1. Art and Diseño

Japanese Journal of Administrative Science
Volume 15, No. 2, 2001, 109 - 130.
m^rfmn^mibmrn 2 *%, 2001, 109 -130.
Strategic Transfer of HRM Practices for Competitive Advantage:
Implications for Sequential Transfer of Japanese HRM to China and Taiwan
Norihiko TAKEUCHI
(Research Fellow of the Japan Society for the Promotion of Science, Nagoya University),
and CHEN Ziguang
(City University of Hong Kong, Hong Kong)
This paper explores how performance of Japanese affiliates in China and
Taiwan can be affected by HRM practices transferred from Japanese parent
firms. The following four sets of HRM practices were found to constitute critical
resources transferred from the Japanese parent firms: educational investment
(EDUC), in-company welfare (WELF), long-term commitment incentives
(COMM), and on-the-job problem solving (S0LV). Results of regression
analyses based on samples of Japanese affiliates in China (n = 229) and Taiwan
(n = 57) revealed that the transfer of the S0LV resource had a significant and
positive contribution to affiliate's financial performance. Moreover, the result of
a path analysis indicated that remaining three HRM resources were working for
underpinning the function of the problem solving resource. Then this set of HRM
resources contributed to the formation of an integrated HRM system within
foreign affiliates, which conferred economic benefits to them. Results of this
study contributed to understand the mechanism of gaining competitiveness
through transferring HRM resources strategically from Japanese parents to
overseas affiliates based on the sequential transfer model of HRM resources by
shifting the contents of transfer from the basic to instrumental resources.
transferring their home-made systems of HRM to
1. Introduction
overseas affiliates.
Since Japanese firms started their overseas opera
tions in the 1960s, studies have been conducted to
Recently, literature on strategic international
human resource management (SIHRM) has at
examine how their foreign affiliates can remain
tempted to develop a theoretical foundation for
competitive in the global market by implementing
explaining the link between HRM resource trans
the home-made human resource
management
fer and business performance by applying a
(HRM) practices. Research efforts have been
resource-based view of the firm (Rosenzweig &
made to explore to what extent the Japanese-style
Singh, 1991; Schuler, Dowling, & De Cieri, 1993;
production and management systems are applica
Taylor, Beechler, & Napier, 1996). A basic as
ble or acceptable for operations in both developed
sumption underlying the resource-based view of
countries (e.g., Abo, 1994) and developing coun
the firm in the multinational business context is
tries
that an overseas affiliate can sustain competitive
(e.g.,
Ichimura,
1998;
Itagaki,
1997;
Yamashita, 1991). These past studies have its
advantage through strategic transfer of firm-
merits
Japanese-style
specific resources (FSRs) that are derived from
production and management systems work rather
the multinational parent company. Precisely,
well within the transplants in given countries.
performance of overseas affiliates of multina
However, few studies were attempted regarding
tional corporations (MNCs) may be determined
how it was possible for Japanese firms to increase
by the extent to which parent firms in the home
profitability in
country can accumulate FSRs
in
demonstrating
that
their overseas operations
by
109-
and
transfer
mwrfmm^mi^m 2 -
bundles of these resources to their overseas busi
areas has a long history, and the volume of Japa
ness units combined with their business strategies.
nese investment in these areas has been rapidly
However, not all aspects of these FSRs constitute
increasing for the past decades. Moreover, it is
strategically relevant resources for the global
expected
business operations. In other words, some of them
Japan and these Chinese societies will become
may remain neutral for value-creating strategies,
much tighter in future (Wakabayashi, Chen &
and therefore may not serve as rent-yielding
Huang, 1999).
