labor administration

and labor welfare policies. Since the mid-1980s the Ministry has been given additional

responsibilities, including facilitating manpower planning through the monitoring and

analysis of labor market information, and industrial training to supply the private sector

with the right type of skilled and efﬁcient labor to meet modern technological and

industrial requirements. In 1997, the Ministry employed more than 3,500 employees. The

Ministry formally seeks to

develop a caring, yet an effective, efﬁcient and proactive organisation contributing to

Government’s efforts, to generate and create a highly skilled, productive and disciplined

workforce in an environment of industrial harmony towards achieving the goals of the

vision 2020.

206 • Kamel Mellahi and Geoffrey T. Wood

Its objectives as stated by the Ministry are:

Contributing efﬁciently and effectively towards the Government’s efforts in the planning

and development of human resources to produce a skilled, competent, disciplined,

innovative and an efﬁcient workforce with positive values, consistent with the nation’s

industrial needs, technological changes and economic growth . . . create and maintain a

harmonious industrial relations climate.

Management culture and HRM in Malaysia

About 60 percent of Malaysians are Muslim. And similarly to other Muslim societies,

management practices are inﬂuenced by key Islamic values and principles. However,

over 30 percent of the population is Chinese or Indian, the former strongly inﬂuenced

by Confucian values of collectivism (see Mansor and Ali, 1998). Mansor and Ali (1998:

507) argue that Malaysian management practices should be understood in the context

of interposing Confucian, Islamic and western values.

The former colonial power, Britain, deeply inﬂuenced organizational cultures, especially

in the public sector. By the 1970s, US dominance of management education led to an

increasing Americanization of workplace organization. As noted earlier, Japanese success

led to the adoption of the Look East policy in the 1980s, coterminous with moves towards

indigenization. This interposition is, at times, contradictory. The persistence of religious

and cultural difference has precluded any single cultural paradigm from gaining

predominance; neither American nor Japanese managerial cultures have attained

hegemony.

In Malaysia, collectivism comes to equate with traditional values and individualism

with western management values. Malaysia is a collectivist society (Noordin et al.,

2002). Social relations, self-sacriﬁce and family integrity are very strong in Malaysia

(ibid.). The Malay culture is essentially a cooperative society based on kampung

(village) and gotong royong (mutual help) values (Taib and Ismail, 1982). Malaysian

kampungs were self-sufﬁcient, small and dispersed, creating a sense of community and

need for collective work. Wolf and Arnold (1994) noted that “Malays were socialised

to place the needs of the kampung above their personal needs.” Gotong royong implies

that people who offer help or service will expect the same service or help to be returned

later on (Taib and Ismail, 1982: 109). The gotong royong is underpinned by the Islamic

concept of the Ummah (Islamic religious community) where each Muslim is responsible

to his fellow Muslims. Taib and Ismail (1982: 109) noted that “The unity of the Malay

community thus rests on the adat resam (social customs), which include the institution

of gotong royong, and the concept of ummah and malu (self-respect).” The Malay culture

puts a strong emphasis on the importance of having and maintaining “face,” an emphasis

shared by many cultures in the Far East.

Islamic values and teaching put strong emphasis on obedience to leaders. Beekun and

HRM in Malaysia • 207

Badawi (1999) noted that in Islam “at all times, the leader must be obeyed.” They added

that “Islam considers obedience to the leader so important that it views any kind of

insubordination to be abhorrent unless in very speciﬁc circumstances.” The authority of

the leader or manager is thus accepted as right and proper and subordinates are expected

to show respect and obedience to superiors. The majority of Muslim scholars advocate

what it is called “dynamic followership.” Beekun and Badawi (1999) noted that although

“Islam emphasizes that followers should comply with the directives of their leader, it

does not condone blind subservience.” That is, although the typical Muslim worker does

respect his leader, the onus in most cases is on the leader to convince subordinates that

his orders are worth obeying rather than impose his will on others by administrative ﬁat.

This is why, according to Sharia, Muslim leaders are asked to consult their subordinates

before a decision is made. In addition, Islamic teachings put heavy emphasis on

forgiveness, kindheartedness and compassion. Atiyah (1999) noted that Islamic values

emphasize harmony, cooperation and brotherly relationships. Conﬂicts should be avoided

or suppressed. The business leader, in turn, is expected to show responsibility for the

quality of work life of employees and concern for their families and surrounding society.

Wolf and Arnold (1994) reported that the kampung headman receive respect, obeisance,

and loyalty but was expected, in turn, to display generosity and anakhuah, a fatherly

concern for the welfare of his subjects. Taib and Ismail (1982: 113) noted that in

Malaysian schools, the power distance factor is further reinforced:

Malay children are normally taught to consider teachers as a ﬁgure of authority, and as

kings of the institution, to be respected and obeyed . . . and the end-product is an obedient

and law abiding citizen, but not an independently thinking one.

Wolfe and Arnold (1994) argue that, in addition to the above, power distance is a

product of the kampung values where there was a strict code of behavior which applied

to both leaders and followers. They noted that “recognising one’s relative status and

acting in accordance with one’s station were the hallmarks of a halus person, the

idealized member of society.” Further, the Malays are socialized to be non-assertive

and compliant, and humility, courtesy and tactfulness are strongly held values. The

latter have a strong impact on HRM policies and practices. For instance, Wolfe and

Arnold (1994) noted that Malay values make direct discipline at work unacceptable

because it leads to the loss of face. Hofstede (1991) noted that high power distance in

Malaysia was reﬂected in the unwillingness to make any decision without reference

to the most senior executive and the high ratio of supervisory to non-supervisory

personnel, and strong uncertainty avoidance as well as low individualism was apparent

in the organization he studied.

The concepts of Islamic work ethic (IWE) and Islamic work values (IWV) have their

origin in the Quran, the saying and practice of the Prophet Mohammad, who preached

that hard work caused sins to be “absolved” and that “no one eats better food than that

which eats out of his work” (Darwish, 2000). Alhabshi and Ghazali (1994) listed the

following as core Islamic values: every act should be accompanied by intention (niyat);

conscientiousness and knowledgeableness in all endeavors (itqan); proﬁciency and

208 • Kamel Mellahi and Geoffrey T. Wood

efﬁciency (ihsan); sincerity (ikhlas); passion for excellence (al falah); continuous self-

examination; forever mindfulness of the almighty; piety (taqwa); justice (‘adil);

truthfulness (amanah); patience (sabar); and moderation, promise-keeping,

accountability, dedication, gratefulness, cleanliness, consistency, discipline and

cooperation.

Darwish (2000) notes that the IWE advocates “that life without work has no meaning,

and engagement in economic activities is an obligation.” The IWE views dedication to

work as a virtue and puts emphasis on cooperation at work, consultation as a way of

overcoming obstacles and the minimizing of risk of mistakes (ibid.). Social relations

at work are encouraged in order to achieve a balance between individual and social life.

In addition, work is considered to be a source of independence and a means of fostering

personal growth, self-respect, satisfaction and self-fulﬁllment. Besides constant hard

work to meet one’s responsibilities, competition is encouraged in order to improve

quality (Ali, 1988). Ahmad (1976, quoted in Darwish, 2000) asserted that the IWE

stands not for life denial but for life fulﬁllment and holds business motives in the highest

regard.

Values are dynamic and change over time. There has been a widespread diffusion of new

management practices in Malaysia. These have taken the form of changes to the business

culture, and HRM policies and practices. They have invariably been accompanied by

western practices and sometimes by Japanese practices, including QCs, TQM and

teamworking. The new business environment has slightly shifted management culture

from collectivist behavior towards individualist practices. This has led to the erosion of

some of the old HRM practices and to attempts, especially by TNCs, to westernize HRM

practices through the use of western universalist best practices. Some observers have

viewed this as a “western shift” towards individualism and a fracturing of previously

prevailing collectivistic forms of HRM practice. In this context, there has been increasing

interest in the effect of these economic and social changes on HRM practices. There has

been some speculation that HRM practices in Malaysia may be becoming more

individualistic in their management practices. From this perspective, the new western

management practices may be seen as a direct threat to indigenous Malaysian practices.

For instance Lim (1998, 2001a, 2001b, 2002) found that, while power distance in

Malaysia is still high and masculinity still moderate, there is evidence to suggest that the

levels of uncertainty avoidance and individualism in Malaysia have increased over the

past decades. Others have argued that new forms of participation have done little to erode

a tradition of autocracy and deeply entrenched managerial prerogatives (Elger and Smith

2001: 460).

Indeed, it has been suggested that the alleged drift to individualism does not necessarily

lead to the eradication of traditional Malaysian practices; the impact of the

individualization of Malaysian managers should not be overstated. Noordin et al. (2002:

46–47) note that individualism is most pronounced in the new middle class whereas the

upper class pays attention to traditional collectivist values and social norms that secure

and prolong its comfortable position in society.

HRM in Malaysia • 209

Nonetheless, Noordin et al. (2002: 47) suggest that at least one facet of individualism, an

emphasis on global competitiveness, has inﬁltrated into the collectivist values held by

Malaysians. They found that harmony and social behavior as well as relationships,

self-sacriﬁce and family integrity still appear to be important for Malaysian managers.

However, while they remain inclined towards collectivism in situations involving

in-groups, they appear to be individualistic in situations that involve out-groups, and

the organizations they work for may fall into the latter category. They noted that

Malaysian managers are basically “collectivist in relation to their in-groups, but the

rapid development of the Malaysian economy has introduced another element into the

Malaysian culture that is competition between members of out-groups” (p. 48). However,

they argue that heightened individual competitiveness does not necessarily imply

decreased collectivism (p. 49). Overall Malaysian companies pick and mix Japanese and

western HRM practices to suit their needs (Mansor and Ali, 1998: 506). Table 10.1

highlights the standing Malaysia has on GLOBE’s dimensions.

The Chinese Malaysian cultural values are to a large extent similar to Malay values.

The Chinese Malaysians adhere to collectivist values, respect of face, and have high

power distance. Using Hofstede’s four cultural factors, Lim (2002) found no signiﬁcant

difference between the Malays and the Chinese in work-related values. The sharp

difference between the two values is in the entrepreneurial drive. While the Malays

are often criticized by the Malaysian government for the lack of entrepreneurial

aggressiveness, the Chinese have strong entrepreneurial traditions and a desire for

ﬁnancial independence.

210 • Kamel Mellahi and Geoffrey T. Wood

Table 10.1 GLOBE social culture dimension in Malaysia

(highest 7 – lowest 1)

Uncertainty avoidance 4.78

Future orientation 4.58

Power distance 5.17

Institutional collectivism 4.61

Humane orientation 4.87

Performance orientation 4.34

Group and family collectivism 5.51

Gender egalitarianism 3.51

Assertiveness 3.87

Source: Adopted from Gupta et al., 2002. Southern Asia cluster:

where the old meets the new, Journal of World Business 37 (16–27): 22.

The industrial relations system

Malaysian industrial relations (IR) have been characterized by extensive state control,

guaranteeing a high level of managerial prerogatives within the workplace, minimal overt

conﬂict and with labor having weak bargaining power (Arudsothy and Littler, 1993;

Jomo and Todd, 1994; Arifﬁn, 1997, quoted in Todd and Peetz, 2001: 1365). In

Malaysia, approximately 13 percent of the labor force in 1980 was unionized, in many

cases by unions of dubious efﬁcacy (see Table 10.2 for details of union membership).

During the early post-independence era, IR in Malaysia reﬂected the British colonial

legacy, with legislation providing for collective bargaining and minimum standards,

while the focus of government policy was to contain conﬂict in the interest of economic

development (Kuruvilla and Arusothy, 1995). Political strikes by unions (then registered

as societies) were prohibited. At the ﬁrm level, unions’ ability to strike was restricted and

they had little inﬂuence on most HRM policies and practices such as promotions, lay-offs

and restructuring, deemed outside the scope of unions’ bargaining power. This period has

been referred to as “controlled pluralism” (Kuruvilla and Arudsothy, 1995, quoted in

Sarosh, 1996). Despite the fact that the government had extensive powers to control

unions’ activities, there was little need to invoke them.

The second phase in the development of the Malaysian IR system came in the early

1970s, 1973–1974, when Malaysia moved from its failing and expensive-to-sustain heavy

industry strategy, towards an intensive export strategy based on cheap manufacturing for

exports ﬁnanced primarily by foreign investors. By the mid-1970s Malaysia promoted

itself as a cost-effective and “IR” friendly country and enacted several IR rules and

regulations to restrict union activities. New investment packages included an extension of

HRM in Malaysia • 211

Table 10.2 Number of employee trade unions and membership by gender, 1992–2000

Year Number of Membership

unions

Total Male (%) Female (%)

1992 479 680,007 463,697 (68.2) 216,310 (31.8)

1993 496 693,581 450,828 (65.0) 242,753 (35.0)

1994 501 699,373 450,047 (64.3) 249,326 (35.7)

1995 504 706,253 450,307 (63.8) 255,946 (36.2)

1996 516 728,246 465,098 (63.9) 263,148 (36.1)

1997 526 734,685 466,549 (63.5) 268,136 (36.5)

1998 532 739,636 468,143 (63.3) 271,493 (36.7)

1999 537 725,322 461,938 (63.7) 263,384 (36.4)

2000 563 734,037

Source: Labour and Human Resource Statistics 1992–2000, Ministry of Human Resources, Department of

Trade Union Affairs

tax and exemptions from several labor protection laws for foreign corporations, an

alteration of the deﬁnition of wages, especially the calculation of overtime to reduce labor

costs during overtime, holidays and rest days, extending working hours, and a lack of a

minimum wage (and equal pay for equal work legislation) in the export-oriented sector

(see Sarosh, 1996). Unions in the export-oriented sector were not allowed to afﬁliate

themselves with other national unions or industry level union federations.

A third shift in Malaysian IR policy came in the 1980s as a result of the government

“Look East.” In the export-oriented sector, unions were banned, the ban only being lifted

in 1988 in response to international pressures (Kuruvilla and Arudsothy, 1995). After

this, only “in-house” unions were allowed at the plant rather than industry level. It was

hoped that such unions would be more pliable, and “less likely to transmit wage pressures

across ﬁrms and sectors” (Elger and Smith, 2001: 460). Given restrictions on

collectivism, strikes are rare. For example, in 2001, only thirteen strikes involving 2,209

workers took place, according to ofﬁcial ﬁgures (Malaysian Ministry of Human

Resources, 2002). The emergence of class-consciousness is constrained by the

persistence of deep ethnic divisions (Elger and Smith, 2001: 461). However, workers

have retained the right to “vote with their feet” (Wilkinson et al., 2001: 692) by

job-hopping, which is very common in Malaysia due to the very low unemployment rate.

Labor market

Until the 1990s, the Malaysian manufacturing sector was predominantly labor-intensive

and low skilled sector. Lucas and Verry (1996) noted that in 1980, over 70 percent of

manufacturing employees had no more than lower secondary education and the ﬁgure

was around 72 percent in 1987. In the early days of the NEP, 75 percent of places at

Malaysian universities were reserved for bumiputras, although the quota was later

lowered to 55 percent. As a result of state intervention, the proportion of bumiputra

students at public universities increased from 12 percent in 1969 to around 70 percent

today. The reaction of the Chinese and Indian communities has been to turn increasingly

to foreign universities and to private schools and colleges (Lucas and Verry, 1996). Lucas

and Verry (1996) reported that in 1988 nearly 55 percent of Chinese undergraduate

students were at universities overseas.

Despite rigorous afﬁrmative action policies, work remains both ethnically divided and

gendered. The growth of export industry has led to the emergence of a Malay working

class, whilst the NDP and NEP have also resulted in the creation of a bumiputra

bourgeoisie. Typically, inward investors have sought to capitalize on the cheapest

possible sources of labor: young Malay women from the countryside (Elger and Smith,

2001: 459) or foreigners. Table 10.3 depicts female labor force participation rates in the

late 1990s. Whilst – in line with government quotas – bumiputras increasingly are found

at managerial level, many ﬁrms continue to favor employing ethnic Chinese at

supervisory level (Elger and Smith, 2001: 459).

212 • Kamel Mellahi and Geoffrey T. Wood

Shortage of skilled workers

The shortage of skilled workers in key areas is both qualitative and quantitative, state

policies to promote HRD notwithstanding. Rapid growth, and the adoption of modern

technological production processes has resulted in the need of a new breed of skilled

workers who are able to absorb and adapt to new technologies and work practices.

Industrialization has developed faster than the education and training system output to

meet the needs of the economy. Output from industrial and vocational training institutes

remains insufﬁcient, in part due to a shortage of qualiﬁed and experienced lecturers.

Employers remain reluctant to promote on-the-job training, given tight cost margins

and high staff turnover. Moreover, many skilled production workers actively seek

employment in neighbouring Singapore, where industrial competitiveness is less

dependent on low wage rates.

Employment of foreign workers

The 1986–1997 period of rapid economic expansion in Malaysia stimulated extensive

labor ﬂows from abroad of unprecedented proportions (Kassim, 1996, quoted in

Abdul-Aziz, 2001: 89). From approximately 500,000 foreign workers in 1984, the

number increased to in excess of 1.2 million by 1991 (Pillai, 1992). By the mid-1990s,

foreign workers made up 15 percent of the labor force (Lin, 1996).

The Seventh Malaysia Plan gave a ﬁgure for foreigners in the labor force in Malaysia

in 1995 of 650,000. Estimates have suggested that there were roughly 2 million foreign

workers in the country. For instance, an estimated 60 percent of all manual workers

in the construction industry were foreign nationals in 1987 (Gill, 1988) a ﬁgure which

reached 80 percent in 1995 (Balaisegaram and Pillai, 1996).

In December 1991, the Ministry of HR opened up to foreigners a range of jobs in the

manufacturing and construction sectors. The aim of the policy was to ensure that only

appropriate foreign workers with required skills were employed and would not hinder the

HRM in Malaysia • 213

Table 10.3 Malaysia: labor force participation rates by gender,

1995–1999

Year

1995 1996 1997 1998 1999

Total 64.5 65.8 66.6 64.3 64.3

Male 83.8 84.8 85.7 83.4 83.4

Female 44.3 45.8 47.4 44.2 44.2

Source: Economic Report 1999/2000

employment of Malaysian workers. Foreign workers could initially be employed for a

period of ﬁve years. However, the private sector was asked to shift its production process

from labor-intensive technology to capital-intensive technologies, in order to reduce the

need for foreign workers. Automation has been at the top of the Ministry of Human

Resource agenda since then: ofﬁcially speaking, employers should realize the need for

the “shift to automation, robotics and higher value-added technology and production

process.” Furthermore, ﬁrms should train existing staff and provide more competitive

wages for Malaysian nationals, relocating to labor-surplus areas such as Kelantan,

Terengganu and Pahang if need be. It is not certain how this policy can be squared with

a continued reliance on relatively low-cost labor, and on low value-added production.

Being a signatory to the ILO Migration for Employment Convention, Malaysia is obliged

to ensure employers give equal treatment and rights to foreign workers (Lee and

Sivananthiran, 1996). However Abdul-Aziz (2001: 769) found that, in addition to

allegations of unfair treatment, there was a wage hierarchy in the construction industry

“with the Malaysian occupying the apex, followed by Indonesians, with the least

favoured Bangladeshis at the bottom.” Employers do not normally provide written

contracts to foreign blue-collar workers, with the employment relationship being

invariably ad hoc (Abdul-Aziz, 2001: 796).

Human resource development strategy

It is apparent that, if Malaysia is to become a developed nation by the year 2020, a pool

of educated multiskilled, disciplined and productive workforce has to be created. The

demand for skilled labor has increased due to the rapid transformation of the economy

during the late 1980s and 1990s. Industries are shifting to more modern technological

production processes which require bold and innovative HRD strategies to meet the

challenging skills requirements. The workforce has to be imbued with enhanced

knowledge and modern industrial skills and be able to absorb and adapt new

technologies. Todd and Peetz (2001: 1375) found a strong emphasis on training in 12 out

of 16 case-studies.

Vision 2020 puts great emphasis on HRD. The National Development Policy under the

Second Outline Perspective Plan for the period 1991–2000 underscored the importance of

HRD to cater for the needs of an economy under transformation. Inter alia, the NDP

seeks to promote the following: the development of an educated, ﬂexible, innovative,

numerate and multiskilled workforce to cater for rapid technological development and the

shift from labor-intensive technologies to knowledge-intensive technologies;

vocationalizing the education curriculum; training and developing bumiputras;

motivating the private sector to invest in HRD.

To further encourage and stimulate the private sector to introduce training and

development for its employees, the HRD Act 1992 requires organizations employing

more than 50 employees to contribute 1 percent of their monthly payroll to a fund to

214 • Kamel Mellahi and Geoffrey T. Wood

promote training. In turn, the fund aims to provide ﬁnancial assistance to defray part of

the allowable costs in training undertaken by employers. It acts as an incentive scheme

whereby grants from the fund can be provided to employers to undertake and accelerate

systematic training programs to equip the workforce with high skills, knowledge and

positive industrial attitudes. The fund was initially open only to the manufacturing sector

but has since been expanded to the service sector.

The HR Ministry’s Manpower Department and the National Vocational Training

Department formulate the curriculum of training programs and supplying skilled and

trained workforce to meet the needs of the economy. Their aim is to minimize skill

mismatches and conduct training to supply a multiskilled, innovative and adaptive

workforce, in order to facilitate the transition from labor-intensive to knowledge-

intensive industries with a strong science and technology base.

The HRM function

Yong (1996) argues that the diversity of the composition of the modern workforce in

Malaysia requires more appropriate and imaginative HRM solutions than have hitherto

been deployed. HRM is currently a rapidly growing ﬁeld in Malaysia. Since the late

1980s, Malaysian managers have increasingly used the term HRM instead of personnel

management (Todd and Peetz, 2001; Yong, 1996). In 1990, the former Ministry of Labor

adopted the new term and changed its name to the Ministry of Human Resources in

keeping with the international trend and “need of recognising people as a key resource for

national development” (Yong, 1996). HRM departments are usually staffed by people

who have general qualiﬁcations but with much working experience in the ﬁeld (Todd

and Peetz, 2001). Yong (1996) described a typical proﬁle of a Malaysian HRM as “a

male with social science degree plus a qualiﬁcation in personnel management with ﬁve

years experience and around 33 to 45 years old, able to communicate well, in Bahasa

Malaysia, and English.” Todd and Peetz (2001: 1373) found evidence of the increasing

strategic integration of the HR function.

The Ministry of Human Resources plays a key role in shaping HRM policies and

practices in Malaysia. The government is responsible for the development of labor

administration policy, promotion of workers’ welfare (especially bumiputras) and

promoting industrial harmony. More importantly, it plays a role of coordinator with the

private sector by maintaining the supply of a multiskilled, disciplined – by controlling

union activities – and efﬁcient workforce.

HRM in Malaysia • 215

HRM policies and practices

Work organization

The organization of work in Malaysian ﬁrms is inﬂuenced by a host of factors. Todd and

Peetz (2001: 1374–1375) found that work organization varied from Tayloristic with

limited multiskilling style to modern ﬂexible multiskilled style. In Japanese factories

operating in Malaysia, they found an apparent inﬂuence of Japanese practices through

the active use of QCs, and Just in Time (JIT) practices (see Wilkinson et al., 2001 for a

detailed study of work organization in Japanese ﬁrms operating in Malaysia). Wilkinson

et al. (2001) reported that in several Japanese companies in Malaysia there is a high

division of tasks. However, Elger and Smith (2001: 461) suggest that, in practice, work

roles remain very tightly deﬁned; the predominant paradigm remains low value-added

production under autocratic control. This reﬂects the continued importance of industries

centering on the assembly of mature standardized products (such as VCRs and TVs), and

the production of lower value components for such products (ibid.).

Recruitment and selection

Generally, Malaysia ﬁrms practice external recruitment (Mansor and Ali, 1998: 508).

Several big companies take the initiative and recruit new graduates straight from

universities. As noted earlier, managers still turn to speciﬁc ethnic groupings when

seeking to ﬁll certain jobs; even if bumiputra managers are employed, Chinese are still

favoured for supervisory roles. A large proportion of production workers continue to be

directly recruited from the countryside. Elger and Smith (2001: 459) argue that such

segmentation “structures the social distance between management and workers and

mediates the transmission of management policy.”

Rewards system

Todd and Peetz (2001: 1376) found that, although the bulk of employee’s pay is based

on the wage of the occupation, tenure-related increments and contractual bonus, many

Malaysian companies include performance-related bonus within their pay packages.

They also found that, while wages are determined via collective bargaining in unionized

workplaces, management determined the wages in non-unionized ﬁrms. Wilkinson

et al. (2001: 690–691) found in Malaysia that starting salaries for operators were around

US$1,900 a year, typically around RM430 per month for an average 45-hour week, with

two months’ pay as an annual bonus.

216 • Kamel Mellahi and Geoffrey T. Wood

Turnover

Malaysian organizations suffer from high staff-turnover rates. In the case of blue-collar

workers, this reﬂects a tradition of autocratic management, with little room for dissent,

coupled with a high demand for labor within speciﬁc geographic areas. On the one hand,

managers ﬁnd such turnover helpful as it enables stafﬁng levels to be easily adjusted to

match ﬂuctuations in demand (Elger and Smith 2001: 461). On the other hand, this limits

the effectiveness of in-ﬁrm training and development initiatives. Firms are unlikely to

break with autocratic Fordism if they lack the human capacity to do so, ofﬁcial policies

notwithstanding. There is some evidence to suggest that the reluctance of a signiﬁcant

number of ﬁrms to devote too many resources to development, and to advance women,

has resulted in intense competition for a relatively small pool of highly skilled

bumiputras (Morris et al., 2001; Jayansankaran, 1999). Again, this mitigates against the

attainment of a predominantly high value-added production paradigm.

Conclusion

In many respects, Malaysia represents a success story. From an economy centered on the

production of primary commodities, it has developed a signiﬁcant manufacturing sector.

In particular, the country has assumed an important role in the global consumer

electronics industry. Moreover, from a predominantly poor rural grouping, bumiputras

have increasingly urbanized, and gained representation at the highest levels of industry.

The Malaysian experience highlights the continued relevance of state interventions

– globalization notwithstanding – and the possibilities of active industrial policy. At the

same time, Malaysia’s growth trajectory is fraught with contradictions. Much industrial

production centers on low-value-added activity on autocratic Fordist lines, dependent on

cheap labor supplies. However, Malaysia has long since lost any competitive advantage

in the sweatshop stakes, with China emerging as the ultimate low-cost alternative. Whilst

ofﬁcial HRD initiatives have had some success – above all, in enhancing productivity

– chronic skills shortages persist in certain areas. Moreover, the kind of products that tend

to be manufactured in Malaysia – both mature standardized products, and components

thereof – do not always readily lend themselves to a more highly value-added production

paradigm. Further institutional barriers to a high wage–high skill scenario include an

autocratic managerial tradition, with geographic, ethnic and regional barriers being

deliberately erected between managers and workforces. This is not to suggest that in

certain niche areas, Malaysia may retain global competitiveness on grounds other than

cost. However, the diffusion of a culture of autocracy from the political center would

seem to mitigate against the emergence of a genuine culture of involvement and

participation, unlocking the fullest potential of the country’s human capital. In other

words, HRM can only be developed if corporate and societal governance systems have

the ability to support and follow through the necessary investments in physical resources

and trust (cf. Marsden, 1999: 268).

HRM in Malaysia • 217

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220 • Kamel Mellahi and Geoffrey T. Wood

HRM in Singapore

NARESH KHATRI

Introduction

Since its independence in 1965, Singapore has achieved tremendous economic

advancement. From earning a GDP of S$2.15 billion in 1960 to a GDP of S$153 billion

in 2001, the city-state is today a reputable ﬁnancial center, a key regional trading center,

the world’s busiest port and a top location for investment. Singapore is one of the newly

industrialized countries (NICs), which were hailed as a great economic success in the

1990s.

The total labor force in Singapore in June 2002 stood at 2,128,500.

It comprised

2,017,400 persons who were employed and 111,200 unemployed. Overall, 64.7 percent

of the population aged 15 and above participated in the labor force. The rate of

participation in the labor force has been largely unchanged from 65.3 percent in 1992.

However, the stability of the overall participation rate masks some signiﬁcant changes.

Speciﬁcally, the labor force participation rate in the younger age group of 15 to 24

declined as more youths delayed their entry to the labor market to pursue higher

education. On the other hand, there has been a rise in participation of females,

particularly among those aged 45 to 59, suggesting that more females are returning to

work when their children are older. Among males in the prime working age, participation

has been fairly stable except for a notable increase in the older age group of 55 to 64,

following the extension of retirement age. Despite the increasing trend in the

participation of older persons and females in the workforce, the participation of these two

groups of workers is much lower than in other countries such as Japan, South Korea, and

the USA (see Table 11.1 later in the chapter).

The educational proﬁle of the labor force continues to improve with the share of degree

holders more than doubling in 2002 from 8.2 percent a decade ago. Nevertheless, it

1 Most of the data and discussions in this section of the chapter are derived from several publications

of the Manpower Research and Statistics Division of the Ministry of Manpower, Singapore,

namely, The 2002 Singapore Yearbook of Manpower Statistics; Report on Labor Force in

Singapore 2002; Labor Market, Third Quarter 2002; Conditions of Employment, 2002; Older

Workers 1999; Women Returning to Work 1995; and Flexible Work Arrangements 1999.

remains signiﬁcantly below that in the USA (32 percent), UK (29 percent), South Korea

(25 percent), and Japan (21 percent), but slightly ahead of Hong Kong (16 percent) and

Taiwan (12 percent). A sizeable pool of 659,000 workers, forming 33 percent of

employed workforce, possessed less than secondary education level. The number has

come down from 702,400 or 45 percent in 1992.

The distribution of workers across industries and occupations has undergone signiﬁcant

shifts over the last decade in response to rapid restructuring in the economy and

improvement in the educational proﬁle of the workforce. Although manufacturing

continues to play a vital role in the development of the economy, contributing between

22 and 26 percent, the sector’s share of employment has fallen. In 2002, manufacturing

employed 18 percent of the workforce down from 28 percent in 1992. The change

reﬂects the shift in manufacturing away from labor-intensive to capital-intensive and the

relocation of lower-end production to nearby countries. The employment share of the

workforce in the services sector has increased over the decade, constituting three of

every four workers in 2002, up from 65 percent in 1992. Higher skilled workers have

been gaining employment share. The top three occupational groups, namely, managers,

senior ofﬁcials, and professionals and technicians, now constitute 12 percent, almost

double the 6.6 percent in 1992.

In June 2002, the seasonally adjusted unemployment rate stood at 4.1 percent, which is

substantially higher than 2.7 percent in June 2001 and 2.0 percent that was common

before the onset of the Asian economic crisis. Without adjusting for seasonal inﬂuences,

the unemployment rate was 5.2 percent in June 2002, up from 3.4 percent a year ago,

indicating greater difﬁculties in the job-search efforts of this year’s cohort of new

tertiary graduates. Unemployment is generally higher among those less educated, as

they are adversely affected by an underlying structural shift in demand in favor of those

with education and skills. Nevertheless, with the spate of retrenchments affecting

managers and executives in 2001 and early 2002, the degree holders have suffered the

greatest increase in unemployment, underscoring the difﬁculties faced by displaced

mid-career managers and executives in securing re-employment. For example, while

the unemployment rate among degree holders was less than those with lower secondary

education (6.2 percent), it has risen most sharply from 2.5 percent a year ago to

4.8 percent in June 2002. Younger persons experience higher unemployment rate. For

instance, the unemployment rate in the age group 15–24 was 8.6 percent.

The Singaporean economy has made a transition from being low-end, labor-intensive to

being high-tech, service-oriented, and knowledge-based. Since Singaporean educational

institutions are not able to meet the demand for high-skilled workers, the government has

encouraged companies to hire foreign skilled workers. Further, Singaporeans do not like

to work in certain low-skilled jobs/industries, such as housemaid/construction.

Companies in such industries rely on foreign workers. Thus, on the whole, foreign

workers represent a signiﬁcant portion of the Singaporean workforce, about 20 percent

(Islam and Chowdhury, 1997). (The number of foreign workers may have grown further

in the last ﬁve years.)

222 • Naresh Khatri

Historical development and key

factors inﬂuencing HRM practices in Singapore

Singapore’s economic strategy

Singapore has a unique wage system, which has evolved along with its economic

strategy. In the period between 1965 and 1978, the economic strategy was to provide

employment by attracting labor-intensive industries. To make Singapore more

competitive than its neighbors, it put a restraint on wages. Singapore changed its

economic strategy (1979–1984) from being labor-intensive manufacturing to more skill

and capital-intensive manufacturing. This phase may be termed as wage correction. The

government pushed for phasing out low-wage, labor-intensive industries and attracting

high-wage, capital-intensive, and skill-based industries. The third phase of the economic

strategy was to be more competitive in the face of increasing competition from the

neighboring countries, especially Malaysia. This phase was called wage ﬂexibility and it

began in 1985. The ﬂexible wage system has several components:

1 a basic ﬁxed component reﬂecting the value of the job and to provide stability;

2 an annual wage supplement (AWS) of one month which can be adjusted under special

circumstances;

3 a variable bonus based on the company’s proﬁtability and improved productivity,

4 a service increment each year for loyalty, experience, and length of service.

It is worth noting that the variable bonus in Singapore companies varies signiﬁcantly.

It has ranged roughly from the equivalent of one month’s salary to six months’ salary

in recent years. Singapore has achieved one of the highest saving rates through

employing a wage system in which a signiﬁcant component is contributed by both

employee and employer to the Central Provident Fund scheme. The Central Provident

Fund contributions (both from employee and employer) have been as high as 40 percent

of each monthly salary.

Singapore’s economic model

Before we can understand the role and status of HRM practices in Singapore, we need to

grasp the unique Singaporean economic model and the administrative systems associated

with it. Lingle (1996) characterizes the Singaporean economic model as “authoritarian

capitalism.” Authoritarian capitalism combines a selective degree of economic freedom

and private property rights with strong-armed control over political life. It assumes that

economic liberties and political liberties are not interdependent. It provides a nice

contrast to its cousin, “authoritarian socialism” of Soviet Union type. While authoritarian

socialism subscribes to having an economy without prices, authoritarian capitalism

presides over markets without the guarantee of individual freedoms or rights.

Authoritarian capitalism employs extensive interventions in the economy. Investment

HRM in Singapore • 223

funds and subsidies are directed toward selective areas of economic activity. The model

of authoritarian capitalism involves the politicization of commerce and the

commercialization of politics. The Southeast Asian economic model has been termed as

“crony capitalism” by some (Husted, 1999; Vogl, 1999). In crony capitalism, politicians,

businesses, and banks develop close relationships and businesses depend heavily on their

relationships with the ruling party. Economic activities involve privileged, insider access

to economic data that beneﬁt the party and also allow party functionaries to enjoy private

gains. A downside of authoritarian capitalism is that it suppresses individualism and

intellectual freedom, thereby impairing the formation of entrepreneurs. Crony capitalism

is widely regarded as a key factor in the Asian ﬁnancial crisis of 1997 (Asiaweek, 1999;

Dale, 1999). Singapore is also called a “nanny state” in which people are supposed to do

exactly as they are told. In return, the government takes care of all their basic needs.

Singapore’s administrative system

Singapore’s administrative system is also unique. It may be said that Singapore has

put in place one of the most elaborate management control systems. A neutral observer

will ﬁnd a Singaporean administrative system to resemble a military system. In fact,

a number of senior ofﬁcers in the military take up positions as heads of government

ministries, departments, and corporations after their retirement from military.

Singaporeans are proud of their disciplined, efﬁcient, military-like administrative

systems. Caning of an American citizen, Michael Fay, in Singapore in the early 1990s,

brought to the fore a heated debate on Singapore’s control-based management model.

Although sometimes a little overexaggerated in the western media, there is some truth in

Singapore’s image as a controlled society. On the positive side, Singapore is one of the

most disciplined societies in the world and is one of the cleanest cities in the world.

A pervasive thinking shared privately in Singapore is that Singaporeans make excellent

administrators/managers and clerks, but poor leaders and entrepreneurs. This is

reﬂected in the preponderance of scores on Myer-Briggs indicators. A large number of

Singapore managers are ISTJs (Introvert–Sensation–Thinking–Judging) and ESTJs

(Extrovert–Sensation–Thinking–Judging) (Ditzig and You, 1988; Tan and Tan, 1999):

31.9 and 18.8 percent respectively as compared to 13.3 and 11 percent, respectively, in

the USA. Singapore’s highly structured education and administrative systems have

fostered a mindset of low tolerance for ambiguity. For example, the government takes

pains even to the extent of specifying the weight limit of childrens primary school school

bags. Still another example is where the government decided to mark the pavements with

footprints from the school gates to nearby bus stops so that school children can ﬁnd their

way to the nearest bus stop without a problem. In a system when thought, even on such

small matters, is taken away from individuals, people depend upon government

instructions on most issues.

A preponderance of ISTJ and ESTJ types in Singapore results in overemphasis on

formalization/bureaucracy and detailed rules and guidelines. Such a management is

224 • Naresh Khatri

termed as “micromanagement.” Micromanagement means managerial emphasis

on routine, operational aspects of management at the expense of broader, strategic

management issues (Khatri et al., 2003). Even relatively minor and routine decisions are

made by senior-level managers. A result is that senior managers are bogged down with

routine decisions, some of which border on triviality. It is not uncommon in Singapore

that an expense of a few dollars goes all the way to the top for approval. While

micromanagement enhances reliability and control, it comes at a price as it chokes

creativity, entrepreneurship, and initiative. Intuitive and perceptive skills, which are

signiﬁcantly lacking in Singapore, are important for managers to face the challenges

unleashed by the forces of regionalization and globalization (Tan and Tan, 1999).

Unfortunately, these skills cannot be changed or modiﬁed through weeks or even months

of training. It will require a different infrastructure and years for Singapore to undo the

effects of overmanagement in the past.

A Kiasu mentality underlies Singaporean attitudes towards education, work, and other

aspects of their lives (Ho et al., 1998). In education, Singaporean students are very

examination-oriented and success in school is narrowly deﬁned in terms of grades. Such

an environment is not conducive for critical and creative thinking. Most Singaporeans

have been brought up with many of their decisions made by government and parents on

their behalf, resulting in lack of independence, initiative, and originality (Ho et al., 1998).

There is a general lack of idealism and enthusiasm at work.

Multinational corporations as growth drivers

Singapore has one of the most open, trade-oriented economies. It realized the importance

of the pro-business environment in 1965, which its neighbors understood much later. Its

government made a deliberate choice of attracting multinationals to be an engine of

economic growth. Interestingly, Asian economies are pursuing three distinct economic

strategies. While Japan and Korea have a few mega companies/conglomerates that

control the bulk of their economic activity, Hong Kong and Taiwan have depended on

small, entrepreneurial ﬁrms for their growth and development. Singapore and Malaysia

chose still another distinct path. Both have relied heavily on multinational corporations

for their economic growth. For example, multinationals account for more than 70 percent

of the manufacturing output in Singapore and about 95 percent of its total export.

Singapore has a good mix of multinationals from Europe, Japan, and North America.

This mix of multinationals is also reﬂected in a mix of HRM practices in Singapore

companies. Fisher and Shaw (1992) found evidence of the impact of the headquarters

on HRM practices of Singaporean subsidiaries. Shaw et al. (1995) examined the role

of Singapore government on HR practices and found that the government has taken an

interventionist role not only concerning broad issues of economic policy but with respect

to HRM activities as well. It has focused heavily on training and productivity

improvement. The process of unquestioned selective imitation is the pervasive mindset in

Singapore, encouraged by both government and professional organizations. There are

HRM in Singapore • 225

some similarities between local and foreign ﬁrms in Singapore resulting from ﬁrms

conforming to local government standards as well as from the mutual imitation processes

operating between Singaporean and foreign ﬁrms.

Singapore’s small, open economy is vulnerable to external shocks because the value of its

exports is much larger than its GDP and about two-thirds of its industrial output is

exported. On the positive side, the strategy of attracting multinationals has led to rapid

growth in Singapore and was not possible otherwise. Multinationals bring capital, the

latest technology, and excellent management practices, three most critical factors for

business success. On the negative side, multinationals do not show any loyalty. If

business conditions are not favorable, they move to other locations. This is what has

happened in Singapore recently. Other countries in the region, such as Malaysia and

Thailand, and now China,

have realized the importance of the pro-business environment

and the role of multinationals in achieving rapid growth. The neighboring countries have

greater natural resources and cheaper labor. Consequently, Singapore has been gradually

losing its competitive advantage. It has been trying to create a new niche in high-tech,

bio-medical sciences and high value-added services, to isolate it from the threat of

competition.