FSRs. For example, physical capital resources
like plants, equipment or the physical technology
that
business
relationships
between
2. Conceptual Framework
alone seldom generate sustainable advantages,
The Nature of HRM Resources in Multirational
because these resources are relatively easy to copy
Contexts
or duplicate (Barney, 1991). On the other hand,
Within the resource-based theoretical framework,
human and organizational capital resources are
the firm is viewed as a
more intangible, socially complex and difficult to
capabilities (Barney, 1991; Corner, 1991; Lado and
identify specifically, thus difficult to be duplicated
Wilson, 1994; Wernerfelt, 1984). Firm resources
by
and
encompass all input factors, both tangible and
Tallman, 1994; Grant, 1991). Accordingly, the
intangible, human and non-human, which are
competitors
(Fladmoe-Lindquist
nexus of resources and
above stream of literature provides the notion that
owned and controlled by the firm, and enter into
the invisible assets of human and organizational
the production of goods and services to fulfill
skills, including resources for effective human
human wants (Lado & Wilson, 1994). Viewed
resource management (hereafter referred to as
HRM resources), may remain as most likely
from a resource-based theory of the firm, HRM is
sources of truly sustainable advantage of the firm
may enable firms to outperform or potentially to
one of the strategically relevant resources which
(Barney, 1991; Fladmoe-Lindquist and Tallman,
do so in overseas business operations. However,
1994; Grant, 1991). Thus, in the multinational
for this to happen the global firm must possess the
business context, whether or not overseas Japa
valuable, rare and imperfectly imitatable, and
nese affiliates can achieve competitive edge over
non-substitutable resources (Barney, 1991), and
others hinges on how strategically the home-
successfully
derived, firm-specific HRM resources are trans
boundaries. Thus, the primary concern for the
ferred and become
present paper is to explore which aspects of home-
embedded
in
the
overseas
affiliate organizations.
transfer
them
across
national
derived HRM resources are transferred and how
Based on the above-mentioned perspective, it is
strategically the HRM system can be recon
of great value to investigate the link between
structed based on these transferred resources in
transfer of Japanese HRM resources and profit
overseas Japanese affiliates.
ability of Japanese overseas affiliates. Unfortu
nately, however, few studies provide empirical
Taylor, Beechler & Napier (1996) suggest that
international transfer of HRM resources can be
evidence on the effect of transfer of intangible
looked at from three levels: national, firm and
resources like HRM, and how they function to
affiliate levels. First, the national-level resources
boost
may constitute the potential competitive advan
affiliate's
organizational
performance.
Thus, the present study primarily focuses on how
tage for MNCs. These are "the parent company's
transfer of Japanese HRM resources contributes
resources that originate from a particular con
to corporate performance in Japanese affiliates
figuration of economic, cultural, human, and
operating inphina and Taiwan. The reason why
Japanese affiliates in China and Taiwan were
other resources in a given country" (Taylor et. al.,
1996, p.963). For the Japanese MNCs, this repre
selected as samples for this study is that the for
sents the Japanese-style HRM resources rooted in
eign direct investment by Japanese firms in these
the
110-
unique
historical
and
socio-economical
Strategic Transfer of HRM Practices for Competitive Advantage
environment in Japan. They also asserted that the
Cole,
1994;
Nikkeiren,
1999;
1995;
Takeuchi
Wakabayashi,
&
national-level HRM resources cannot be differen
Wakabayashi,
tiated from one firm to another greatly within the
Wakabayashi & Graen, 1991; Yoshihara, Hayashi
1987;
domestic environment. Whereas, once these re
& Yasumuro, 1988). These practices are consid
sources go beyond the national boundary, they
ered to be critical "resources" for the successful
may confer Japanese MNCs an edge over competi
production and service activities in foreign affili
tors from
ates, when properly transferred and implemented.
other nations. Second,
besides the
national-level resources, a multinational parent
They can be summarized as follows. (1) Re
firm controls certain unique resources that have
sources for in-company welfare are typically seen
been developed and accumulated over the firm's
as means to promote employees' work motivation
lifetime. As such, even within the same industry in
and commitment to the organization by providing
the same country, HRM would substantially differ
them with the relatively tangible things, which
from firm to firm. Such uniqueness of HRM
normally include provisions of housing (dormi
resources in the firm may be attributed to the
tory, company apartment, etc.), resort lodgings,
firm's peculiar culture and history. The third
medi-care services,
source of competitive advantage for MNC resides
loans, transportation,
at the affiliate level. This may occur because
cafeteria and so forth. (2) Resources for inducing
allowances
lunch,
(for
etc.),
housing
employee
affiliates alone have potentials for creating new
long-term commitment may also work to facili
HRM resources which may lead to durable eco
tate the employees' organizational commitment
nomic benefits by combining the parent HRM
by providing employees with employment secu
transferred
resource
rity and wage increases based on years of service.