Singapore has been successful in the past in transforming itself in the face of adversity.

However, it is not clear at present if it will succeed in becoming an economic force in the

region again. The Singaporean government and policy-makers are privately ruing not

having provided an environment for local entrepreneurs. For example, in the Silicon

Valley heyday, the Singaporean government and people were hoping that some of their

homegrown IT enterprises and entrepreneurs would make it big on the world stage.

Unfortunately, it never materialized. Part of the reason is the fact that entrepreneurs

cannot surface in a highly structured Singaporean system.

The role and status of HRM in Singapore companies

My own experiences of HRM practices in Singapore companies suggest that the

HR function is in transition. Organizations have realized the importance of HRM and

salary surveys show that HR executives are among the best paid in Southeast Asia.

Most organizations have changed the title of the function from “Personnel” or

“Administration” to “Human Resource Management.” The HR department that used

to be part of the ﬁnance and accounts department in most organizations in the past is

being conﬁgured as a standalone function in most of them. There is an increasing trend of

HR managers reporting directly to their CEOs, unlike in the past, when they used to

report to the head of ﬁnance and accounts department. HR managers are also increasingly

participating in strategic planning meetings and the link between strategic planning and

226 • Naresh Khatri

2 In fact, China might be affecting the foreign direct investments in the whole of Southeast Asia,

including Singapore.

HR function has been strengthening. Until a few years ago, HR’s role in most

organizations was limited to administrative activities, such as personnel record-keeping

and holiday and leave administration. However, in recent years, linkage of HR with

strategic planning is growing and we see more and more organizations showing-one-way

link

between strategic planning and HR, and some even showing a two-way link

(Golden and Ramanujam, 1985).

Khatri and Budhwar (2002) interviewed 35 senior managers including CEOs of nine

companies in Singapore and found that two factors, HR competencies and top

management enlightenment, affect the status of the HR function in an organization.

HR managers felt that their competencies were important in gaining trust and strategic

involvement in the organization. They also felt the need to convince the upper

management that they were capable of managing the fundamental HR functions well

before being invited to the strategic table. In addition, top management enlightenment

(a recognition by the top management that HR function can play a critical role in

formulating and implementing organizational strategies) impacts on the role and status

of HR function in the organization.

Key challenges facing HRM in Singapore

There are a number of HR challenges facing Singaporean companies. The chief among

them include chronic employee turnover/job-hopping, relatively low participation rate of

females and older workers in the workforce, management of Singaporeans expatriates,

training and development, and overhauling management systems and HR practices that

can sustain a high value-added, knowledge-based service economy.

Turnover/job-hopping

The labor shortage has been the main feature of the Singapore economy for over two

decades. A result is chronic employee turnover problem. Reports in the popular press

highlighting the costs and disruptions associated with job-hopping continue unabated,

and companies continue to call for help with this pressing issue. The extent of the

problem may be gleaned from the fact that the issue of job-hopping was brought up in the

country’s parliament. In fact, there is deep concern at the national level that job-hopping

is adversely affecting Singapore’s competitiveness (Chang, 1996; The Straits Times,

1996). Foreign investors, particularly manufacturers, are concerned about the frequency

of job-hopping (Asian Finance, 1988). According to the report of a task force on

HRM in Singapore • 227

3 In-one-way link, top management provides strategic initiatives and the HR managers design HR

activities consistent with these initiatives.

4 A two-way link involves an interdependent and mutual relationship between strategic planning

and the HR function.

job-hopping in Singapore, more than two-thirds of the organizations indicated that they

had suffered a productivity loss of greater than 10 percent as a result of the high

employee turnover (National Productivity Board, Singapore, 1988). In addition to low

productivity, the survey reported a high cost of recruitment and poor quality of products

and services due to high turnover. Even more important, high turnover was found to be

the major source of poor morale in many organizations.

Even in the face of increasing unemployment during the Asian crisis and subsequent

economic downturn in 2001–2002, resignation rates in Singapore companies have

remained at alarmingly high levels. For example, overall monthly resignation rate in

2002 was 2.2 percent, which translates into a hefty 26.4 percent annual resignation rate.

Annual turnover for hospitality and retail industries is as high as 55.2 and 49.2 percent,

respectively (Ministry of Manpower, 2002c). HR managers and policy-makers have been

hoping that the turnover problem would go away in a less tight labor market than exists

at present. Unfortunately, they are puzzled by the fact that, although it has declined

marginally, it remains at a high level despite unemployment climbing to 5.2 percent.

Khatri et al. (2001), in their study of companies in three industries (retail, food and

beverage, and marine and shipping), attempted to identify the root causes of turnover

problem in Singapore. The authors found no evidence for the common myth in Singapore

that young and educated Singaporeans have developed a job-hopping attitude because of

labor shortage and that they hop from one job to the other for a few extra dollars as a

result. Instead, turnover problem is caused by factors under the control of management.

Especially, the authors found that companies were not doing enough to create a sense of

belongingness and commitment in their employees and that their management practices

were perceived as lacking in fairness and transparency.

Participation of females in the workforce

The female participation in the Singapore labor force has risen signiﬁcantly over the

years. However, it is still lower than that in many developed countries. For example,

only 52 percent of Singapore women aged between 40 and 49 years work compared

with 71 percent in Japan, 62 percent in Korea, 79 percent in the UK, and 76 percent

in the United States (see Table 11.1). Why are Singaporean women not re-entering the

workforce and what can be done to encourage them to return to work? A study “Back

to work – are you ready?” conducted by the National Trade Union Congress in 1995

provides the answer to this question. Reasons identiﬁed by respondents for not working

include lack of a suitable job near their home, lack of part-time working arrangements,

lack of required qualiﬁcations, not knowing where to look for work, problems in

adjusting to working life, lack of before and after school care facilities for children above

6 years old, preference to spend more time with children, no felt need to rejoin

workforce, and lack of childcare facilities for children from 2 to 6 years old. The

solutions identiﬁed in the study to alleviate the problem include providing training to

women to upgrade their skills, encouraging employers to provide part-time or ﬂexible

228 • Naresh Khatri

working arrangements, offering better pay and beneﬁts, providing facilities for childcare

and the aged, and changing employers’ attitudes to be more receptive to career breaks.

Companies in the UK and the USA provide ﬂexible working arrangements to help female

employees combine career and domestic commitments. Besides part-time working, other

ﬂexible work schedules existent there include ﬂexitime, non-ﬁxed starting and ending

time, annualized hours, teleworking, job sharing, and a compressed work week.

The lower female participation in Singapore’s workforce does not make sense, especially

when one considers perennial chronic labor shortage and job-hopping problems in

Singapore. HR managers in Singapore have failed to rise to the occasion and counter the

problem by being proactive in their HR practices. Singapore has a large pool of highly

educated female workers aged 29 to 34 who take themselves out of the workforce

temporarily to raise their children. These women have to struggle to ﬁnd suitable jobs

when they want to return to the workforce. HR managers look at their CVs, ﬁnd gaps in

their employment history, and reject their applications without due consideration. Instead,

they hire young, unmarried employees who keep switching jobs. HR managers need to

tap the pool of highly educated, older women. Older women are much less likely to job-

hop than other employees. Further, by understanding the needs of these employees and

by providing them with job-sharing and ﬂexible scheduling opportunities, it is possible to

create a sense of commitment in them.

Participation of older workers in the workforce

In 1998, 14 percent of Singaporeans (or 451,900) were aged 55 and above. The ﬁgure is

likely to reach 27 percent by the year 2020. This change will have a signiﬁcant impact on

the labor force. Similar to the participation of women, the participation of older workers

in the labor force in Singapore is comparable to Hong Kong but lags behind developed

countries like Japan, Korea, the UK, and the USA (see Table 11.1). While 80 percent of

males aged 55 to 64 work in Japan and Korea, the proportion was only 65 percent in

Singapore. The share of older females in the same age group at 22 percent was much

lower than 50 percent in Japan and Korea and 46 percent in the USA. The older workers

HRM in Singapore • 229

Table 11.1 Labor force participation rate in Singapore, 2001

Country Females (aged 40–54) Older persons (aged 55–64)

Singapore 58.5 45.1

Taiwan 53.8 41.8

Hong Kong 55.6 43.2

South Korea 61.8 59.2

Japan 70.2 65.8

USA 77.0 60.2

Source: Report on labor force in Singapore, Ministry of Manpower, 2002b.

in Singapore are generally less educated compared with the younger cohorts because

many of them have missed out on the limited opportunities available when they were

young. However, future cohorts of older workers will be increasingly better educated.

Although older workers have lower turnover and unemployment compared to their

younger counterparts, they are more vulnerable to job loss and longer unemployment

spells. This may be attributable to wrong perception among employers that they are less

productive and receptive to change. Studies have shown that older workers perform better

in many jobs, especially those such as retail, counseling, social services, and consultancy

which involve service and human contact. Also, in jobs that require substantial training

and experience such as professional and highly technical work, older workers can

maintain high levels of performance well into their ﬁfties and sixties. The growing

importance of the services industry in fact augurs well for employment of older workers

as the nature of work will be less dependent on physical stamina but require softer skills

such as communication and service delivery.

Currently, ﬂexible working arrangements such as ﬂexitime, job sharing, part-time work,

and teleworking are not commonly practiced in Singapore. There is considerable scope

for employers to use ﬂexible work options to allow older workers a more gradual

transition from full-time work to retirement, enabling them to stay longer in the

workforce. Work processes may need to be simpliﬁed to accommodate them. While

various measures can contribute to the continued employment of older workers, their

success hinges on employers changing their attitudes so as not to base employment

decisions on age stereotypes. Employers need to be more enlightened in their attitudes

toward older workers and make necessary adjustments to facilitate their continued

employment.

Management of Singaporean expatriates

An important emerging HR issue in Singapore is the effective management of its

expatriates. Realizing that it has limited market and natural resources, Singapore has

pursued a two-pronged economic strategy: (i) to go high-tech and (ii) to regionalize.

To actualize the second prong of its strategy, Singapore is encouraging its companies to

invest in regional countries. The fast-growing countries in Asia-Paciﬁc provide ample

opportunities to grow and expand. To manage overseas operations of Singaporean

companies requires capable and willing Singaporeans. Currently, there are many

Singaporeans working in various countries and their number is on the rise as more

Singapore-based corporations set up plants and subsidiaries in other countries. Over the

next few years, many of the Singapore-based companies would need about two-thirds

more managers over and above the total managers involved in overseas operations at

present. There are a number of major issues involved in the management of Singaporean

expatriates, such as training and appropriate compensation. In fact, repatriation has been

the major concern of Singaporean expatriates for two important reasons: (i) the

Singaporean school system, which tends to be rigid and makes it hard for the children of

230 • Naresh Khatri

expatriates to adapt after they have been away to another country, and (ii) the overseas

stint of expatriates is not perceived as desirable when they return to Singapore. There are

also issues of living standards and the family. Singaporean expatriates do not ﬁnd living

conditions to their taste when they are posted in developing countries. Moreover, their

posting also poses a dilemma of what to do with the family – take them along or leave

them behind. Khatri (2000a), in a study of determinants of Singaporean expatriates in

China, identiﬁed several key factors contributing to their greater performance/success.

While many studies of American and European expatriates have found cultural

competency as more important than technical competency, this study found that technical

competency plays a more important role in the success of Singaporean expatriates in

China. The reason for little or no impact of cultural adaptability was that 99 percent of

the Singaporean expatriates in the sample were Chinese. The second factor affecting the

success of Singaporean expatriates was the nature of assignment, which includes brieﬁng

the expatriates about their overseas assignments, explaining clearly to them their role in

overseas operations, and giving them greater autonomy. Another factor affecting the

success of Singaporean expatriates was related to the value of assignment. Successful

expatriates perceive that their overseas assignments open new career opportunities for

them. They also value greatly the development of their skills during foreign assignments.

The last key factor contributing to the success of the Singaporean expatriates was the

expectation of immediate results from them, although the conventional wisdom in

existing expatriate literature suggests that expatriate managers should not be expected

to produce immediate results.

Training and development

Singapore ranks very high in the world in its emphasis on training and development.

Companies in Singapore spend about 3.5 to 4.0 percent of the payroll expenses on

training and development activities. In the last decade, training consultants in Singapore

have mushroomed. The emphasis on training is so much so that some companies have

even created a standalone department on training along with the HRM department. One

wonders though if the current training programs, with emphasis on improving operational

efﬁciencies, are appropriate in the new economy that is increasingly knowledge-based.

For example, research in the strategic HRM ﬁeld suggests that different business

strategies (cost reduction or quality enhancement or innovation) require different HR

strategies to support them. Most of the training programs at present are designed to

support the cost reduction or quality enhancement strategies. They do not support

innovation strategy. As Singaporean companies attempt to move from cost-quality

combination to quality-innovation combination, the nature of training programs has to

change signiﬁcantly.

HRM in Singapore • 231

HRM practices in Singapore

HR managers in Singapore and many other Asian countries are facing difﬁcult

challenges. However, with challenges come opportunities. For example, MacLachlan

(1996) noted that East Asia is the best place in the world to be a personnel manager

because of the focus on recruiting, training, developing, and retaining staff.

Unfortunately, at present there is a dearth of qualiﬁed and professional HR managers

in the region. With a few exceptions, HR function is not receiving the attention from

top management that it deserves. Debrah (1994) observed that the ad hoc nature of

HRM policies and practices in companies in Singapore contributed signiﬁcantly to the

job-hopping phenomenon. Cunningham and Debrah (1995) reported that line managers

and executives took over some of the functions of HR managers because HR managers

lacked the necessary skills to manage HR function competently. Khatri (2000b) noted

that companies in Singapore do a poor job, especially in recruitment and selection of

employees. Companies rarely use valid recruitment and selection strategies. The most

common approach to selection was unstructured interviews that have low validities.

Neither is performance management a particularly well-managed function. Although

there is great emphasis on training and development activities, they are not aligned

with organizational strategy and culture. Consequently, it is not clear how much value

training and development programs are adding to organizational performance.

The companies in Singapore may be grouped into two broad categories in their

management practices: (i) multinational corporations and their Singaporean subsidiaries

headed mostly by senior managers from home-country nationals and expatriates from

countries such as Australia, India, New Zealand, the Philippines, and the UK, and

(ii) local Singapore companies, government departments, and government corporations

headed by local Singaporean managers.

Practices in multinational corporations and their Singapore

subsidiaries

As noted above, Singapore has a mix of multinationals from Europe, Japan, and the USA.

The multinationals from these countries reﬂect a management philosophy and culture

of their home countries. For example, Japanese multinationals emphasize life-long

employment and use decision-making and compensation systems similar to Japanese

organizations. Singaporean subsidiaries of American corporations tend to show greater

goal-orientated, outcome-based management practices consistent with management

practices observed in the US multinational corporations. Typically, middle and top

managers of the Singaporean subsidiaries are non-Singaporeans and junior managers,

and non-managers are Singaporeans, Malaysians, and other foreign workers from the

region. Multinationals have enjoyed and exploited this synergy between managerial

abilities from home-country nationals and disciplined and hard-working Singaporean

workers to achieve a high level of performance and productivity.

232 • Naresh Khatri

Practices in local companies, government departments,

and corporations

Practices in local companies, government departments and corporations are an

amalgamation of administrative systems inherited from the British and strong authority

and power distance orientation of the Chinese/Asian culture. A result is a highly

structured, authoritative management philosophy whose main features are discussed in

the following paragraphs.

As noted earlier, one salient feature of Singaporean management style is its emphasis on

micromanagement. In local companies and government departments, there is a strong

tendency in managers to micromanage organizational activities. Even relatively minor

routine decisions are taken to the enterprise’s top for resolution.

Further, employees in Singapore have long operated in a high power distance context and

have developed a mindset of unwillingness to participate in decisions. They are content

with their managers making decisions and giving them instructions. Jobs are narrowly

and tightly speciﬁed, giving employees little discretion. Communication takes place

vertically downwards; informal and horizontal communication is quite limited. Voluntary

feedback from the bottom is minimal. In a typical encounter between a superior and

subordinate, the former does most of the talking and the latter merely nods his or her

head in afﬁrmation. A superior is actually expected to make decisions without consulting

his or her subordinates, because subordinates may view their involvement in decisions by

their superiors as a sign of incompetence or lack of authority on the part of the superior.

Subordinates are unwilling to express their opinions and disagreements openly, due to

fear of losing face or making someone else lose face. There exists a big chasm in

communication between superiors and their subordinates because it is hard for

subordinates to air their views to their senior managers. On the whole, organizational

communication is quite anemic. Senior managers wield unlimited power and control over

subordinates. Employees have an unquestioning, submissive attitude. Senior managers

elicit respect from junior employees not because of the former’s competence but because

of their authority and position. However, the education level of Singaporeans has

increased steadily and they are also coming into contact with the outside world. Although

they are used to taking orders and instructions from above, there is a growing

sentiment/resentment against the authoritative management approach in general. It is not

clear how the tussle between demand for more instruction from the top by Singaporeans

and their need for greater say in decision-making is going to be resolved.

HR in the next ﬁve years in Singapore

The Ministry of Manpower, Singapore, has prepared a document, Manpower 21,

outlining the vision and strategy of Singapore related to HR issues in the twenty-ﬁrst

century. The document states that the vision is for Singapore to become a talent capital, a

place where the workforce makes the difference to Singapore’s competitive advantage.

HRM in Singapore • 233

Manpower 21 is a strategic blueprint to develop people and manpower as a competitive

advantage, to support as well as create growth in the knowledge economy. While the new

vision and strategy regarding people emphasized in Manpower 21 are worthy goals, they

clearly are a break from the past. Singapore has used a control-based management model

in the past. The new vision and strategy, however, require a new management approach

based on employee participation and commitment. One wonders if it would be possible to

unlearn a management approach that has permeated the entire society and culture.

Singaporean education and administrative systems have reﬁned and perfected the control-

based management system over the last four decades. It would be a formidable task to

change the deeply entrenched values and practices of the past. The dilemma of transition

from control-based approach to commitment-based approach plays in organizational

settings everyday. Employee participation and empowerment schemes are implemented

in a control-based context with a top-down approach with obvious disappointing results.

Employee participation and empowerment initiatives end up becoming a tool of control

in the hands of authoritative bosses. Companies implement performance-based

compensation without clearly deﬁning and communicating objective performance

standards. Because clear and speciﬁc performance criteria that are central to the success

of performance-based compensation may reduce subjectivity, they thus impair the power

and control of managers inherent in their subjective discretion.

There are changes taking place in the economy in the region. The twin cities of Hong

Kong and Singapore prospered using pro-business economic strategies at a time when

other countries and governments in the region relied upon socialist economic

philosophies. That provided them with a competitive advantage for several decades.

However, other countries are following in their footsteps and opening their economies

to foreign direct investment. The foreign direct investment that used to ﬂow naturally to

the two cities is not ﬂowing at the same rate as before. Other countries are becoming

more attractive because of size, natural resources as well as cheap labor. In particular,

Malaysia is a major threat to Singapore and mainland China a threat to Hong Kong. Over

time, Hong Kong and Singapore may or may not enjoy the advantage they have had in

the past as other countries catch up with them. The Singapore government and policy

makers do realize this challenge and are trying to create a niche and looking for ways

how to have as big a slice as possible of the ever-bigger-growing economic pie in the

Asia-Paciﬁc.

Websites and current references

for latest information on HRM in Singapore

Three key departments/institutions involved in HRM in Singapore are: MOM (The

Ministry of Manpower), SPRING (Standards, Productivity, and Innovation Board),

and SHRI (the Singapore Human Resource Institute).

MOM is made up of ﬁve business groups: Manpower Planning, Manpower Development,

Manpower Augmentation, Workplace Environment and Welfare, and Corporate Support.

234 • Naresh Khatri

The Manpower Planning division coordinates and spearheads national efforts to balance

manpower demand with supply. Through Manpower Development, the Ministry is

developing Singapore’s manpower resources into one that is globally competitive and

optimally employed. The Manpower Development division is responsible for developing

the School of Lifelong Learning which promotes lifelong learning for employability at

the national, workforce, and individual levels. As part of a national effort to enhance

Singapore’s competitiveness, the Manpower Augmentation group has made it a priority

to attract global intellectual capital and manpower resources to ﬁll speciﬁc gaps and roles

in Singapore’s economy. The Workplace Environment and Welfare group’s mission is

to ensure a harmonious, safe and favorable work environment for all Singaporeans and

foreigners employed in Singapore. The Corporate Support group provides a variety of

support services to the Ministry to help its business groups achieve their objectives.

The Ministry has a website (http://www.gov.sg/mom) that provides detailed information

about its activities, programs, and numerous publications.

The mission of SPRING Singapore is to raise productivity so as to enhance Singapore’s

competitiveness and economic growth for a better quality of life for all Singaporeans.

The overall goal is to achieve an average total factor productivity (TFP) growth of

2 percent per annum for the next 10 years. To achieve the 2 percent TFP growth,

SPRING focuses on three areas: productivity and innovation, standards and quality,

and small and medium-sized enterprises and the domestic sector. SPRING has changed

its name three times. It was ﬁrst known as the National Productivity Board, which was

changed to the Productivity and Standard Board. More information on SPRING can be

found on its web page (http://www.spring.gov.sg).

Founded in 1965, SHRI is dedicated to raising the quality of work life in Singapore

through effective HR practices that support the development of a world-class workforce.

To help individuals upgrade skills and enhance knowledge, it has various certiﬁcate,

diploma and degree courses in areas such as human resource management and

development, people relations/skills and industrial relations. Specialized courses like the

professional certiﬁcate in compensation and beneﬁts management, certiﬁcate in applied

psychology and master of applied ﬁnance are also offered to enhance the professional

development of the HR people. SHRI also organizes conferences, seminars, workshops

and forums to keep members abreast of current HR issues and government policies. SHRI

has its own website (http://www.shri.org.sg).

In addition, Singapore has three universities, all of which offer undergraduate and

graduate courses in HRM. The National University of Singapore (http://www.nus.edu.sg)

is the oldest and has the most comprehensive offering of courses. The Nanyang

Technological University (http://gemsweb.ntu.edu.sg/igems/public.htm) was inaugurated

in 1990 and its focus is on business management, engineering, mass communication, and

education courses. The Singapore Management University (http://www.smu.edu.sg) was

established only a few years ago and its focus is basically on management.

HRM in Singapore • 235

References

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Chang, H. (1996) “In Singapore, the dreams are getting bigger,” Business Week, 23 September.

Cunningham, J.B. and Debrah, Y.A. (1995) “Skills for managing human resources in a complex

environment: The perceptions of human resource managers in Singapore,” International

Journal of Human Resource Management 6 (1): 79–101.

Dale, R. (1999) “Crisis stills apologists for corruption,” International Herald Tribune, 21 January.

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human resource managers in the hotel industry in Singapore,” Asia Paciﬁc Journal of Human

Resources 32 (1): 41–60.

Ditzig, H. and You, P.S. (1988) “In search of the Singapore managerial style,” Singapore

Management Review 3: 35–51.

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Asia Paciﬁc Journal of Human Resource Management 30 (4): 30–46.

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human resource management and strategic planning process,” Human Resource Management

24: 429–452.

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unique to Singapore?,” Journal of Managerial Psychology 13: 359–370.

Husted, B.W. (1999) “Wealth, culture, and corruption,” Journal of International Business Studies

30: 339–360.

Islam, I. and Chowdhury, A. (1997) Asia-Paciﬁc economies: A survey, London: Routledge.

Khatri, N. (2000a) “Determinants of expatriate success in China,” in C.-M. Lau, K.S. Law,

D.K. Tse, and C.-S. Wong (eds.) Asian management matters: Regional relevance and global

impact, London: Imperial College Press, pp. 319–339.

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companies in Singapore,” International Journal of Human Resource Management 11 (2):

336–365.

Khatri, N. and Budhwar, P.S. (2002) “A study of strategic HR issues in an Asian context,”

Personnel Review 31 (2): 166–188.

Khatri, N., Budhwar, P.S. and Chong, T.F. (2001) “Explaining employee turnover in an Asian

context,” Human Resource Management Journal 11 (1): 54–74.

Khatri, N., Templer, K.J. and Budhwar, P. (2003) Consequences of power distance orientation in

organizations, paper presented at the Academy of Management Conference, Seattle.

Lingle, C. (1996) Singapore’s authoritarian capitalism: Asian values, free market illusions and

political dependency, Fairfax, VA: The Locke Institute.

MacLachlan, R. (1996) “Job-hopping or industrial espionage,” Personnel Management 2 (14):

15–16.

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Statistics Division.

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Statistics Division.

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Manpower Research and Statistics Division.

Ministry of Manpower, Singapore (2002b) Report on labor force in Singapore 2002, Manpower

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and Statistics Division.

236 • Naresh Khatri

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and Statistics Division.

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practices in Hong Kong and Singapore: The impact of political forces and imitation processes,”

Asia Paciﬁc Journal of Human Resources 33 (1): 22–39.

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Tan, V. and Tan, N.T. (1999) “Personality type and the Singapore manager: Research ﬁndings

based on MBTI,” Singapore Management Review 21 (1): 15–31.

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Times, February: 16–28.

HRM in Singapore • 237

HRM in Australia

MARGARET PATRICKSON AND WAHYU SUTIYONO

Introduction

Although the land size of Australia is approximately the same as that of the continental

United States, its population of only 19.5 million in 2001 is less than 10 percent that

of the USA. During the 1996–2001 period population growth rates have averaged

1.3 percent per annum (ABS, 2001). A little over half the population is employed

(9.3 million in 2002), with a workforce participation rate of 63.6 percent and an

unemployment rate of 6.3 percent (ABS, 2002a). In common with other western nations,

the population is aging, with a median age of 35.4 years (ABS, 2002b).

This chapter presents an overview of Australian HRM practice in the context of the

changing economic and technological parameters facing the country. Though there have

been increasing inroads into the economy by MNCs, the vast majority of Australian

organizations remain relatively small by global standards and consequently the take-up

and penetration of emergent global HR practices remains relatively slow.

The Australian HRM context

Australia is generally considered to be a developed country offering its inhabitants a

relatively high standard of living and a relaxed lifestyle. Until 1973 Australian industry

was protected against the inroads of international trade through high tariff barriers

(Archbold, 2001) but by 1996 most tariffs had been reduced to less than 5 percent making

the economy more vulnerable to competition from beyond its borders. Today’s economic

activity levels comprise a GDP of US$380 billion of which 79 percent comes from

service industries (Australia Country Proﬁle, 2001) with the largest service sector made

up of ﬁnance, property and business services. Private consumption accounts for 60

percent of GDP. If the dotcom problems in the early 2000s are ignored, business

performance in the recent past has been steady and marginally positive (Ruthven, 2002),

with the country being affected only slightly by the recent economic crises in Asia. Since

2000 the national government has been pursuing a deﬁnite cooperative policy toward its

neighbors in the Asia Paciﬁc region (Commonwealth of Australia, 2002). This has

coincided with an expansion of Australian business activities and an increasing

involvement of multinational enterprises in the domestic economy (Walsh, 2001).

During the last two decades, manufacturing has declined both as a contributor to

GDP and an employer of labor, and with this has come a change in workforce skill

requirements. Jobs requiring more than a basic education and competency in modern

computerized technologies continue to rise and now outnumber those needing little

education (Loble, 2001). At the same time there are fewer career tracks as organizations

continue to de-layer (Buchanan et al., 1999).

The Australian workforce is made up of people from various cultural backgrounds

(Patrickson and Hartmann, 2001). Both the population and the workforce are aging and

this has led to recognition of the need to revise staff management practices to reﬂect this

trend (Patrickson and Hartmann, 2001; DeCieri and Kramar, 2003). In common with

other developed nations, workforce skill levels are high with increases recently recorded

in educational attainments so that 40 percent of the population now hold a trade

qualiﬁcation and 12 percent hold post-graduate qualiﬁcations. Women have recorded

higher levels of educational increase than men (ABS, 2000b). Yet while training and

education has introduced various new skills into the labor force (De Cieri and Kramar,

2003), Australia continues to source migrants for skills which are lacking in the country

and immigration policies continue to put an emphasis in obtaining skilled people (ABS,

2000a).

Workforce characteristics

Among all wage and salary earners, 54 percent hold a post-school qualiﬁcation of which

28 percent hold a higher education qualiﬁcation and a further 24 percent hold a skilled or

basic vocational qualiﬁcation (ABS, 2000b). Women are less likely to hold a vocational

qualiﬁcation than men (19 percent and 29 percent respectively). This trend toward

increased credentialism is nonetheless coincident with simultaneous shortages of skilled

workers, especially in computing, health, teaching, tool-making, sheet metal work,

hairdressing, and childcare (AGPS, 1998). Many skilled workers head overseas for higher

paid jobs (Patrickson and Hartmann, 2001). The aging workforce is one of the more

crucial employment issues in the new millennium as Australian baby-boomers approach

their retirement age. While 2002 was the peak when they began to reach their mid ﬁfties,

in 2012 the population over 65 will grow by 4 percent and continue to do so by 2.9

percent per year until 2028. This growth rate will exceed the growth of the total

population by four times (The Australian, 5 March 2003).

The workforce has been characterized by a series of restructuring and recurrent

downsizing efforts resulting in trends toward early retirement for many (Hartmann, 1998;

Patrickson, 2001) and a signiﬁcant growth in the contingent workforce (Vandenheuvel

and Wooden, 1999) in outsourcing (Beaumont, 2002; Benson and Littler, 2002; Charles,

2002; Cully and Phong, 2002; Gome, 2002; Howarth, 2002), and in teleworking (ABS,

240 • Margaret Patrickson and Wahyu Sutiyono

2000a). Accompanying these trends have been reductions in union density in all

categories (Cranston, 2000).

Diversity, in all its forms is also growing. Women now comprise 42 percent of the

workforce (Vines, 2001). Yet even though their participation in the workforce has been

expanding, their promotion into managerial ranks remains relatively stable and low.

There are no female executives in more than half (52 percent) of the top 200 Australian

companies, though women constitute a small number (8.2 percent) of board members.

Just two women are CEOs (Human Resources, January 2003).

Ethnic diversity is also spreading with at least 25 percent of the workforce born overseas

in over 160 countries (DeCieri and Olekans, 2000). Given that Australian immigration

policy favors immigrants with post-school qualiﬁcations, the number of adult migrants

of non-English-speaking background who have a post-school qualiﬁcation is 55 percent

of all workers (ABS, 2000b). Indigenous Australians, though 2 percent of the population,

tend to be under-represented in the workforce.

Culturally the workforce reﬂects largely Anglo-Celtic values (Smith and Phillips, 2001)

with English almost the exclusive language of the workplace, though there are signs this

is gradually becoming more inclusive (Waterhouse and Deakin, 1995) as organizations

begin to recognize and value the contribution of those from other cultures. Employee

surveys tend to indicate employees seek balance in their lives (Kerslake, 2002) and view

their job as a means of self-fulﬁlment and a place to develop and apply an expanding set

of skills. Nevertheless this represents only part of the picture as other researchers (e.g.

Loble, 2001) voice concern about an increasing population divide between a growing

elite group of optimistic free agents with high incomes and another group less fortunate

who seek their fulﬁllment outside the work experience.

Recent contextual changes

Legislative context

Patrickson and Hartmann (2001) report how in the 15 years preceding the introduction of

the 1996 Workplace Relations Act, a series of continuous marginal changes had been

introduced through the federal legislature in an effort to reduce the number of disputes

associated with the then adversarial nature of Australian industrial relations practice.

They comment that until 1983, Australia’s adversarial labor system was regulated

through a centralized conciliation and arbitration process, underpinned by permanent

quasijudicial tribunals, employer tribunals and union representation of employees. This

was gradually deregulated in the 1983–1996 period and, although the 1996 Industrial

Relations Act in Australia is generally credited to have eased much of this tension, the

Act was not a deﬁning event per se but rather the culmination of a number of changes

during the previous decade. By 1996 major stakeholders such as governments, employers

HRM in Australia • 241

and unions were ready for a more substantive change and supported the introduction

of the new Act which was designed to put an end to the previous history of dispute and

noncooperation.

The ambit of the 1996 Act was comprehensive and subsequent dispute activity has

dwindled. The main impact of the Act has been to initiate and maintain a move toward

enterprise bargaining and this has contributed to the declining power of trade unions.

Despite expectations that it might lead to a worsening of circumstances for organizations

and individuals, Wooden (2000) reports that, contrary to the fears of its opponents, the

new industrial relations practices have not led to any reported rise in job insecurity,

increased hours of work or greater income diversity. Other authors indicate the picture

may be more complex in that some income recipients, especially those in very senior

roles, have improved their salary relative to their subordinates. However, at the lower

end, the disparity between incomes is not signiﬁcant (O’Neill, 1998).

Even given the relatively strong industrial relations environment in Australia,

organizations now seem to enjoy a reasonable degree of freedom to innovate in HRM

practices. This is especially the case in MNCs operating in Australia (Walsh, 2001).

Walsh (2001) reports that there is a higher degree of formalization in HR policies and

practices in foreign-owned companies (notably British, US and Japanese) operating in

Australia than their domestic counterparts. The level of investment and sophistication in

HRM is demonstrated in areas such as selection, performance appraisal and grievance

mechanism in British ﬁrms; innovative work practices, just-in-time approaches and joint

consultation committees for Japanese ﬁrms; and in US ﬁrms in strategic approaches to

HRM.

Workplace management changes

The key changes in workplace management include declining union power, coupled

with increasing formalization of HR practice. Shifts in the power balance have been

accompanied by concomitant shifts in reward distribution in that, not only has the balance

of power swung away from the lower ranks, but their remuneration has reduced relative

to more senior levels.

Unions

The decline of union membership and inﬂuence since the mid-1990s has meant that

employers are gaining power over the conditions of employment (Patrickson and

Hartman, 2001). Employees working under enterprise agreements now outnumber those

working under the award system (Wooden and Hawke, 2000). Australian workplace

agreements (AWAs) now cover 3,000 organizations but only a small number of

employees (De Cieri and Kramar, 2003). The common law remains the major tool for

regulating employment for the majority.

242 • Margaret Patrickson and Wahyu Sutiyono

Gollan (2001) reported a survey of employers in non-unionized workplaces, that

indicated that over 60 percent of respondents believed AWAs had enhanced

management–employee relations, the introduction of change and labor productivity.

His ﬁndings also demonstrated that effective consultation with employees about AWAs

had created positive organizational outcomes. Though only based on small numbers of

employees, the ﬁndings conﬁrm those in the UK and North America.

Slow growth in employee numbers has tended to occur in industries with high union

stronghold, while above average growth has tended to take place in those with low union

membership rates (ABS, 2000a). Given that manufacturing, where the majority of unions

had their base, has been in decline, this has contributed to the changing union density

observed by the ABS.

Trends toward formalization of HRM practice

McGraw (2002) reports that larger organizations tend to have more formal HR policies

in place and these are likely to be aligned with corporate strategies. In recent times there

have been innovations in the way in which work is organized, with a shifting emphasis

toward recognizing the importance of quality in both service and product industries.

Efforts at work reorganization are exempliﬁed by the movement away from work

organized around the input of individual operators toward team-based structures

functioning either permanently, regularly or episodically. The incidence of work teams

has signiﬁcantly increased (Wang, 2001) and reﬂects the more sophisticated and

integrated technologies that underpin modern throughput processes.

Such moves have implications for the way in which employee performance is assessed

and rewarded. Contribution to team effort and the ability to work effectively with others

are becoming key considerations in recruitment and promotion decisions (Glassop, 2002).

Yet despite intentions to implement performance appraisal practices that are less

susceptible to personal bias, reports in Human Resources (March 2002) indicate that only

one third of 6000 organizations have employee performance management in place, of

which more than half (66 percent) comprise the state and utilities sector. Over 90 percent

never conduct performance management. Nevertheless, HR strategy to retain top

performers suggests that about one third or 35 percent are putting in place career

management strategies, leadership competencies are actively sought by 18 percent of

organizations with high evidence of this from transport (50 percent) and manufacturing

(36 percent) industries.

Notwithstanding this minor level of negative feedback, the majority of larger Australian

organizations increasingly demonstrate the importance of human resources in strategic

decision-making. Human Resources (March 2002) reports that among 50 top companies

on the Australian Stock Exchange, those that had an HR director on the executive level

recorded higher growth compared to those that did not. While this ﬁnding does not imply

causality, it does indicate that larger organizations are beginning to pay greater

HRM in Australia • 243

recognition to their senior HR staff. Moreover, the value of HR function is increasing as

the majority (83 percent) of organizations who were surveyed have HR directors in the

executive committee (Human Resources, January 2003: 9).

Changes in HRM practice

Recent trends indicate that HR practices in Australia are reﬂecting similar moves to

practices in other global locations. New initiatives may be divided into three major

trends. The ﬁrst of these seeks to identify, recruit, re-train and further develop

increasingly scarce individual talent, the second seeks to develop more effective team

functioning and the third is focused on striving for better integration of individuals into

their work environment. Programs aimed at identifying talent early, and intensive

coaching of those with potential are being adopted in a number of companies. Given that

salaries for top performers now signiﬁcantly exceed their less successful contemporaries,

such programs tend to be attractive to high achievers and aid the recruitment activities of

larger companies. Awareness of the need for performance management systems has

grown and led to an increase in incidence of monitoring and measurement of

performance at both team and individual levels though few companies report they are

happy with their current systems.

Other new programs appear aimed at developing more effective interpersonal and team

activities. As in the USA, recognition of the beneﬁts of diversity or achieving balance

between life and work continue to expand and underpin many new programs aimed at

promoting better interpersonal working relations between staff.

Work/life balance and diversity management

Promotion of diversity is one of the objectives of the national government and has led

to programs to raise awareness of the beneﬁts of inclusive employment practices in the

workplace. In 1998, for example, the government introduced a program that focused on

diversity in language and cultural background (BRW, 2002). In a recent effort to verify

take up rates, Human Resources (March 2002) indicates that diversity management

practices are now being reﬂected in organizational processes, such as strategic planning

(51 percent), in statements of values and mission/vision (58 percent), representation by

various demographic groups (56 percent), and that such policies are supported by senior

managers (69 percent). Those companies, designated as Best Practice organizations,

consistently demonstrated stronger allegiance to the recognition and incorporation of

diversity values. Yet except for these best practice organizations, only a small number

of organizations (38 percent) indicate that the CEO regards managing diversity as

contributing to the bottom line (Managing Work/Life Balance, 2002).

Other information from this study showed that organizations were paying more attention

to issues of labor ﬂexibility and achieving balance between work and family (Managing

244 • Margaret Patrickson and Wahyu Sutiyono

Work/Life Balance, 2002). Yet even though the number of Australian organizations who

report they are pursuing such practices continues to expand, the proportion still lags

behind the global average for developed countries. Those organizations who have

recognized work/ life balance as important, report they have increased the availability

of ﬂexible work options, such as part-time work, ﬂexible starting and ﬁnishing times,

study leave, paid parental maternity leave, and team work, and their employees have

increasingly accessed these options. Those involved have shown a reduction of turnover

by 3.7 percent, absenteeism by 3 percent and an increase of return rate from parental

leave by 23 percent. However, only a few organizations (10.3 percent) have offered

reduced overtime as work/life balance policy compared to a global average ﬁgure of

32 percent (Human Resources, February 2003). These results are conﬁrmed through

two consecutive surveys undertaken by Hay Consultants showing that organizations

with a written diversity policy had increased dramatically from about 10 percent in 1998

to nearly 50 percent in 2001 (Hay, 2002).

Remuneration levels

Chief executives’ remuneration levels have slowed in 2002 compared to the two previous

years, given that the technology-inspired share market boom has peaked (Johnston and

Kitney, 2002). Nevertheless, the gap between blue- and white-collar remuneration is

widening partly due to the weakening inﬂuence of the union movement, public scrutiny

and peer pressure (Cornell, 2002).

While much of the salary explosion has been attributed to the US inﬂuence on the

relationship between salary and performance, issues of governance remain a challenge.