Thus, HRM resources owned and controlled by
long-term employment and seniority-based per
with
indigenous human
Incentives used for this purpose may include
practices found in the host nation.
MNCs as a whole become differentiated depending
sonnel practices, retirement allowances, bonus
on the origin of resources: the national (Japa
nese), firm or affiliate origin. Within parent
systems, and so forth. (3) Resources for educa
firms, unique HRM resources will be accumulated
of learning opportunities within the workplace
through extensive interaction between the first two
that the firm can give employees to help them
levels, namely between resources rooted in cul
learn knowledge and skills for doing their jobs.
tural specificity (the national level) and organiza
tional specificity (the firm level). Accordingly, in
specific training, supervisory and managerial
this paper the home-derived HRM resources can be
training, on-the-job training (0JT) and so forth.
defined as an outcome of a combination of na
(4) Resources for on-the-job problem solving can
tional and firm specific practices for managing
be viewed as knowledge and skills that are avail
human resources that the multinational parent
able within the firm for solving problems associ
tional investment can be categorized as a variety
They may consist of introductory training, task-
ated
company has built up over its lifetime.
with
production
and
service
provision:
namely, shop-level skills for enhancing quality
HRM Resources Transfered to Japanese Aff i Iiates
and efficiency. These resources consist of special
Next, a brief review on what constitutes home-
ized knowledge and know-how for generating the
derived (Japanese) HRM practices is necessary
best practice solutions to production and quality
for building hypotheses. The previous studies on
management problems, including small group
Japanese-style human resource management in
(QCC) activities, improvement and suggestion
both domestic and foreign countries suggest that
(Kaizen) systems, off-the-job training (Off-JT),
there are, at least, four categories of home-derived
MBO practices, and so forth.
HRM practices that the most Japanese firms can
utilize for their international operations (e.g.,
Ill
sc
®Mnm$wmi^w,2-
m
Competitive Advantage in Overseas Operations
performance rated by self-report measures was
This paper presumes that the dynamic competi
positively correlated with the objective perform
tiveness created and promoted by people is the
ance indicators
truly sustainable source of competitive advantage
Powell, 1992).
(Dollinger &
Golden,
1992;
of the firm (e.g., Barney, 1991; Lado &Wilson,
In addition, how successfully affiliates are
1994). Effective management of local human
practicing HRM was assessed by two measures:
capital through successful transfer of core HRM
employee
resources may be the ultimate determinant of
Kimbara, 1991; Ohtsu et al., 1997). Namely, it is
organizational
performance and
survival
turnover
and
absenteeism
(e.g.,
for
assumed that if affiliate's HRM practices fit the
overseas affiliates. This will be more true to HRM
needs of employees, involving those of economic,
resources than physical capital.
job security and development, these practices will
The indicators of competitiveness for overseas
function to enhance employee job satisfaction,
Japanese affiliates should include the two aspects
organizational commitment and motivation to
of corporate performance: financial performance
work, and thus to reduce the employee turnover
(e.g.,
1996;
and absenteeism (Takeuchi and Wakabayashi,
Kimbara, 1991; Pucik, 1999; Snell & Youndt, 1995)
1999). In addition, successful socialization of
and behavioral consequences of the firm (e.g.,
employees by the work organization may discour
Kimbara, 1991; Ohtsu, Kumura & Nishida, 1997).
age their intentions
To measure financial performance of overseas
Watanabe, 1995). Thus, employee turnover and
operations, both objective (the ratio of profit to
absenteeism rates can be viewed as meaningful
Boliko,
1996,
1997;
Yoshihara,
to
leave
(Takahashi &
sales) and subjective (evaluation of corporate
indicators for assessing the degree of fit between
performance) indicators were considered. It is
the firm's HRM practices and the needs of employ
commonly accepted that the profit rate is used as
ees. Therefore, these two measures are regarded
an indicator for assessing financial performance
as behavioral consequences to be created by effec
of overseas
tive HRM practices of the firm.