Lowe et al. (2002) report that within current pay practices, variable pay is regarded as

receiving little emphasis in the total package. This is reﬂected in incentives being seen as

moderate in terms of both their importance and amount. This is also the case with

beneﬁts. While there is some element of seniority in pay practices, managers are not keen

to see the level increased. Rather they felt that the link between pay and performance,

including group performance, should be greater than at present. There is also some

evidence of a more short-term orientation in pay, though with some expectation that pay

should be tied to longer-term future results. The authors suggest that for motivational

purposes, Australian organizations may seek to narrow the gap between the current level

and employee expectations. Holland et al. (2001) report that, in the Australian case, the

relationship between CEO rewards and organizational performance has yet to be

determined in light of the deﬁciencies, ambiguity and variance in remuneration

disclosure.

Training and development

International comparisons of training expenditure generally place Australia below the

levels of similar countries. The 2000 ASTD report by the American Society for Training

HRM in Australia • 245

and Development placed Australia behind most European countries, though ahead of the

USA and the majority of Asian countries. A more recent paper by Drost et al. (2002)

comparing countries in terms of best practice indicates that the majority of Australian

managers perceive their organizations as slow to support the softer aspects of training and

development, such as team-building, understanding business practices and corporate

values, and the proactive aspects of training, such as preparation for future assignment

and multiskilling. Australia is similar to Canada and the USA in increasing worker

productivity and in focusing training activities toward individual learning rather than

team-based learning.

As issues of the aging workforce begin to bite, HR managers are facing the challenge of

managing transfer of skills and knowledge to younger workers to ﬁll the skills shortage

as baby-boomers are retiring. This is happening at the same time as they face the need to

provide continuing career opportunities to older workers as they phase out of the

workforce (The Australian, 5 March 2003).

Recruitment

In a similar comparative study on recruitment practices, Huo et al. (2002) report that,

compared with benchmarks in the Asia-Paciﬁc region, many Australian managers

believe that a good ﬁt between company values and ways of doing things should receive

greater emphasis in their selection processes. Though other criteria, such as a person’s

ability to perform the technical requirements of the job, a person’s potential to do a good

job and a person’s ability to get along well with others, are viewed as important, in

practice these had not been treated as important. Australia seems to be located among

countries that accord little signiﬁcant relationship between hiring practices and

subsequent organizational effectiveness. In common with other countries, there is a

swing toward e-recruitment (Sachdev, 2000), especially in the contingent part of the

labor force.

Performance management

Practices such as benchmarking (Winkler, 1998) and the use of the balanced scorecard

are becoming more prevalent in Australia. In a comparison of performance management

practices, the evidence from Milliman et al.’s ﬁndings (2002) is that companies should

put greater weight on documenting appraisal results. In common with Latin America,

Australian respondents place a relatively high emphasis on the developmental aspects

of performance appraisal, rather than the administrative or strategic, and still believe

further improvements are needed. Practitioners report they encourage staff to participate

in the process. Linkages between performance appraisal and pay are less emphasized

in Australia where the major purpose is more likely to be developmental than reward

linked.

246 • Margaret Patrickson and Wahyu Sutiyono

Emergent HR competencies

Ulrich’s (1997) work on the efforts of the HR profession to become increasingly strategic

in its operation has highlighted four main roles that practitioners undertake:

administrative expert, employee champion, change agent and strategic business partner.

In Australia there have been moves by practitioners away from what they regard as an

entrapment in being administrative experts and employee champions towards acquiring

the competence and exercising the capacity to have a greater input into business strategy.

This is exempliﬁed by the increasing qualiﬁcations held by HR practitioners and their

reported switch toward a more strategic focus (Fisher et al., 1999). One illustration of

such increasing professionalization is the rise (6.8 percent) of the average pay of HR

professionals in 2002 compared with 5.6 percent of salary increase of those of other

sectors (Human Resources, January 2003).

The Australian Human Resources Institute (AHRI), the professional body of HRM

practitioners in Australia, is presently conducting a series of focus group workshops with

members, asking them to indicate which skills they themselves feel they need to further

develop. Early results suggest that overwhelmingly they are reporting themselves in need

of better business understanding in order that they can make recommendations to their

CEOs underpinned by ﬁnancial analysis, in addition to softer HR objectives. They

indicate that they need to augment their professional people skills with more bottom-line

arguments to demonstrate their strategic approach and how they add value.

In the public sector, increasing commercialization of public organizations and

introduction of a service orientation (McGuire, 2001) have been associated with an

uptake of the strategic input of HRM. This is clearly illustrated in a recent case study on

the effectiveness of a corporate HR department in an Australian public sector entity (Teo,

2002) that demonstrates how the corporatization processes set the scene for the shift from

an administrative personnel function to the integration of organizational strategy and

HRM. Yet though this effort to take on a more strategic role resulted in a degree of

ineffectiveness within the HR department, in Teo’s view this was largely due to line

managers not being ready to assume people management responsibilities when the

HR function decentralized.

One factor driving the uptake of HRM has been the need to coordinate and manage

the high incidence of downsizing and restructuring in the last few years. Despite little

evidence of their involvement prior to downsizing, there is growing acknowledgment of

HR practitioners as HR staff work closely with senior management in various downsizing

activities, such as preparing and dealing with issues of redundancy, counseling retrenched

staff and handling the restructuring processes (Human Resources, January 2003: 1).

Participating in activities in such practices has given HR practitioners opportunities to

upgrade their HR expertise and, accordingly, their proﬁle. Despite surveys on victims

indicating that the majority (81 percent) of organizations mismanaged the process of

downsizing in terms of communication to employees and especially in providing

clariﬁcation on various retrenchment issues (HR Monthly, November 2002: 7),

HRM in Australia • 247

management continues to see this as an area of HR competence. Another emergent

competency involves dealing with ethical concerns but skills in this area are still

embryonic as many HR managers are puzzled about the issues and actions in ethical

conduct. Such doubts demonstrate an early stage of take-up in ethical matters and raise

concerns about the ability of HR managers to develop programs that promote ethical

issues (HR Monthly, November 2002: 7).

Yet, while there are many examples of increased professionalism, they are not

widespread and the take-up of newly emergent HRM practices in Australian

organizations is generally restricted to larger public sector organizations, MNCs and

larger domestic companies, as borne out by survey results reported by Guest et al.

(2002). According to Guest et al. (2002), less than 1 percent of companies (from the

784 senior managers responding to the survey) install three-quarters of 18 typical

HRM practices, only 20 percent utilize more than half, and 31 percent apply less than

a quarter of them. In addition, except for recruitment and selection, HR practices in

general and their personnel departments are rated modestly in terms of their

effectiveness. This ﬁnding is supported by a recent global survey conducted by

Pricewaterhouse Coopers which states that only few organizations measure or report

key people issues (Human Resources, February 2003: 8). In comparison to organizations

globally, only about half (53 percent) Australian companies measure employee

satisfaction and a quarter (26 percent) report employee cost (Human Resources,

February 2003: 8).

HRM in SMEs

Small and medium enterprises (SMEs) play an important role in the Australian economy

(McMahon, 2001; Huang et al., 2002). In conjunction with sole income earners and

partnerships, they account for over 65 percent of all employment (ABS, 2002c).

However, the prevalence of HRM practices in these organizations is moderate. Wiesner

and MacDonald (2001) report that SMEs are modest in terms of participative HR

practices, union membership, and presence of HR managers. Their recruitment practices

tend to be informal. While selection activities to a greater extent are more formalized,

they tend to be practiced in the medium-sized entities. Performance appraisal is not

formalized and compensation practices lack a participative component. Nevertheless,

these ﬁndings are dissimilar compared to SMEs that undertake organizational innovation,

mainly those engaging in international operations. Case studies on innovative SMEs

show the use of strategic HRM-related practices such as strategic use of rewards,

career development and ongoing investment in training and development (Matthews,

2002).

248 • Margaret Patrickson and Wahyu Sutiyono

Conclusion

This review has highlighted a number of trends in HRM practice within Australia,

such as the movement toward more inclusive labor management practices, adoption of

behavioral codes that incorporate ethical standards, greater sophistication in the nature

of the administration of recruitment, training, enterprise bargaining, remuneration and

performance appraisal, efforts to benchmark practices against other countries and,

underpinning all these changes, moves toward upgrading the standards of professional

preparation and practice. Despite this, however, the process toward a more inclusive

workplace is slow and the gains have been marginal. HR professionals seem to be on

their way to the realization of being valued as business partners but they still have a long

distance to travel, compared with counterparts in North America, Canada, and some parts

of Asia. Isolation, coupled with the comparative smaller size of Australian organizations,

means the demands on the HR professional may be less than those on their counterparts

in larger economies.

Globalization has stimulated an increasing recognition that cross-cultural issues need staff

management policies that reﬂect this growing interaction and there is some evidence of

this happening. However, apart from large MNCs, such changes have generally been slow.

Despite its gains, Australian HRM remains conservative and behind the developments in

other western nations. Why this is so is difﬁcult to explain, other than in terms of its

geographical isolation and a heritage of adversarial employment practices. In our opinion,

benchmarking HRM globally and the increasing incidence of MNC take-over of local

enterprises may hasten further progress but this prediction remains unveriﬁed at this

point.

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252 • Margaret Patrickson and Wahyu Sutiyono

Transfer of HRM to MNC

afﬁliates in Asia-Paciﬁc

INGMAR BJÖRKMAN

Introduction

Research on international human resource management (HRM) consists of two distinct

albeit related strands, one examining differences in HRM across different countries, the

other focusing on how multinational corporations (MNCs) manage their human resources

worldwide.

While most parts of this book (chapters 2–12) consist of analyses of HRM

in individual Southeast Asian and Paciﬁc Rim countries, and one chapter (chapter 14)

highlights the main challenges facing HRM in the Asia-Paciﬁc region, the focus of this

chapter is on the transfer of HRM practices to MNC afﬁliates in Asia-Paciﬁc. As MNCs

employ a signiﬁcant part of the labor force in many countries in Asia-Paciﬁc, the

management of employees in foreign-owned ﬁrms constitutes an important part of the

HRM systems found in these countries. Furthermore, MNCs may through transfer of

policies and practices to their overseas units, contribute to the spread of new HRM

systems in domestic ﬁrms.

The literature on HRM in MNCs is still relatively limited, albeit rapidly growing. The

increase in research and writing is triggered by a growing awareness of the importance

of how people are managed in foreign units for the global success of the MNC. Through

their worldwide management of people, MNCs strive at achieving a number of important,

yet potentially contradictory objectives: global efﬁciency, local responsiveness, ﬂexibility

and adaptability, and successful transfer of learning across geographically dispersed units

(Schuler et al., 1993; Schuler et al., 2002). In this chapter, I examine the transfer of HRM

policies and practices within MNCs. The following two questions are posed: (i) To what

extent do MNCs tend to transfer “foreign” HRM practices to their foreign subsidiaries,

and (ii) how may we explain why foreign-owned subsidiaries differ in terms of their

1 Some scholars (e.g. Milliman et al., 1991; Schuler et al., 1993; Taylor et al., 1996) have

termed research on HRM within MNCs “Strategic International Human Resource Management,”

thereby stressing the importance of linking HRM policies and practices with the strategy of the

MNC.

HRM policies and practices? The focus is on HRM in the western-owned afﬁliates in

developing countries in the Asia-Paciﬁc.

Conceptual issues

In the international strategy and management literature, strategy has often been

conceptualized in terms of global integration (or MNC “standardization”) versus local

responsiveness (“local adaptation” or “localize”) (e.g. Prahalad and Doz, 1987). The

framework has typically been used to analyze the advantages of global

integration/standardization of certain tasks versus the beneﬁts of responding to national

differences (Ghoshal, 1987). These alternatives are arguably largely incompatible, i.e.

to a large extent MNCs must either standardize or localize the way in which they operate

in different settings. A similar framework has been proposed for the HRM policies and

practices in MNCs (e.g. Schuler et al., 1993), although it has also been argued that an

MNC sometimes may have an HRM strategy that blends global standardization with

local responsiveness (Hannon et al., 1995; Taylor et al., 1996).

To transfer HRM practices that are standardized across different parts of the MNC to the

focal subsidiary may entail certain advantages for the corporation as a whole. First, a

consistent set of HRM practices is likely to be seen as equitable by employees in different

parts of the MNC (Rosenzweig and Nohria, 1994). Second, standardized HRM practices

may contribute to increased collaboration across organizational units where the

employees have been selected using comparable selection criteria, have been trained in a

similar way, and whose work is assessed and compensated based on similar kinds of

criteria (Taylor et al., 1996). Third, standardization of HRM can serve as a way for MNC

headquarters to control the operations of foreign afﬁliates (Martinez and Jarillo, 1989).

Fourth, transfer of HRM practices throughout the MNC may enable the corporation to

leverage practices that already have been found to work well in other settings. It has been

argued, in line with the resource-based theory of the ﬁrm (Barney, 1991), that the use

of parent company HRM policies and practices may be seen as an important resource that

can be used to build a global HRM system that is valuable and difﬁcult for competitors

to copy (Taylor et al., 1998). Fifth, standardization of HRM across units may entail some

scale and scope advantages.

However, a number of potential drawbacks to a standardized approach to HRM also

exist. First, global standardization by deﬁnition precludes the possibility to be responsive

to the local cultural environment. Second, the implications of institutional differences for

subsidiary HRM policies and practices are downplayed or even totally neglected with this

strategy. In reality, however, legal requirements may force companies to adapt locally, at

least to some extent, their HRM practices. Third, labor market considerations may favor

different HRM solutions in different countries. Fourth, a blind standardization of

practices across MNC units may lead to a lack of ﬁt between the characteristics of the

focal subsidiary’s operations and its HRM system. Hence, it may be more difﬁcult to

achieve a high degree of strategic HRM ﬁt in the subsidiary. Fifth, there may be a

254 • Ingmar Björkman

backlash against “headquarters imperialism” if subsidiaries are forced to fully adopt

standardized MNC practices rather than contribute to the development of the own unit’s

policies and practices (Martin and Beaumont, 1998). Sixth, if there are strong pressures to

standardize HRM throughout the MNC, this may stiﬂe local experimentation and

development of the HRM system, thereby reducing the capacity of the MNC as a whole

to develop new innovative HRM practices.

Theoretical perspectives

Empirically, the HRM practices found in MNC subsidiaries have been analyzed in a

number of recent studies to which we will return later in the chapter. A variety of

theoretical perspectives have been utilized as scholars have attempted to identify

determinants of the level of transfer of HRM practices within MNCs. Probably the most

common has been to apply some kind of contingency-based perspective. Several scholars

have argued that the international strategy of the MNC affects subsidiary HRM practices

(either directly or through mediating variables). For instance, Schuler et al. (1993) and

Taylor et al. (1996) identify two generic MNC strategies – multidomestic and global

(Porter, 1986) – and propose that the choice of strategy will inﬂuence the approach taken

by MNC management in the design of its HRM system. A ﬁrm follows a multidomestic

strategy when overseas units are treated as independent businesses, where the operations

of one unit do not signiﬁcantly affect the activities of the rest of the MNC. In contrast, a

global strategy entails that the ﬁrm uses the resources and competencies of one unit to

create competitive advantages in other parts of the MNC. Theoretically it can be assumed

that MNCs following a global strategy will be more likely to standardize HRM practices

worldwide so as to facilitate inter-unit integration of operations (Taylor et al., 1996).

Several studies have been designed to scrutinize how the host country national culture,

including values, norms and beliefs, affects HRM practices. The cultural dimensions of

Hofstede (1980) have been used to hypothesize how HRM practices may be expected to

vary across subsidiary locations. It has been argued that MNCs need to adapt their HRM

to the speciﬁc social and cultural norms of the host environment (Laurent, 1986;

Schneider, 1988). Researchers have found some support for the hypothesized effect of

national culture on subsidiary HRM. For instance, Schuler and Rogovsky (1998) received

support for most of their propositions concerning how Hoftstede’s four dimensions are

associated with compensation practices in MNC subsidiaries worldwide. The cultural

distance between the host country and that of the MNC’s home base may also inﬂuence

the degree to which subsidiary HRM practices resemble those of the MNC parent as well

as those of local ﬁrms. In both instances, a negative association may be expected between

cultural distance (e.g. using the Kogut and Singh index 1988) and level of MNC

standardization (Taylor et al., 1996) and local adaptation (Schuler et al., 1993),

respectively.

Other scholars have examined subsidiary practices from an institutional (or

institutionalization) perspective. Although the institutional perspective is far from

Transfer of HRM to MNC afﬁliates • 255

homogenous (Scott, 1987), a common point of departure for most scholars is that

organizations are under pressure to adapt and be consistent with their institutional

environment. They are assumed to search for legitimacy and recognition, which they

do by adopting structures and practices deﬁned as, or perhaps rather taken for granted

as, appropriate in their environment. DiMaggio and Powell (1983) suggest that there

are three major ways in which isomorphism is produced: coercive isomorphism, where a

powerful constituency (e.g. the government) imposes certain patterns on the organization;

mimetic isomorphism, where organizations in situations of uncertainty adopt the pattern

exhibited by organizations in their environment that are viewed as successful; and

normative isomorphism, where professional organizations act as the disseminators of

appropriate organizational patterns which are then adopted by organizations which are

under the inﬂuence of the professional organizations. More recently, Scott (1987) has

categorized isomorphic processes into those which focus on the role of external

institutional agencies in the environment and those which emphasize the processes

whereby those within organizations come to take certain externally validated patterns for

granted and value them as ends in themselves. Thus, foreign-owned subsidiaries may be

under formal or informal pressure from local institutional agencies to adopt certain

HRM practices, but there may also be taken for granted practices – for example, those

of the MNC parent organization – that are unconsciously introduced in the subsidiary

(Westney, 1993). In other words, the subsidiary may be seen as being under institutional

inﬂuence from both from the local environment and from the MNC (Westney, 1993;

Rosenzweig and Nohria, 1994). IHRM researchers have mostly focused on the former

source of institutionalization of HRM practices in their work.

Finally, some researchers have applied a resource dependence (Pfeffer and Salancik,

1978) or bargaining power perspective in their search for determinants of subsidiary

practices. It has been argued that the greater the dependence of the subsidiary on the

parent company, the more the afﬁliate’s HRM system is inﬂuenced by headquarters

(Martinez and Ricks, 1989), leading to a higher degree of MNC standardization of HRM

practices. Hence, the more the subsidiary is dependent on the parent organization, for

example, technological knowledge, ﬁnancial resources and components for the

manufacturing process, the more the afﬁliate’s practices would be expected to resemble

those of the parent organization. Studies on the effect of the equity share held by the MNC

on subsidiary practices may also be categorized as being part of this theoretical

perspective.

During the last decade, several efforts have been made to go beyond individual

theoretical perspectives to build integrative models of (among others) the determinants

of HRM in MNCs (e.g. Schuler et al., 1993; Taylor et al., 1996). These models have

built on a variety of theoretical perspectives and models, including those discussed

above. Additionally, the model proposed by Taylor et al. (1996), for instance, also draws

on the resource-based theory of the ﬁrm (Barney, 1991). Both the Schuler et al. (1993)

and the Taylor et al. (1996) models specify a number of mediating and moderating

factors that may inﬂuence the HRM policies and practices in MNCs, and their work has

been instrumental in furthering empirical work on international HRM.

256 • Ingmar Björkman

Review of existing research

The characteristics of MNC HRM practices

Only a handful of studies have examined speciﬁcally the degree of MNC standardization

versus local adaptation of HRM in the context of the Asia-Paciﬁc. In these studies,

subsidiary managers have been asked to estimate the extent to which the subsidiary’s

HRM practices resemble those of local ﬁrms and the MNC parent organization,

respectively. Hannon et al. (1995) studied 100 subsidiaries of Japanese, US and

European MNCs operating in Taiwan. In line with research on foreign-owned

subsidiaries in the USA (Rosenzweig and Nohria, 1994), the researchers found that the

HRM practices of MNCs in Taiwan overall were more localized than globally

standardized. Other researchers have collected data on the HRM practices of both local

and foreign-owned ﬁrms. This group of studies includes, among others, a study of

indigenous and foreign-owned ﬁrms in Korea and Taiwan (Bae et al., 1998). Pronounced

differences were found between host countries and foreign ﬁrms, indicating that at least

some degree of transfer of HRM practices had taken place. In sum, although MNCs tend,

at least to some extent, to transfer standardized HRM practices to afﬁliates located in

advanced western countries like the USA and newly industrialized Asian countries like

Taiwan and Korea, there is some indication that the degree of localization of HRM is

greater than that of MNC standardization.