affiliates
(e.g.,
Kimbara,
1991;
Yoshihara, 1996). Additionally, prior studies that
examined financial performance by the question
3. Hypotheses
naire survey method warned that the objective
The present study presumes that the four HRM
criteria (profit, sales, etc.) alone can not necessar
resources presented earlier may serve as rent-
ily capture the firm's actual state of performance,
yielding resources which directly contribute to
because asking to report exact objective figures
firm's profitability. In addition, the present study
may cause the sentiment of intrusion among
assumes that to make this contribution happen,
respondents, and thus causing a large number of
home-derived HRM resources need to be trans
missing values or false reports in the question
ferred to the overseas affiliates systematically,
naire (Boliko,1996, 1997; Yoshihara, 1996). There
starting from the basic to more instrumental
fore, for this study two different measures, rating
resources in an incremental manner. Specifically,
of the profit-rate range and subjective evaluation
on-the-job problem solving resource is expected to
of corporate performance, were employed as
be a central and most instrumental one that needs
indicators of corporate financial performance.
to be acquired through organizational learning by
Although a profit rate is considered objective, it
overseas affiliates. The problem solving resource,
may still remain subjective, since the rating is
in particular, serves a vital role in converting the
based on the self-reported profit rate ranges. Dess
individual knowledge into organizational one.
and Robinson (1984) suggested that, in the absence
For instance, the quality control circle (QCC)
of objective data, self-report measures constitute
activity is the one that facilitates such knowledge
conversion (e.g., Cole, 1994, 1999). First, the
improvement of the on-going operation process
an acceptable substitute, and are equally reliable.
Prior research also found that organizational
-112-
Strategic Transfer of HRM Practices for Competitive Advantage
for high quality production may originate from
impact on affiliate's
employee's ideas at the shop floor regarding the
positively,
way he/she solves operational problems effec- .
laborforce turnover rate and absenteeism.
and
thus
behavioral
function
to
consequences
reduce
the
tively, and eliminate 3Ms in his/her worksite,
i.e., Muri (overwork), Mura (unevenness), and
Muda (waste). Next, promising individual ideas
Hypothesis 2: Of the four HRM resources, transfer of
are discussed and analyzed with QCC members,
direct positive influence on affiliate's financial
and the feasibility of formal implementation is
performance
on-the-job problem solving resource will have a
assessed based on the rigorous quantitative analy
ses. Finally, selected methods are rapidly diffused
Hypothesis 3: The effect of on-the-job problem solving
to the whole organization through QC presenta
resource on firm's performance will be reinforced
tion, and applied to the company-wide practice
by functions of more fundamental HRM resources,
(e.g., Cole, 1994; DENSO's internal document;
Ishikawa, 1990). As such, an individual knowledge
consisting of educational investment, in-company
can be converted into the collective knowledge
overseas affiliates.
welfare and long-term commitment incentives in
(through small group activities), and eventually
into the organizational property (through QC
presentations).
Background variables associated with overseas
affiliates were treated as control variables for
Eventually, the problem solving resource would
testing the above hypotheses. According to the
generate rent (profit) for the firm in the form of
prior studies on international business (e.g.,
competitive edge in the market (Cole, 1994; 1999).
Schuler, Dowling, & De Cieri, 1993; Yoshihara,
In other words, the instrumental resource is most
1996), affiliate's organizational variables were
likely to yield rent, for it may directly contribute
chosen from both exogenous (e.g., regional char
to upgrading the product quality and reducing the
sources including the in-company welfare, long-
acteristics, industry, size, etc.) and endogenous
factors (e.g., business history, the percentage of
expatriate managers, etc.) Particularly, previous
term commitment
investment
studies (Bartlett and Yoshihara, 1988, Pucik, 1999;
may serve underpinning functions for the on-the-
Yoshihara, 1996) asserted that the delegation of
job problem solving activities. In essence, an
management authorities from the parent country
cost. On the other hand, other three HRM re
and
educational
acquisition of competitive advantage by foreign
national (PCN) to host country national (HCN)
affiliates can be best facilitated through transfer
or third country national (TCN) plays a signifi
ring the problem solving resource in proper com
cant role in explaining affiliate performance. This
bination with other HRM resources unique to the
delegation effect may be particularly true in the
parent firms. This view implies that to achieve
Japanese affiliates in the Chinese society (Gam
competitive advantage in their overseas opera
ble, 2000). Based on the ethnocentric (Heenan &
tions, Japanese parent firms may need to follow
Perlmutter, 1979) or exportive (Taylor et. al.,
the strategy of sequential HRM transfer by mobi
1996) approach, Japanese multinational corpora
lizing their home-derived HRM resources step by
tions in China tended to adopt staffing policies by
step from the basic practices to instrumental ones
which the parent management control is highly
to the foreign affiliates. Thus, the following three
exercised over affiliate business units by allocat
hypotheses can be developed regarding the strate
ing the large number of PCN managers to the key
gic role of HRM resources for enhancing overseas
positions in affiliate organizations. But, some
affiliate's performance.