However, in their study of 63 Chinese–western joint ventures situated in different parts of

China, Björkman and Lu (2001) found that the HRM practices were more similar to those

of the MNC parent company than to those of local manufacturing companies. The authors

offer three explanations for the high degree of MNC standardization. First, the foreign

executives that were interviewed expressed a strong dissatisfaction with Chinese

management practices. Most respondents believed that western management principles

should be implemented into their company for it to be competitive, and many looked to

their own parent organizations for appropriate models of HRM to implement in China.

Second, since the 1980s there had been a move away from the Marxist personnel

practices that previously prevailed in Chinese state-owned companies. Currently, there

appears to be no undisputed institutionalized HRM/personnel model in China (Warner,

1996). Although the afﬁliates were under pressure to comply with government

regulations concerning issues like social security payments and formal approval of labor

contracts, there was very little government inﬂuence on HRM functions like employee

selection and compensation systems. As a consequence, and in combination with few

codiﬁed laws, it had apparently become easier for western MNCs to introduce their own

HRM systems (see also Child, 1994; Goodall and Warner, 1998). Third, the research

focused on local professionals and managers, whereas many other studies on MNC

subsidiaries abroad have examined the whole labor force. It is conceivable that the HRM

practices for workers are, relatively speaking, more similar to those of local companies

than those of the MNCs.

Transfer of HRM to MNC afﬁliates • 257

The results in a recent investigation of six US and six European MNCs (Braun and

Warner, 2002), although not speciﬁcally focusing on MNC standardization of HRM,

seem largely in line with those obtained by Björkman and Lu. The western MNCs

surveyed by Braun and Warner attached high importance to HRM, and the HRM

practices (in particular performance appraisal) were signiﬁcantly inﬂuenced by home-

country practices. Other scholars have done research on samples of both Chinese-owned

and foreign-owned afﬁliates. In a series of studies, Goodall and Warner (e.g. 1997, 1998,

1999) analyzed HRM practices in Chinese–western joint ventures and domestic Chinese

ﬁrms. Goodall and Warner (1999) established a number of differences between local

and foreign-owned ﬁrms, but they also identiﬁed a number of Chinese-owned ﬁrms that

recently had adopted “western” HRM practices. Overall, compared with Björkman and

Lu’s results (2001), Goodall and Warner (1999) seemed to ﬁnd a somewhat lower degree

of global standardization of HRM in the foreign ﬁrms in their sample. It is conceivable

that at least some of this difference is explained by the fact that, while Björkman and

Lu (2001) studied HRM for local professionals and managers, Goodall and Warner

(1999) examined the whole labor force.

Research on western afﬁliates in other countries in the Asia-Paciﬁc is scarce. An early

study (Low 1984) compared several aspects of management practice in American

afﬁliates and local ﬁrms in Singapore. US subsidiaries were more likely to have a formal

appraisal system and focused more on formal training and development programs than

did domestic Singapore ﬁrms. A study by Lawler et al. (1994) identiﬁed several

differences between American, Europeans, Japanese and local Thai ﬁrms. US and

European ﬁrms in their sample had the most elaborate systems for linking pay with

work-related performance. In contrast, Japanese ﬁrms provided local employees with

more extensive internal training. Overall, and although this set of studies has not

conceptualized HRM in terms of how far the policies and practices resemble those of the

MNC parent organization, they do suggest that at least some degree of transfer of HRM

has taken place.

In particular, some of the quantitative studies have neglected the differences in MNC

transfer that may exist between different HRM functions (such as recruitment,

compensation and training and development). Whereas both Hannon et al. (1995) and

Björkman and Lu (2001) created indices of standardization versus localization of the total

HRM system, there is strong reason to believe that the extent to which MNCs transfer

HRM practices to afﬁliates in the Asia-Paciﬁc varies across HRM functions. Lu and

Björkman (1997) found that western afﬁliates in China exhibited a higher level of MNC

standardization concerning performance appraisal and criteria for promotions, while the

afﬁliates differed more from their western parent organizations in terms of recruitment,

training and ﬁnancial compensation.

258 • Ingmar Björkman

Determinants of HRM policies and practices

Some of the explanatory research on HRM practices in MNC afﬁliates in Asia has

conceptualized HRM in terms of degree of standardization (and/or localization), while

other studies have applied more direct measures of the HRM practices found in MNC

subsidiaries and domestically owned ﬁrms. Among those choosing the former approach,

Hannon et al. (1995) found that the more dependent a subsidiary was on the parent

organization, the more globally standardized the HRM practices were. The degree of

MNC ownership moderated the relationship between the subsidiary’s dependence on host

institutions and HRM standardization – the higher equity percentage held by the MNC,

the more the HRM practices resembled those of the foreign corporation.

In their study of the determinants of the degree of western MNC standardization of HRM

practices in Chinese–western joint ventures, Björkman and Lu (2001) examined factors

derived from the institutionalization perspective supplemented with a bargaining power

perspective. They received strong empirical support for their theoretical framework.

Among the explanatory factors consistent with institutionalization theory, acquisitions

as the mode of establishment, the nationality of the foreign parent organization

(US MNCs are more likely than European MNCs to standardize HRM practices), and the

number of expatriates were signiﬁcant determinants of HRM resemblance with practices

in the corporation’s home-country operations. The equity share held by the foreign parent

organization and the non-capital resources provided by the MNC were also signiﬁcant

determinants of the HRM standardization.

Bae et al. (1998) studied local and foreign-owned ﬁrms operating in Korea and Taiwan.

The dependent variables in their study were HR ﬂow, work systems, reward system,

employee inﬂuence and a composite measure of the HRM system as a whole. There was

a strong and consistent positive effect of the extent to which management strongly valued

the role of HRM and people in the organization and each of the dependent variables.

A number of differences were identiﬁed between local and foreign-owned units, with

signiﬁcant differences also found across MNCs from the USA, Japan and Europe.

Overall, US-owned ﬁrms seemed most likely to have high scores on the HRM scales, in

particular in the use of performance-based reward systems.

Ngo et al. (1998) investigated the effects of country of origin on four dimensions of the

HRM system. Included in their study were ﬁrms from the USA, Great Britain, Japan

and Hong Kong operating in Hong Kong. Although the focus of this research was on

the performance effects of HRM, the results indicated signiﬁcant differences across the

nationality of the parent company as well between indigenous and foreign-owned ﬁrms.

Also the work by Lawler et al. (1994) in Thailand suggests the existence of MNC home

country effects in afﬁliates of US, European and Japanese MNCs.

However, the ﬁndings in research on US and Japanese afﬁliates located in Malaysia,

Singapore, Thailand, Indonesia and the Philippines differed to some extent from those

obtained in other pieces of work. While subsidiary management’s beliefs in the HRM

competences of the parent organization were positively associated with the degree of

Transfer of HRM to MNC afﬁliates • 259

similarity of HRM practices, no such relationship was observed between the method of

establishment, the percentage of ownership held by the MNC, or the MNC home country

and the level of standardization of HRM. Furthermore, surprisingly, the number of

expatriates was negatively associated with the similarity of subsidiary and MNC parent

company practices (Taylor et al., 1998).

In sum, although the results of several explanatory studies conducted in different

locations across the Asia-Paciﬁc have yielded consistent ﬁndings, some exceptions to this

pattern must also be noted. Hence, more research is clearly needed before any ﬁrm

conclusions can be drawn concerning the determinants of HRM transfer within MNCs to

their afﬁliates in the Asia-Paciﬁc. Nonetheless, there is at least some indication that the

following factors may increase the level of MNC transfer of standardized HRM practices

to their afﬁliates in the region:

● the equity held by the MNC;

● non-equity resources provided by the parent organization;

● top management perception of the importance of HRM and people in the organization;

● the subsidiary has been established as a greenﬁeld operation;

● the nationality of the MNC;

● the number of expatriates.

The studies reviewed above have enhanced our understanding of how MNCs manage

people in their subsidiaries in the Asia-Paciﬁc, and why. However, this ﬁeld of study is

still in its early stages of development.

Where to go from here?

IHRM researchers probably need to pay more attention to the question of what they

study. Much extant work on HRM practices in MNC subsidiaries abroad has used a

single measure of the degree of MNC standardization and/or localization of HRM

practices. However, as observed by Rosenzweig and Nohria (1994) and Lu and Björkman

(1997), different HRM functions often differ in their level of MNC standardization and

localization. The possibility of combining MNC and local elements (i.e. their

compatibility) may also vary among different HRM functions. Therefore, there is

arguably a need (also) to describe and analyze each HRM function separately rather than,

as has been used in many of the international HRM research so far, using an aggregate

measure of the subsidiary’s HRM system.

Most research on subsidiary HRM policies and practices has centered on how much the

foreign afﬁliate’s HRM system resembles that of the home-country organization of the

MNC. However, as pointed out by Taylor et al. (1996), the “exportation” of HRM from

the parent organization to the foreign unit is not the only possible MNC–internal transfer

of HRM polices and practices; MNCs may also have an “integrative” approach to IHRM

by attempting to identify “the best” practices and policies within the MNC as a whole,

and then transfer these to the other MNC units. In this conceptualization of IHRM,

260 • Ingmar Björkman

transfer of HRM policies and practices may occur between foreign afﬁliates as well as

between headquarters and foreign subsidiaries (Taylor et al., 1996).

Additionally, researchers need to be careful in terms of the level of analysis. A distinction

may be made between HRM system architecture, HRM policies, and HRM practices

(Becker and Gerhart, 1996; Schuler and Florkowski, 1996). Using employee

compensation as an example of a speciﬁc HRM function, at the HRM architecture level

of analysis the focus can be on the extent to which employee performance is valued in

the ﬁrm; at the policy level, data may be collected on the extent to which incentive pay

is used throughout the ﬁrm; and typical questions at the practices level of analysis could

be whether 360-degree performance appraisals are used to determine bonuses, on the

part of the total ﬁnancial incentive achievable by an employee that is based on the

performance of the team that s/he is part of (Becker and Gerhart, 1996). Research of

the transfer of HRM within the MNC has predominantly been conducted at levels two

and three (although with some researchers using the term “practices” also at level two).

All three levels of analysis are relevant, but the results are likely to differ both in terms

of the degree of HRM standardization and concerning the determinants of subsidiary

HRM. To date, there is a dearth of research on the relationship between the different

levels of analysis.

Few IHRM researchers seem to have deliberated on their selection of whose HRM

practices they study and what are the implications of their choice for the generalizability

of their ﬁndings. Some researchers have analyzed rank-and-ﬁle employees, a few have

studied only managers and professionals, and others have surveyed HRM for all domestic

subsidiary employees. To generalize across studies focusing on different groups of

employees is for obvious reasons problematic. For instance, as suggested by Taylor et al.

(1996), the perceived criticality of a certain group of employees may inﬂuence the kind

of HRM practices that are used for these employees. Generally speaking, HRM for top

managers and for certain categories of subsidiary professionals may be more globally

standardized than for blue-collar workers. Furthermore, there may be signiﬁcant

differences within a subsidiary in terms of how a certain HRM policy or tool is

implemented. Lindholm (2001) showed in the context of western afﬁliates in China that

inexperienced expatriates, experienced expatriates and domestic managers differed

signiﬁcantly in how they implemented a standardized performance appraisal system.

These results also point to the problems in using aggregate level data of HRM for MNC

afﬁliates.

Schuler et al. (2002) suggest that more rigorous research designs and operationalizations

are needed in IHRM research. In several studies HRM practices have been

operationalized in a relatively simplistic manner using perceptual data (e.g. Hannon et al.,

1995; Björkman and Lu, 2001). Indications of actual practices in the foreign subsidiary as

well as in the parent organization would give better measures of the degree of

resemblance of HRM practices. Researchers choosing this approach are advised to

consider carefully how to measure HRM policies and practices. If possible, researchers

should try to agree on using the same questions across different studies, thereby

facilitating the comparison of their ﬁndings.

Transfer of HRM to MNC afﬁliates • 261

Data have often been collected from only one respondent in each subsidiary data

(Hannon et al., 1995; Björkman and Lu, 2001). This is understandable given the

challenges involved in collecting data from multiple subsidiary respondents and/or

parent company representatives. Nonetheless, the systematic use of multiple respondents,

e.g. one from each parent organization and one from the focal subsidiary, would

signiﬁcantly increase the validity of the data. At the very least, scholars should attempt

to verify the data obtained through self-reported subjective questions by asking samples

of headquarters and/or other subsidiary respondents to answer the same question (Roth

and O’Donnell, 1996).

Longitudinal research on MNC practices has so far been virtually nonexistent. Of

interest, for instance, would be to conduct ex post analyses of the degree of localization

and global standardization over the tenure of foreign companies in a given country.

Qualitative research remains an important vehicle for studying the process through which

IHRM policies and practices evolve and are spread throughout the MNC (Schuler et al.,

2002).

There is a long-standing debate about the impact of multinational corporations on the

host country (Moran, 1993). Most of this discussion has been on the direct economic

implications of multinational ﬁrms. In spite of calls for research into the inﬂuence of

the organizational patterns of multinational enterprises on host countries (Westney,

1993), there has been much less work on the impact of foreign ﬁrms’ operations on

non-economic aspects of the local society. We know that multinational ﬁrms tend to

introduce parts of the parent company practices in their foreign subsidiaries. Although

numerous studies have shown that considerable differences in HRM remain across

countries due to cultural and institutional factors, also within Asia (Rowley and Benson,

2002), there are also indications of some convergence. MNCs may, through their

activities in the region, signiﬁcantly contribute to the diffusion of foreign HRM practices,

but relatively little rigorous empirical work has been carried out so far. For instance,

although several scholars (e.g. Warner 1996, 1999; Benson and Zhu, 1999) have

described and analyzed some of the changes taking place in Chinese HRM (or “personnel

management”) during recent years, little empirical research has speciﬁcally aimed at

investigating the process of diffusion of western-style HRM practices and policies

among local Chinese organizations (Benson and Zhu, 1999; though see Zhu and Warner,

2000, for an analysis of the introduction and development of HRM as an academic

concept in China). Björkman (2003) has developed a series of testable propositions that

can be used as a foundation for future empirical research in the Chinese context, but the

same set of propositions could also be tested in other parts of the region.

Although a variety of potential determinants of subsidiary HRM have been analyzed at

host country, MNC, and subsidiary levels of analysis, some potentially important

determinants seem to have failed to receive much scholarly attention. A number of

scholars have noted that foreign subsidiaries play an increasingly important strategic role

in MNCs (e.g. Hedlund, 1986; Bartlett and Ghoshal, 1989). Some subsidiaries play

crucial roles in the MNC as a whole, both in terms of competence development and in

262 • Ingmar Björkman

terms of being highly integrated parts of the MNC’s value chain. The development of the

human resources of strategically important subsidiaries is particularly important for the

MNC as a whole. Therefore, such subsidiaries may be particularly likely to have

standardized HRM practices (Taylor et al., 1996).

How highly regarded the subsidiary’s HR department is within the ﬁrm and how

deeply involved the department is in strategic planning of the unit is likely to inﬂuence

the afﬁliate’s HRM practices. The HRM practices are in turn likely to inﬂuence the

capabilities of the work force of the organization in question. Unfortunately there

only exists relatively limited international comparative research on the role of the HR

department and its inﬂuence on HRM, and virtually no work on the role of the subsidiary

HR department in MNC subsidiaries.

This book covers eleven countries and territories in Southeast Asia and the Paciﬁc Rim.

Most empirical research carried out to date on HRM in this region has focused on the

operations on western corporations in the People’s Republic of China. Although work

also has been conducted in, at least, Taiwan, South Korea, Hong Kong, Japan, Singapore

and India, the results obtained in these studies are somewhat difﬁcult to compare due to

signiﬁcant differences in focus, design, and operationalizations. More comparative work

is needed to shed light on the effects of host-country factors on MNC practices and

policies.

Finally, an issue of obvious importance is the performance effects of how people are

managed. During the last decade extensive research has been conducted on the

relationship between HRM and ﬁrm performance, recently also in the context of foreign-

owned units in Asia (Ngo et al., 1998; Björkman and Fan, 2002). However, to date there

appears to exist no research on the relationship between the levels of subsidiary HRM

standardization/localization and organizational performance. An even more important

and challenging task is to augment our understanding of how subsidiary HRM is related

with organizational performance. In particular, there is a need to develop and test a more

sophisticated theory of what HRM accomplishes and how. Although it has been

recognized that research is needed on the intervening variables between HRM practices

and ﬁrm performance, few such studies exist (Wood, 1999; Wright and Gardner, 2000;

Guest, 2001; Truss, 2001). Hence, empirically tested models of the relationship between

HRM, outcomes like employee commitment, employee competencies and ﬂexibility, and

ﬁrm performance should be the next step in our endeavor to better understand the

strategic role that HRM may play as a determinant of subsidiary performance. Both the

use of structuring modeling techniques like LISREL and longitudinal case studies are

called for.

Conclusion

How to manage local employees in overseas subsidiaries is a crucial question facing both

HR and line managers. Based on a review of the existing literature, in this chapter I have

Transfer of HRM to MNC afﬁliates • 263

discussed the transfer of “foreign” HRM practices to subsidiaries located in the Asia-

Paciﬁc. I have also reviewed research attempting to explain the extent to which MNCs

introduce parent company practices in their foreign afﬁliates.

Unfortunately, there exists very little research-based evidence to guide MNC managers in

their decisions concerning subsidiary HRM policies and practices. Nonetheless, both the

conceptual HRM literature and research conducted in a domestic setting suggest that

decisions concerning HRM should be made based on an analysis of, ﬁrst, the (“internal”)

ﬁt among HRM practices (Becker et al., 1997). In other words, individual HRM policies

and practices must contribute to an internally consistent and coherent HRM system.

Second, the HRM system shall be constructed so as to help the subsidiary solve

operational problems and implement the strategy of the focal unit as well as the

corporation as a whole. Hence, the decision-makers need to analyze the strategic ﬁt of the

subsidiary HRM system. Third, the ﬁt with the cultural and institutional environment of

the subsidiary have to be considered. Although MNC subsidiaries may not necessarily

need to “do as the Romans do,” they should consider how MNC HRM practices ﬁt with

the local environment. The aim of this volume is to provide managers and researchers

with an insightful overview of the characteristics and evolution of HRM in selected

countries in Southeast Asia and the Paciﬁc Rim, including the main factors that shape

how people are managed across the region. Each of the country-speciﬁc chapters hence

familiarize MNC managers with the context in which their subsidiaries will function,

thereby helping decision-makers to choose appropriate HRM policies and practices in

their own units.

Acknowledgments

The author would like to thank Anna af Forselles and Randall Schuler for helpful

comments on earlier drafts, and the Academy of Finland for ﬁnancial support.

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Transfer of HRM to MNC afﬁliates • 267

HRM challenges in the

Asia-Paciﬁc region: agenda for

future research and policy

YAW A. DEBRAH AND PAWAN S. BUDHWAR

Introduction

In a recent analysis of developments in the ﬁeld of international human resource

management (IHRM), Schuler et al. (2002) highlighted the need to examine HRM in

context. In many ways, this approach was adopted to write this book. Thus, the analysis

of HRM system(s) in the selected countries has been conducted in the context of

sociocultural, economic, political and legal set-ups and the changing business conditions.

The structuring of the chapters according to the framework introduced in chapter 1 has

helped to highlight the inﬂuence of core factors on HRM policies and practices in each

country, as well as the context-speciﬁc nature of HRM. For example, the economic

environment signiﬁcantly inﬂuences HRM in all the countries, but its impact varies from

country to country. For instance, in Japan the recessionary conditions of the past decade

are undermining traditional employment practices and precipitating changes in the

system. India has witnessed a boom in foreign direct investment since it liberalized its

economy. However, the arrival of foreign ﬁrms in the Indian labor market is forcing local

ﬁrms, in pursuit of efﬁciency, to rationalize their HRM practices.

In the same way, the political and legal set-up of the respective countries inﬂuence HRM

policies and practices in their own unique way. China allows the existence of only one

national union, which functions strictly according to the wishes of the Communist Party.

But, in India there are many local, regional and national unions which generally function

in an adversarial way. Similarly, the country-speciﬁc chapters have revealed the unique

inﬂuence of sociocultural context (for example, Islamic work principles in many

Malaysian ﬁrms; Confucian principles in China and Taiwan) on HRM systems.