Japanese MNCs have changed its HRM strategies
in China and Taiwan since 1980's.
Hypothesis 1: Transfer of the resources for nurturing
Theoretically, staffing policies of MNCs may
in-company welfare and long-term commitment will
shift from the ethnocentric (exportive) to the
113-
s
H^ai4l4^^15#^2J
m
polycentric (adaptive), and ultimately to the
Respondents were asked to check appropriate
geocentric (integrative) approach where the or
numbers in the answer sheet, and to return it
ganization ignores nationality in favor of ability,
through facsimile to the author's address in Ja
pursuing moderate local responsiveness and high
pan. In total, 294 out of 1796 sample affiliates sent
global integration of fur-flung operations
back the answer sheets. Finally, 286 responses
of
MNCs in a global economic arena (e.g., Dowling
were found available for the present analyses: 229
& Schular, 1990; Taylor et. al., 1996). This stream
from China and 57 from Taiwan. Thus, the usable
of literature indicates that as overseas affiliate
response rate for the Chinese^ and Taiwanese
firms accumulate their organizational experi
sample was 16.1 and 15.1 percent, respectively
ences and establish their business operations by
(15.9 percent in total). The relatively low response
shifting from the ethnocentric approach to the
rate may partially be attributable to using facsim
polycentric and geocentric ones, they become to
ile for data collection. This is considered to be a
develop absorptive capabilities for introducing
methodological limitation of this research. How
more instrumental HRM systems, and then estab
ever, the size of the data collected is still large
lish
enough to yield the reliable statistical outcomes
the
competitive
strength
(Botti,
1996;
Wakabayashi & Graen, 1991). Thus, based on the
when applying a multivariate analytical method
findings and insights drawn from the literature
for testing a set of hypotheses presented for this
review, the fourth and fifth hypotheses can be
study.
stated as follows.
Instruments
Hypothesis 4: The presence of non-Japanese (HCN or
Transfer of Home-derived (Japanese) HRM Re
TCN) managers in the overseas affiliate organiza
sources
tion will have a positive effect on affiliate's finan
A group of items concerning Japanese-style man
cial performance.
Hypothesis 5: Accumulation of organizational experi
agement involving human resources were identi
fied by
reviewing prior studies
(Abo,
1994;
ences (in terms of organizational age) by the
Ichimura, 1998; Sawaki, 1996; Suzuki, 1994a; 1994b,
overseas affiliate firm will have a positive effect on
Yamashita, 1991). For this study, 30 items pro
affiliate's financial performance.
posed by Sawaki (1996) were partially revised and
employed for the present questionnaire survey,
4. Method
Sampling and Data Collection
covering the four critical dimensions concerning
the Japanese HRM resources; namely, on-the-job
For the purpose of testing the above hypotheses, a
problem solving,
questionnaire survey was carried out with the
company welfare and incentives for long-term
educational investment,
in-
sample of Japanese affiliates operating in main
commitment. The questionnaire was designed to
land China (1,418) and Taiwan (378) in Septem
ask the Japanese overseas affiliates how they
ber, 1998. For this study, manufacturing and
practice each of 30 HRM items in Japan and
related industries with more than 30 employees
overseas by using the following four response
were sampled. The names and addresses of these
alternatives: (1) not implemented in either Japa
sample firms were derived from the corporate
nese parent or foreign affiliate, (2) implemented
data listed in Profile of Overseas Japanese Firms, 1998
in the Japanese parent, but not in the foreign
(Toyokeizai, 1998). For facilitating responses,
affiliate, (3) implemented in the foreign affiliate,
two sets of questionnaires were prepared: Chinese
but not in the Japanese parent, and (4) imple
(Mandarin) and Japanese version questionnaires.
mented in both Japanese parent and foreign affili
They were mailed to the sample firms in China
ate.