Thus, the chapters depict a mixture of factors including sociocultural, economic, political

and legal which actively dictate the pattern of national HRM system. Each chapter also

sheds light on a number of HRM challenges in the Asia-Paciﬁc region but here we carry

the discussion forward: an awareness of the HRM challenges can help practitioners to

develop relevant policies and allow academics to set the agenda for future research.

HRM challenges in the Asia-Paciﬁc region

In spite of the fact that this book covers HRM in different countries with diverse

economic and political systems, there appear to be more similarities than differences in

the HRM issues discussed. Arguably, there is some degree of commonality in the impact

of economic globalization and international competitiveness on HRM in the Asia-Paciﬁc

region. The evidence so far indicates that globalization and international competitiveness

are driving major changes in HRM in the Asia-Paciﬁc region. This supports Frenkel

and Peetz’s (1998) assertion that globalization is changing previously stable workplace

systems in the region. This is evident in all the countries covered. Thus, the effects of

these changes pose major challenges for HRM in the Asia-Paciﬁc region. For instance,

in China and India there is some evidence that economic liberalization arising from

globalization and competitive pressures is changing the pattern of HRM, employee

relations and industrial relations and labor legislation. Some of these changes are

occurring both in the private and public sectors in both countries. In China, it is argued

that the emergence of a market economy is undermining the “nanny employer” image

of organizations, as there is a concerted effort to shift the huge welfare burden from

employers to individuals. In line with this approach, then, the downsizing of

organizations and changing recruitment and retention practices have resulted in insecurity

for workers in China. It is expected that a similar pattern will emerge in countries like

India where many of the state-owned ﬁrms have surplus labor. However, unlike China,

downsizing in India will be strongly resisted both by trade unions and opposition political

parties. This has been clearly evident in some of the recent cases (for details, see

Budhwar, 2003). Such dynamics again highlight the context-speciﬁc nature of HRM.

Similarly, the changing business environment in Japan has put tremendous pressures on

employers to change their traditional employment practices in order to survive.

Accordingly, Japanese employers are restructuring their employment systems in response

to low growth, globalization and international competitiveness. On these issues, Harukiyo

and Hook (1998) contend that the major elements of the Japanese-style HRM – lifetime

employment, seniority promotion system, enterprise unions, keiretsu and subcontracting

relations developed essentially in response to rapid and high economic growth during the

postwar industrialization boom – are being fundamentally transformed.

As Salmon’s chapter on Japan indicates, this transformation is by no means smooth. In

particular, Salmon asserts that, against a background of low growth, recession and rising

unemployment, Japanese employers are experiencing signiﬁcant HRM problems.

Consequently there are calls for a critical re-evaluation of the basic framework of the

established Japanese HRM model. Accordingly, in recent years some Japanese

companies are cutting down the number of full-time employees and relying on temporary

workers. The temporary workers are cheaper, low maintenance alternatives to lifetime

employees (Graham, 1998). Similarly, older workers are being encouraged to volunteer

for early retirement and new workers who possess the skills required by the companies

are lured to replace them. In a break with tradition, employers hiring computer-literate

staff and high-tech specialists in the use of various types of advanced technological

270 • Yaw A. Debrah and Pawan S. Budhwar

equipment, boycott the sacrosanct hiring practices under the lifetime employment system

and use temporary agencies instead. Just like their counterparts in the West, Japanese

employers/companies are now outsourcing more activities and relying more on temporary

employees. In this regard, Alexander (1999) notes that, for a country famous for

providing lifetime employment, this is a major transformation with fundamental and

long-term challenges for HRM.

The deep-seated challenges are not limited to Japan, China and India, as they are

occurring through out the Asia-Paciﬁc region. In the chapter on Korea, Rowley and Bae

have identiﬁed a number of key challenges facing HR managers in that country. They

discuss the historical development of HRM in Korea and the changes in traditional

Korean HRM practices. They give an account of the emergence of the post-1997

“Flexibility Based Transitional” HRM. Presumably, this emerged from the ashes of the

1997 Asian crisis and is a response to the restructuring efforts, including outsourcing,

downsizing, mergers and acquisitions. As elsewhere in the Asia-Paciﬁc region, vital

changes are occurring within the HR function in Korea as a result of globalization and

competitive pressure.

While not every chapter can be analyzed here, the above examples provide evidence

of the far-reaching implications of the globalization and international competitiveness

on HRM in the Asia-Paciﬁc region. The challenge facing HR managers who are dealing

with the global forces is how they can minimize the threats posed by global competitive

pressures on HRM while at the same time taking advantage of the opportunities created

by globalization to restructure their HRM and employee relations practices. This would

involve bold managerial proactive initiatives or responses to individual and collective

employee actions in the workplace in this globalized era. These initiatives provide

opportunities for researchers to examine the transformation of HRM in the region.

Globalization and international competitiveness can pose a signiﬁcant threat to the

productivity and morale of employees. In an attempt to explore these challenges,

Rowley and Bae have proposed the use of Rousseau’s (1995) three-fold typology

of psychological contracts as an analytical tool. This is quite pertinent in view of the

impacts of globalization and competitive pressures on HRM discussed earlier.

Throughout the Asia-Paciﬁc region, the changes in traditional employment practices have

crucial consequences for HRM. These include increased stress, declining job security – as

a result of downsizing and rising unemployment – as companies adopt labor ﬂexibility

strategies to reduce labor costs (Wiseman, 1998). With a high degree of uncertainty in the

workplace, it becomes imperative for employers to address employees’ psychological

contract needs. In a competitive environment as it pertains in the Asia-Paciﬁc, the beliefs

held by an individual and his/her employer about what they expect of one another are

changing. In such a changing environment, employees still expect to be treated fairly,

rewarded equitably, provided with growth opportunities, to know what is expected of

them and be given fair and constructive feedback on their performance (Armstrong,

2001). This is particularly the case in Japan, China, India and Vietnam. In the last three

countries there are internal changes pertaining to privatization of state-owned enterprises

HRM challenges in the Asia-Paciﬁc • 271

(SOEs), which have resulted in insecurity for workers. In the case of Japan the insecurity

arises from changes in the external economic environment.

For many employees in Japan, China, India and Vietnam, the move away from traditional

employment practices constitutes a violation of the psychological contract. Thus, the

challenge for HR managers is how to be able to deal with the outcome of employees’

responses to the perceived violations of the psychological contract – such as reduced

effort on the job or output and reduced contributions in the form of loyalty and

commitment (De Nisi and Grifﬁn, 2001).

Perhaps this is going to become a much bigger challenge in information technology

enabled service (ITeS) providers such as call centers and business process outsourcing

(BPO) ﬁrms where problems relating to psychological contract and job stress become

prominent after a while. For example, in the case of India, the majority of call-center

employees are full of enthusiasm when they start their ﬁrst job. However, after a while

the dark side of the “rosy” picture starts to emerge and the level of staff morale declines

considerably. This often results in high attrition – at times as high as 22 percent (see The

Economic Times, 2003). To a great extent, the lack of talent development initiatives is

held responsible for this (Chowdhry, 2003) as the lack of career structure provides a good

opportunity for competitors to poach talented people (Prabhakar, 2003). Such emerging

trends pose challenges to HR managers regarding both their recruitment and retention

policies and practices. It also provides a good case for researchers to examine the topics

of psychological contract, job stress and attrition. Also, it is predicted that both China and

the Philippines are expected to become the next hubs of BPO (The Times of India, 2003).

Possibly, decision-makers in such countries can learn from the experiences of the Indian

ITeS sector.

Another key challenge in HRM in the Asia-paciﬁc region is the effects of the transition

from collectivism to individualism in HRM practices in countries such as Japan, India,

China and Vietnam. Here, along with the managerial responses to employees’ perceived

violation of the psychological contract is the need for managers to develop a new culture

where promotion, pay and other organizational beneﬁts will be based on individual

contributions rather than group characteristics. In this regard, it appears that globalization

and competitive pressures are pushing organizations in East Asia to move towards the

Australian system of determination of employee beneﬁts. How to achieve an effective

and successful change to individual-based HRM practices within the broad East Asian

culture of groupism is a critical challenge for all managers in East Asia.

The emergence of the knowledge-based economy/knowledge-driven global economy is

also creating a signiﬁcant challenge for managers is the Asia-Paciﬁc region regarding

how to manage employees involved in it. The importance of human knowledge in

economic growth is now widely acknowledged and is considered as the basic form of

capital; the accumulation of knowledge, it is argued, drives economic growth (Romer,

1986; DTI, 1998). A knowledge-driven economy is one in which the generation and

exploitation of knowledge play the predominant part in the creation of wealth (DTI,

1998). The two key drivers of the knowledge economy are globalization and

272 • Yaw A. Debrah and Pawan S. Budhwar

communication technology (Houghton and Sheehan, 2000), both of which are prevalent

in the Asia-Paciﬁc region.

Singapore was one of the ﬁrst countries to move towards a knowledge-driven economy

(Ofori 2002, 2003) and has instituted plans/programs to develop a world-class workforce.

Singapore considers its current economy to be progressing from capital intensive to

knowledge-based. To a great extent, Hong Kong is also following the same model.

To achieve this objective, Singapore has acknowledged the importance of talent and

education, and life-long learning among other factors as the key determinant of a

competitive economy. HRM has a major role to play in the knowledge economy, not least

because of its ability to equip employees with skills, knowledge and attitudes to operate

in a competitive environment. Moreover, as the knowledge-driven economy creates rapid

and dramatic change, uncertainty and turbulence as well as adjustment problems for

employees, HRM managers will have to develop new strategies for managing people.

These issues would be of interest to managers in the Asia-Paciﬁc region as they move

towards knowledge-driven economies in their attempts to compete in the global

economy.

Relating to the issue of knowledge-driven economy is knowledge management. It is

now acknowledged that how well knowledge workers are managed is a major factor in

determining the future success of organizations. Noriaka and Hirotaka (1995) argue that

knowledge is the source of innovation in organizations. In their view, in order for an

organization to survive, it must be capable of continuous innovation and as such must

pay attention to knowledge (Armstrong, 2001). The capability to gather, lever and use

knowledge effectively is a major source of competitive advantage for organizations

(Trussler, 1998). The management of knowledge workers provides considerable

challenges for HR managers in the Asia-Paciﬁc regions.

Across the Asia-Paciﬁc region, governments are trying to develop the biotechnology

industry. Many of the ambitious projects are in India, Singapore, South Korea, Taiwan

and China. Many cities in these countries already have thriving high-tech industries and

want to ride the next big wave by creating life-science centers/hubs. Singapore, for

instance, is pouring money into Biopolis, a science park for biomedical and other

knowledge-based industries. In India, Hyderabad is witnessing a gathering of the

elements needed to create a life-science hotspot to match its IT industry (Merchant,

2003). East Asian countries, particularly China, Korea and Taiwan are building biotech

clusters to attract back to their native (East Asian) countries, expatriate scientists trained

overseas (mainly USA).

As these biotech clusters take hold in East Asia, the need for knowledge workers will

increase. The companies that are able to attract expatriate scientists must be capable of

harnessing the knowledge of the scientists. In this respect, HR managers need to

contribute effectively to knowledge management by exhibiting expertise in the area. In

a changing psychological contract environment, HR managers need to be able to promote

values and norms which emphasize the importance of sharing knowledge, commitment

and trust. In relation to that, HR managers must be capable of developing compensation

HRM challenges in the Asia-Paciﬁc • 273

and career development structures that can not only motivate but also retain knowledge

workers. In addition, HR managers must be able to develop performance management

processes and organizational and individual learning programs for knowledge workers

in organizations (Armstrong, 2001).

Yet another challenge for HRM managers is the issue of diversity management. In recent

years, diversity management has been a burning issue in the management of HRs in the

Asia-Paciﬁc region. The issues relating to gender, age, ethnicity, among others, have

assumed increasing importance. In the Australian chapter, Patrickson and Sutiyono have

discussed the efforts of the Australian government to raise awareness of the beneﬁts

of inclusive employment practices (in terms of ethnicity) in the workplace. Indeed, as

Bertone and Leahy (2002) argue, with large numbers of business and skilled migrants

arriving in Australia in recent years, many of them Asian, there is the need for HR

managers to develop policies to harness their skills in customization and niche marketing

both at home and abroad. Here, one of the managerial challenges is the removal of

barriers and the development of strategies to ensure that all employees in Australian

organizations can contribute the full range of their skills and knowledge, whether formal

or informal (Bertone et al., 1998). It is asserted that Australian employers need to acquire

skills and expertise in: (a) making use of ethnic differences within the workforce to

understand, reﬂect and respond to the different needs of a multicultural domestic market,

(b) making use of language, knowledge and cultural skills within a workforce to develop

and expand their export market; (c) breaking down ethnic barriers and prejudices within

the workforce to enable more harmonious work relations, increased productivity,

ﬂexibility and innovation (Bertone and Leahy, 2002).

In Australia, as in many East Asian countries, it is contended that there are glass-ceiling

problems in organizations. Patrickson and Sutiyono maintain that in spite of the growth

in female labor-force participation rate in Australia, their promotion into managerial

ranks remains relatively stable or low. The situation is no better in other Asia-Paciﬁc

countries. In fact there are serious gender discrimination problems in Japan. However,

against a background of labor shortage problems in many East Asian countries, the

governments are urging more women to enter the labor market. In view of the declining

birth rate in many East Asian countries, it is anticipated that the female labor-force

participation rate will continue to grow. If this trend continues as predicted, then HR

managers face the challenge of developing a safe and secure working environment for

women. It must be realized that, in order for organizations to be able to recruit, motivate

and retain female employees, HR managers need to confront the issues relating to the

discrimination of women in the labor market.

Perhaps the most daunting scenario regarding diversity management in Australia and East

Asian countries is the looming demographic time-bomb. As Holland (2003) asserts,

Asians are getting older. This is a slow, silent and unstoppable “revolution” which is

reshaping Asian societies. It is claimed that in the mid-1950s, old people (65 years and

above) were a rarity in most East Asian societies. However, with better health care,

higher standards of living, better-educated people and an increase in life expectancy in

274 • Yaw A. Debrah and Pawan S. Budhwar

recent years, there has been a considerable increase in old people. At the same time most

East Asian countries are experiencing decreasing birth rates, an aging workforce and

hence labor shortages. It is estimated that by 2050 nearly, a quarter of East Asia’s

population will be aged 65 or over (Holland, 2003).

Japan and Australia are particularly affected by the problems of an aging population.

Currently, one in six Japanese is older than the mandatory retirement age of 65. But with

a fertility rate of just 1.3 children per woman – way below the birth rate of 2.1 needed to

maintain a stable population – and a life expectancy of more than 80 years and rising, it is

estimated that, by 2050, more than 36 percent of the Japanese population will be above

retirement age (Holland, 2003). Patrickson and Sutiyono have indicated that Australia is

going through similar demographic transition and, by 2012, the population over 65 will

grow by 4 percent and thereafter continue to grow by 2.9 percent per year until 2028.

Thus, Patrickson and Sutiyono assert that the aging workforce will be one of the crucial

employment issues in this century in Australia and indeed in the whole of East Asia.

While some countries such as Singapore, Japan and Australia have made efforts in the

legislative arena to tackle the problem, others have paid little attention to it. However,

aging populations pose serious challenges to HRM in the Asia-Paciﬁc region (see

Debrah, 2001, 2002; Snape and Redman, 2003). How each country responds to the issues

relating to an aging workforce depends on the severity of the problem but it is likely that

some countries would have to import labor or rely on immigration in order to sustain

economic growth. For instance, it is anticipated that Japan will need 6 million immigrants

in the next 25 years but immigration is bitterly opposed by those who equate it with crime

(Pilling, 2003). Even if East Asian countries manage to delay or resist limited or large-

scale immigration from both within and outside the region, the countries would most

likely need migrant workers.

Currently there are legal migrant workers from labor-surplus countries such as Indonesia

and the Philippines working in labor-receiving countries such as Hong Kong, and

Singapore. There are also low-paid legal migrant workers from countries such as India

and Bangladesh in Singapore and Malaysia. In many workplaces in the construction

industry in Singapore, for instance, it is possible to ﬁnd migrant workers from different

countries working together in a team. The management of such multicultural work teams

is one of the challenges facing HR managers. Going by current demographic trends, it is

possible that the use of migrant workers is likely to increase in future with multiple

implications for the management of HRM in the Asia-Paciﬁc region.

Other interesting HRM challenges are emerging in the Asia-Paciﬁc region. One such

challenge is the HRM issues relating to the outsourcing of service jobs from

industrialized countries to the developing world (Crabb, 2003). In the last decade,

advancements in ICT and availability of high-skilled workforce in some developing

countries have made it possible for then to attract white-collar jobs from developed

countries. It is estimated that 3.3 million jobs in the USA and 2 million in western

ﬁnancial services will be lost as result. In the UK, 200,000 job losses have been predicted

by 2008 (FT, 2003). Asia has been the major recipient of these jobs.

HRM challenges in the Asia-Paciﬁc • 275

Lower cost locations such as India, the Philippines and China are now attracting

outsourcing of much higher value-added services such as medical diagnostics, treasury

management and software development (FT, 2003). Bibby (2003) also points to the

offshore outsourcing of architectural services. For instance, a British company, Atlas

Industries, has set up an ofﬁce in Vietnam to work entirely for the UK market. The

Vietnamese employees produce drawings and 3D computer-generated designs for

buildings at a relatively low cost. The work is assigned or ﬁnished, product transferred

through email or a password-protected website (Bibby, 2003).

In India, the main activities or areas covered by the call centers include customer care

(such as remote maintenance, help desk and sales support), ﬁnance and administration

(for example, data analysis, medical transcription, insurance claims and inventory

management), HR and payment services (such as payrolls, credit-card services, cheque

processing and employee leasing) and content development, i.e. digital content, R & D,

LAN networks and application maintenance (for more details, see Chenggapa and Goyal,

2002). As the competition, both nationally and internationally, to acquire business

contracts has increased considerably in recent years, HR managers working in the sector

are facing enormous challenges in attracting and retaining the best employees.

At another level, HR managers face signiﬁcant challenges in their attempts to utilize

internal labor markets (ILMs) in organizations. Appropriate ILMs are known to be

conducive to the development of long-term employment relationships, to bind employees

to the organization and also help to reduce employee turnover (see Soeters and Schwan,

1990; Osterman, 1994). It is also known that ILMs make it possible for HRM practices to

be consistent with a systematic and rationalized employment system. However, in the

case of countries like India and China (and many other Asian economies), ILMs are

generally based on social connections, political contacts, caste, religion and economic

power. Thus, in the context of present business conditions in India and China, the

efﬁciency of the established traditional ILMs is questionable. The challenge, however, is

how HR managers can engineer such a macro-level change without alienating powerful

members of their organizations.

The existing ILMs system has been linked to corruption in Asian countries. It is argued

that the ILM system, where informality, social networks and power distance are essential

elements tends to engender corruption in organizations (see Luo, 2002). This has

serious implications for efﬁcient HRM systems and HR practitioners need to pay due

attention to it.

Yet another challenge revolves around the quality of research in the Asian context. In his

analysis of the main limitations of research conducted in the region, White (2002)

suggests that too much of research effort has been limited to simplistic comparisons,

correlational analyses providing no insight into underlying processes, and skewed,

idiosyncratic sampling. Such research, it is argued, does not contribute signiﬁcantly to

theory development. Accordingly, White (2002) highlights the need to increase both rigor

and relevance of research efforts in the Asian context.

276 • Yaw A. Debrah and Pawan S. Budhwar

In response to this suggestion, Lau (2002) recommends the adoption of Asian-developed

constructs to study local and global issues and calls for development and validation of

new constructs so as to delve into the depth of Asian-based issues. Similar suggestions

have been made by many others. For example, focusing on cultural values, Kao et al.

(1999) stress the need to indigenize management practices in Asian organizations. Due to

the strong inﬂuence of the sociocultural context, the authors question the applicability of

western management and organization theories in the Asian context (also see Kanungo

and Jaeger, 1990). To a great extent this is a core issue for western ﬁrms operating in the

Asian context (see Kidd et al., 2001) and sends a clear message to researchers in the ﬁeld.

Conclusion

The challenges facing HRM in the Asia-Paciﬁc region are clearly complex and daunting.

The majority of them have emerged due to the changes in the economic environment. In

particular, globalization and international competitiveness have brought to the fore the

need for organizations to adopt appropriate HRM practices in their quest for competitive

advantage. In this globalized era, competitive pressures have laid bare the limitations of

the traditional models of management in some Asia-Paciﬁc countries. Clearly, there is

some indication that HRM is undergoing transformation in the region but it is unclear

what the outcome of this transformation would be. Early indications are that there is a

move towards individual basis in employment systems. However, it is too early to see a

clear model or approach emerging. Possibly, a hybrid system (based on a mixture of both

traditional Asian characteristics and western rationalized systems) would emerge.

However, it is important that any HRM system that emerges in the Asia-Paciﬁc region

should be context based.

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Acer 98

Aditya Vikram Birla 117

All China Federation of Trade Unions

(ACFTU) 21

All India Authority of Vocational Training Act

(AIAVT) 130

All India Council of Technical Education

(AICTE) 129

Anglo-Saxon model of HRM 62, 67

Apprentices Act (1961) (India) 129

Asian ﬁnancial crisis (1997) 35, 36, 37–8, 40,

45, 46, 53, 84, 177, 201, 204, 224, 271

AT Kearney 115

Atlas Industries 276

Australia, HRM in 239–49; Australian context

239–40; changes in practice 244; emergent

competencies 247–8; legislative context

241–2; performance management 246;

recruitment 246; remuneration levels 245;

SMEs 248; training and development 245–6;

trends toward formalization 243–4; unions

242–3; work/life balance and diversity

management 244–5; workforce

characteristics 240–1

Australian Human Resources Institute (AHRI)

247

Australian workplace agreements (AWAs)

242–3

Australian–Thai Business Council 162

authoritarian capitalism 223–4

authoritarian socialism 223

balanced scorecard approach 156, 246

Bangkok Bank of Commerce 160

Bank of Asia 160

bargaining power 256

benchmarking 246

best practice sharing (China) 31

Bhartiya Mazdoor Sangh (BMS) 127

biotechnology 273–4

Board of Investment (BOI) (Thailand) 143, 150

Bombay Textile strike 123

Brahmvihaara 4 146

British Tobacco Co. 184

Buddhism 141, 146, 156

business process outsourcing (BPO) 272; in

India 131

Cadbury 116

Cadre Management Training Institutes 24

call centers 272, 276

Cathay Paciﬁc 81, 84

Central Provident Fund (Singapore) 223

Centre Franco Vietnamien de Formation a la

Gestion (CFVG) 183

chaebols 4, 37, 43–5, 46, 52

Chang Young-chul 37

Charoen Pokaphand Group 165

Chase Manhattan Bank 160

Cheil Industries 44

Cheil Sugar Manufacturing Company 44

Chen Shui-Bien 96

China, HRM in 17–31; business ownership 18;

Economic Reforms 18; employment by

ownership 19; Enterprise Reforms 18; future

30–1; historical development 18–21; Hong

Kong and 85; key challenges 27–30; key

factors 23–6; partnership 21–3; present

changes 26–7; three-systems reform 18–21

Chinese family businesses 4; in Hong Kong

82–3

Chinese Human Resource Management

Association 98

Chohung Bank 54

Chun Pyung 45–6

Citibank 134, 160

Closer Economic Partnership Agreement

(CEPA) 89

Index

Club of HRM Managers (Vietnam) 193

Code of Discipline (India) 122

coercive isomorphism 256

collectivism 96, 106, 175, 207, 209, 210, 272

Communications Authority of Thailand (CAT)

165

Communist Party 18

Communist Party of Vietnam (CPV) 176

“companyism” (Japan) 68

“competing for the post” system, China 20

Confucianism 4; China 26; Hong Kong 82;

Malaysia 207; South Korea 40, 52; Taiwan

96, 97; Thailand 156; Vietnam 175

Contract Labor (Regulation and Abolition) Act

(1970) (India) (CLA) 127–8

controlled pluralism 211

convergence–divergence thesis 4

crony capitalism 44, 224

crossvergence of HRM 133

Cultural Revolution 18

cultural values, HRM and 3, 255

Daeang 51

Daewoo 44, 53

Daewoo Motors 48

Dayal, Ishwar 117

DBS (Singapore) 160

demography: Hong Kong 86–7; India 113;

South Korea 39, 56; threat 274–5; Vietnam

176

diversity management 274

Domei 67

Doosan 51, 56

downsizing: Australia 247; China 21, 24, 270;

India 116, 270; South Korea 48–9

DSB Thai Danu 160

dynamic followership 208

e-HR 165

e-HRM 55–6

Electricity Generating Authority of Thailand

(EGAT) 155, 165

Employee Retraining Board (Hong Kong) 79

Employees’ State Insurance (ESI) 128

Employees’ State Insurance Act (1948) (India)

128

employment contracts: China 20, 21, 28; South

Korea 46, 48

Employment Ordinance (1968) (Hong Kong)

77, 84

Employment Stabilization Funds (1977) (Japan)

empowerment, Taiwan 105–6

Enterprise Law (Vietnam) 182

Equal Opportunities Commission (Hong Kong)

79, 85

equality norm (China) 25

Factories Act (1948) (India) 116

family business models 4

Fatherland Front 176

Fay, Michael 224

Federation of Korean Trade Unions (FKTU) 46

foreign direct investment (FDI) 1, 3; China 1;

India 114; Malaysia 205; South Korea 40;

Vietnam 182

framework for analyzing cross-national HRM

5–7

General Strike (1996) (South Korea) 46

ghost promotion 69

Gratuity Act (1972) (India) 128

gross domestic product (GDP): Australia

239–40; Hong Kong 76, 79, 87; Japan 70;

Malaysia 205; Singapore 221; South Korea

39, 44; Thailand 151; Vietnam 177–8

gross national product (GNP): India 115; South

Korea 39

GTZ 130

GVN 185

Han Kwang-ok 37

Hanwha 56

hard convergence 4

Heavy Industries Corporation of Malaysia

(HICOM) 205

Heisei recession 70

high performance work organization (HPWO)

37, 38

higher education, China 30

Hofstede’s cultural values 120–1, 210, 255

Hong Kong, HRM in 75–90; China factor 85;

early service-base (1980s) 77–9; full

service-base (1990s) 79–80; future prospects

86–90; globalization 85–6; knowledge

workforce 88–90; legal and institutional

factors 84–5; local Chinese family

businesses 82–3; manufacturing base

(1970s) 76–7; metropolis thesis 87–8;

multinational corporations 79, 83, 85; post-

1997 restructuring phase 80–1; small and

medium enterprises 81–2

HP 38

HRD Act 1992 (Malaysia) 214

282 • Index

HRD scorecard 117

HRM audit 58, 117

Human Resource Development Association of

ROC 98

Hyosung 49, 52

Hyundai 44, 52, 53

Hyundai Electronics 51

Hyundai Motors 48, 53, 56

IBM 38

ICICI 135

India, HRM 113–36; business environment

114–16; change, sharing and learning 133;

crossvergence of HRM 133; evolution

116–19; individual level 133–4; internal

labor markets (ILMs) 132; labor law

framework 126–8; national culture 119–21;

national institutions supporting industrial

relations 121–3; national level 131;

organizational level 132–3; strategic

approach 132; unions 122–4; urgency of IR

reforms 125; vocational education and

training 128–31; workers’ participation in

management 124–5

Indian Administrative Service (IAS) 120

Indian Civil Service (ICS) 120

Indian Institute of Management (IIM) 118, 133

Indian Institute of Personnel Management

(IIPM) 116, 117

Indian Institute of Technology 133

Indian Labor Conference 122

Indian Oil Corporation 129

individualism 120, 175

industrial disputes see strikes

Industrial Disputes Act (1947) (India) (IDA)

116, 121, 122, 125, 127, 135

Industrial Employment (Standing Orders) Act

(1946) (India) (IESOA) 121, 127

Industrial Master Plan (IMP) (Malaysia) 204

Industrial Relations Act (1996) (Australia)

241–2

Infosys Technologies 129

Institute of Personnel Management (UK) 116

institutional permissiveness 84

institutional perspective of MNC subsidiaries

255–6

internal labor markets (ILMs) 6, 276; India 132

International Labor Organization (ILO) 53, 54,

141, 145; Migration for Employment

Convention, Malaysia 214

International Monetary Fund (IMF) 40, 115

Islamic values 207–9

ISO 9000 quality series 25

isomorphism 256

Japan, HRM in 61–71; corporate community

67–8; defending the employment norm

66–7; development 63–4; diversiﬁcation of

labor market 70–1; Heisei recession 70;

Japanese model 62–3;;limits of development

64–5; rekindling of HRM 68–9; temporary

workers 270–1; white-collar workers 65–6

Japan Inc. 68

Jinro 48

job security 5; China 18, 20; Japan 62–3, 66–7

Johnson & Johnson 184

joint ventures: China 26–7, 28; Thailand 161–2;

Vietnam 183

just-in-time (JIT) 143, 216

KCTU 46

keiretsus 4

Kim Ho-jin 37

Kim One-ki 37

knowledge-driven economy 272–3

knowledge management 273

Korea Electric Power Company 48

Korea National Tourism Organization 48

Korea Telecom 48, 51

Korean Confederation of Trade Unions

(KCTU) 37

Korean War 39

Krungthai Bank 155, 160

Kumho 56

Labor Code (Thailand) 184

Labor Code (Vietnam) 190

Labor Law (1995) (China) 20, 21, 22, 23, 24

Labor Management Council (LMC) system 37

Labor–Management–Government Committees

on Industrial Relations (South Korea) 37

Labor Relations Act (1975) (Thailand) 143,

145, 160

Labor Standards Law (1947) (Japan) 66, 70–1

Lee Teng-Hui 95–6

LG 36, 44, 52, 53, 56

LG Chemical 51, 54

LG Electronics 37, 38, 58, 129

lifetime employment (Japan) 63, 66–7

Look East policy 207, 212

Mahathir, Dr Mohamed 202, 204

Malaysia, HRM in 201–17; employment of

foreign workers 213–14; government policy

Index • 283

interventions 203–5; HR development

strategy 214–15; HRM function 215;

industrial relations system 211–12; labor

market 212–15; labor policy 206–7;

management culture 207–10; New

Economic Policy (NEP) 203, 204; political

context 201–3; recruitment and selection

216; rewards system 216; shortage of skilled

workers 213; training, development,

competitiveness and investment 205–6, 215;

turnover 217; work organization 216

Mandatory Provident Fun (MPF) (Hong Kong)

Manpower 21 233–4

masculinity 120

micromanagement 225

migrant workers, use of 213–14, 275

mimetic isomorphism 256

Ministry of Education (India) 118

Ministry of Education (Thailand) 164

Ministry of HRD (India) 118

Ministry of Human Resources (Malaysia)

206–7

Ministry of Labor (China) 18

Ministry of Manpower (MOM ) (Singapore)

233, 234–5

Ministry of Personnel (China) 18

Ministry of University Affairs (Thailand) 164

Mitac 98

Motorola 37, 38

Motorola (China) Ltd 29

multinational corporations (MNCs) 3; Australia

242; China 28; Hong Kong 79, 83, 85; India

117, 122, 123, 124, 125, 132, 133, 134;

Singapore 225–6, 232; South Korea 40;

Vietnam 184–5

multinational corporations (MNCs), transfer to

Asia-Paciﬁc 253–63; characteristics of HRM

practices 257–8; conceptual issues 254–5;

determinants of policies and practices

259–60; future research 260–3; impact on

host country 262; theoretical perspectives

255–6

multinational enterprises (MNEs), Thailand 152

Myer-Briggs indicators 224

National Development Plan (NDP) (Malaysia)

204

National Economic Action Council (NEAC)

(Malaysia) 204

National Economic and Social Development

Plan (Thailand) 149

National Economic Development Plan

(Thailand) 143, 149

National Economic Recovery Plan (NERP)

(Malaysia) 204

National Institute of Labor Management

(NILM) 116–17

National Institute of Personnel Management

(NIPM) 117

National Labor Law Association (NLLA)

(India) 128

National Renewal Fund (NRF) (India) 116, 130

negotiated wage, China 28–9

nenko systems 63, 68, 69

neo-institutional theory 3

New Economic Policy (NEP) (India) 114, 116

Nikkeiren 70–1

normative isomorphism 256

OECD 53

off-the-job training (Off-JT) 64

on-the-job training (OJT) 63–4

outsourcing 272, 275–6; India 131; South

Korea 55

P&G 184

Paciﬁc Century CyberWorks Ltd 81, 86

Pareek, Udai 117, 118

pay see remuneration

Payment of Wages Act (1936) (India) 128

PCCW Ltd 84

People Capability Maturity Model 135

performance appraisal: China 27; South Korea

51; Taiwan 105; Thailand 159; Vietnam

187–8

Petroleum Authority of Thailand 155

Planning Commission (India) 114

Pohang Iron and Steel 52

population see demography

power distance 120–1

PRC Law on Protecting Women’s Right and

Interests (1992) (China) 24

Presidential Commission on Industrial

Relations Reform (1996) (South Korea) 37

Promotion of Investment Act (1986) 206

Provident Fund Act (1952) (India) 128

Provisional Regulations for State Civil Servants

(1993) (China) 27

Provisions Concerning the Administration of

the Labor Market (2000) 23

psychological contracts (Rousseau) 36, 271–2

Public Enterprise Labor Relations Act

(Thailand) 143

284 • Index

Pusan 53

quality circles (QC) 160

Rao, T.V. 117, 118

recruitment: Australia 246; China 23–4, 27;

Hong Kong 77; Malaysia 216; South Korea

46, 48; Thailand 157; Vietnam 183–5,

193–4; see also women

Reddy’s Laboratories 129

Regulations for Worker’s Technical Grade

Examination, The (China) 24

Reliance 125, 129

remuneration: Australia 245; China 18, 25–6,

28–9; Japan 68–9, 70; Malaysia 216;

Singapore 222; South Korea 49–52; Taiwan

106; Thailand 152, 154, 159–60; Vietnam

181, 188–90

Rengo 68, 70

resource dependence 256

Revision of the Employment Insurance Law

(1974) (Japan) 67

Roh Moo-hyun 54

Royal Commission of Labor (1931) (India) 116

Saesang 52

Sakura Bank, Ltd 160

Samsung 36, 44, 49, 51, 52, 53, 54, 56

Samsung Electronics 38, 44, 48, 51

Samsung SDI 37, 38

satai assessment 69

Saturn 37

Securities Exchange of Thailand (SET) 157,

161

Shin Hong 37

Siam Commercial Bank 160

Singapore Human Resource Institute (SHRI)

234, 235

Singapore, HRM in 221–35; administrative

system 224–5; economic model 223–4;

economic strategy 223; expatriates 230–1;

female participation 228–9; HRM practices

232–3; key challenges 227–31; local

companies, government departments and

corporations 233; multinational corporations

225–6, 232; next ﬁve years 233–4; older

worker participation 229–30; role and status

226–7; training and development 231;

turnover/job-hopping 227–8; websites

234–5

sininsa systems 36

Sino-British Joint Declaration 78

Six Sigma 38

SK 44, 51, 56

small and medium enterprises (SMEs):

Australia 248; Hong Kong 81–2; Vietnam

183, 186

Smithkline Beecham 129

Social Compact (South Korea) 37

Social Security Act (Thailand) 143

soft convergence 4

Sohyo 67

South Korea, HRM in 35–58; chaebols 4, 37,

43–5, 46, 52; changes taking place within

HR function 54–6; cultural inﬂuences 40,

41–2; economic environment 40, 43;

employee development 52–3; employee

relations 53–4; employee resourcing 46–9;

employee rewards 49–52; future of HR

functions 57–8; historical and political

background 39–40; historical development

35–6; inﬂuences on 38–46, 47; key

challenges facing 56–7; labor 45–6;

partnership 36–8

Special Measures for Laid-off Workers in

Targeted Depressed Industries (1977)

(Japan) 67

SPRING (Standards, Productivity, and

Innovation Board) (Singapore) 234, 235

staff retention and turnover: China 28; Malaysia

217; Singapore 231; Vietnam 194

State Economy Commission Document No.

[2001] 230 (China) 21

State Railways Authority of Thailand 155

state-owned enterprises (SOEs) 17; China 18,

21, 26–7, 28; Vietnam 178, 179, 181, 183,

185, 187–8, 189–90, 195–6

strikes: Hong Kong 84; Japan 63, 68; Malaysia

212; South Korea 46, 49, 53–4; Thailand

143; Vietnam 190–1

Swiss-AIT Management Development Program

(SAV) 183

Taiwan, HRM in 93–110; challenges 107–10;

changes 101–3; culture 96–7; economic

development 93–5; environmental factors

99–101; government 95–6; historical

background 93; in the twenty-ﬁrst century

99; pre-2000 practices 97–8; selected

practices 103–7

Tata Engineering 129

Tata group 116

Tata Steel 125, 129

Telephone Authority of Thailand (TAT) 155

Index • 285

Telephone Organization of Thailand (TOT) 165

Temporary Regulations on Continuous

Education for Professional and Technical

Personnel in China 24–5

Thai Danu Bank 160

Thailand Assets Management Co. 160

Thailand, HRM in 141–70; before and after

ﬁnancial crisis 155–64; as a business partner

147–8; challenges 167–9; cultural inﬂuences

149; current development 164–7; current

economic conditions 151–2; development of

IR system 154–5; economic and social

development 149–51; globalization and

146–8; government policies and 143–4;

historical development 141–2; key factors

148; labor movement 142–3; local ﬁrms

156–61; management development 144–5;

in the MNEs 161–4; organizational structure

152–4; public administration and public

enterprise management 142; in the public

enterprises 156; role, importance and degree

of partnership 145

total quality management (TQM) 38

township and village enterprises (TVEs), China

Trade Union Act (1926) (India) 116

Trade Union Law (1950) (China) 21, 23

Trade Union Law (2001) (China) 21, 23, 30

trade unions 5; Australia 242–3; China 17,

21–2; Hong Kong 77, 84; India 122–4;

Japan 63, 67, 68, 70; Malaysia 211–12;

South Korea 38, 45–6, 53–4; Taiwan 101;

Thailand 143–4, 154–5, 156; Vietnam

190–1

Trade Unions Act (1926) (India) 121

training and development: Australia 245–6;

China 24–5, 29–30; India 128–31; Malaysia

205–6, 215; Off-OJT (Japan) 64, 65; OJT

(Japan) 63–4, 65; Singapore 231; South

Korea 52–3; Taiwan 101, 105; Thailand

158–9; Vietnam 181, 185–7, 194

transaction governance capacity (TCG) 136

transactional HRM 119

Tripartite Commission (South Korea) 37

Tung, C.H. 88

uncertainty avoidance 120

unemployment: China 24; Hong Kong 80;

Japan 66, 70; Singapore 221, 222; Taiwan

unfair labor practices (ULPs) 122, 135

Unilever 184

United Malays National Organization 202

University Grants Commission (UGC) (India)

129

Vietnam Yellow Pages 189

Vietnam, HRMN in 173–96; 1975–1990

(command system)180–1; 1990–present

181–2; before renovation period 178–80;

compensation and welfare 188–90;

competitiveness 173–5; cultural and political

structure 175–6; current practices 183;

industrial relations 190–1; key challenges

193–5; manager role 192–3; new conditions

191–2; performance appraisal (PA) 187–8;

recruitment and selection (R&S) 183–5,

193–4; role and status 182–3;

socioeconomic structure 176–8; training and

development 181, 185–7, 194; in transition

180

Vision 2020 (Malaysia) 204

vocational education see training and

development

Vocational Training Council (Hong Kong) 78

Voluntary Retirement Scheme (VRS) (India)

116, 130

wages see remuneration

“war for talent” (South Korea) 56

welfare schemes, China 18, 20

women 274; Australia 240, 241; China 23–4;

Malaysia 212–13; Singapore 221

Worker Dispatching Law (1985) (Japan) 70

Workers’ Congress (China) 17, 22–3

Workers Participation in Management Bill

(1990) (India) 125

working hours: China 24; South Korea 48;

Taiwan 95

Workplace Relations Act (1996) (Australia)

241

World Bank 115, 145, 151

World Trade Organization (WTO) 96; China’s

accession to 25, 86

Zhu Rongji 21

286 • Index