and Taiwan, asking either a Taiwanese, Chinese
For the present analysis, the lowest score ( = 1)
or Japanese CEO to make a response in each firm.
was assigned when respondents chose the second
114-
Strategic Transfer of HRM Practices for Competitive Advantage
alternative (implemented in the Japanese parent
but not in the affiliate), while the highest score
( = 3) was given when they chose the fourth alter
native (implemented in both Japanese parent and
foreign affiliate) in responding each HRM item
listed in the questionnaire. All remaining an
Affiliate's Organizational Characteristics
The eight variables corresponding to the affiliate's
organizational characteristics were introduced as
control variables for this study. These are Region
of affiliate's operation (REGION: China =1 and
Taiwan =0), Size of affiliates (SIZE: 300 or more
swers, choosing either the first or the third alter
= 3, 100 to 299 =2, and 99 or less =1), Industry type
native, both of which indicate "not implemented in
as a high-tech level (IND: electric, auto, machinery
the Japanese parent company" were assigned the
and related industries =3, chemical, metalwork-
middle value ( = 2). Accordingly, transformed
ing and related industries = 2, and other light
values were understood to mean that the higher the
industries involving textile and food processing
score, the more the HRM resources originating in
= 1), Ownership by Japanese Capital Investment Ratio
the Japanese parent firm get transferred to foreign
affiliates. On the other hand, when HRM items
(OWNERSHIP: over 50% by Japanese =1 and 50%
or less =0, Organizational Age (AGE: 10 years or
were found not implemented in the parent, the
more =3, 5 to 9 years =2, and less than 5 years
transformed score ( = 2) indicated that the affiliate
= 1), Ratio of Japanese expatriate managers (%JEX:
remained neutral regarding the transfer.
more than 2.30% =3, 1.00 to 2.29% = 2 and less than
1.00% =1. Cutting points for the %JEX variable
Affiliate's Performance
were adjusted to
As mentioned earlier, both financial and behav
groups), Nationality of general managers (GM NAT:
make roughly
equal
three
ioral aspects of affiliate's performance are consid
Japanese = 1 and others =0), and Nationality of
ered in the present study. Financial performance
personnel managers (PM NAT: Japanese =1 and
includes the. following two self-report variables: a
others =0).
profit rate (PROFIT) as an objective indicator and
an
evaluation
of
corporate
performance
Statistical Procedures
(EVALUAT) as a subjective one. The PROFIT
Initially, a factor analysis with 30 items on the
was asked as a ratio of profit to total sales in the
HRM resource transfer was carried out to explore
affiliate with a 5-point scale, ranging from u5 %
basic dimensions associated with the transfer of
or more" ( = 5) to "less than 5 %" ( = 4), "0%"
Japanese HRM resources. Secondly, a correlation
( = 3), "0% to -5%" ( = 2), and "-5% or less"
analysis was attempted to explore the pattern of
( = 1). The EVALUAT was tapped by a 6-point
relationships among all variables used for the
scale in which respondents were asked how they
study. Thirdly, multiple regression analyses were
perceived performance in terms of profitability
conducted for testing the hypotheses of this study.
and growth, ranging from "rapidly growing"
Finally, a path analysis based on a series of
( = 6) to "growing" ( = 5), "omewhat growing"
( = 4), "in the state of plateau" ( = 3), "declining"
regression analyses was attempted to test if the
( = 2), and "totally declining" ( = 1).
four HRM resources upon financial performance
Behavioral consequences of the affiliate organi
hypothesized pattern of effects is at work among
in overseas Japanese affiliates.
zation included two aspects of the HRM outcomes:
employee's turnover (TURNOVER) and absentee
5. Results
ism (ABSENT). The TURNOVER was measured
Factor Analysis
in terms of an annual average percentage of volun
For the purpose of identifying basic dimensions of
tary quits to total number of employees. The
transferable HRM resources to the overseas Japa
ABSENT was evaluated as an annual average
nese affiliates in China and Taiwan, a factor
percentage of a number of absentees to
analysis was conducted on the thirty-item HRM
employees in the affiliated firm.
total
transfer instrument. As shown in Table 1, the
115-
m
m
gSff»»5**l5«*2^
factor analysis done by using a principle compo
nent technique with an Equiamax rotation pro
comprises of the eight items including; installa
tion of company housing or dormitory, cultural
duced six factors. Previous statistical research
and athletic activities, and so forth. These are
(e.g., Nunnally, 1978) asserted that when using the
HRM assets that Japanese firms traditionally
Cronbach's alpha coefficient as an index for
maintained for employees to strengthen social
relations with their work organization and among
assessing internal reliability of the scale, the
lower acceptable limit would range from .50 to
themselves. The reliability coefficient for this
.60. In Table 1, the alpha coefficients for the fifth
factor showed a =.60. The fourth factor named
and sixth factors with alpha .47 and .40, respec
long-term commitment incentives contains the
tively, failed to reach this criterion level. Thus, the
seven items, including long-term employment,
7 items corresponding to these two factors Were
seniority-based promotion and wage increases,
excluded
from
the
scale
construction.
Conse
retirement allowance systems and so forth. These
quently, the following four dimensions were used
items can be regarded as incentives most Japanese
for constructing HRM transfer scales.
firms have long utilized for facilitating the em
According to Table 1, the first factor named the
educational investment resource consists
of
four
items with sufficiently high internal consistency
ployees' long-term commitment and contribution
to the firm. A reliability coefficient for this factor
was found a =.50.
(a =.67,), involving: training for entry level
In summary, based on the factor analysis the
employees, on-the-job training (OJT), task-based
four basic dimensions associated with the transfer
training and hierarchical education. These items
of home-derived HRM resources from Japan to
are closely associated with the training and devel
overseas were identified as resources for: educa
opment programs which are emphasized in al
tional investment (EDUC), on-the-job problem
most all Japanese corporations
kyouiku-
solving (SOLV), in-company welfare (WELF)
kunren (education and training) for employees.
and long-term commitment (COMM). An aggre
as
These education-related resources may
imply
gate of item scores comprising each factor was
common and basic training rather than the spe
utilized as a scale for the further analyses. Means
cialized one in the firm's training system. The
of EDUC, SOLV, WELF and COMM for all sam
second factor named on-the-job problem solving
ples were found to be 2.37, 2.18, 1.70 and 2.23,
resource includes the following four items: man
respectively, indicating that the educational in
agement by objectives (MBO), the suggestion
vestment resource tends to be more transferred
system, QC circle activities and off-the-job train
from the Japanese parent to the foreign affiliate,
ing (Off-JT). These items are concerned with
while the in-company welfare resource less trans
aspects of TQM
ferred. Additionally, when comparing means
(total quality management)
typically seen in Japanese manufacturing corpo
between Taiwan and China, resources involving
rations. These items should constitute key HRM
on-the-job problem solving (2.43 vs. 2.12, t=3.51,
resources, since they can provide tools for solving
p<C001) and long-term commitment (2.55 vs. 2.15,
production and quality management problems,
t = 6.68, p<.001) were found more transferred to
through employees participation in cost saving
Japanese affiliates in Taiwan than those in China.
and quality improvement activities at the shop
The higher level of HRM resource transfer to
floor level (Cole, 1994). The reliability coefficient
Taiwan than to China may reflect the longer
of this scale was found to be a = .63. The third
history of Japanese business presence in the for
factor named the in-company welfare resource
mer.
116-
Strategic Transfer of HRM Practices for Competitive Advantage
Table 1.
Result of a factor analysis conducted over 30 items of the HRM resource transfer based
on the Chinese and Taiwanese samples (N = 286)
Fl
F1: Educational Investmdnt
a
F2
F3
F4
F5
F6
h2
= .6
Introductory training
.63
.07
.07
-.17
.03
.19
.47
OJT
.56
.39
-.08
-.08
-.05
.23
.53
Task-based training
.55
.27
.04
.02
.33
-.10
.50
Supervisory Training
.50
.25
.17
.21
.40
-.12
.56
F 2 : Problem Solving
a = .63
MBO
.00
.69
.10
.10
.08
.20
.53
Suggestion system
.11
.64
.17
-.03
.09
.00
.46
QC circle activities
.18
.53
.32
.02
.22
-.07
.47
Off-JT
.36
.52
-.09
.12
.06
.07
.43
.43
F 3 : In-company Welfare
In-company housing or dormitory
a =.60
.10
-.23
.53
-.08
.06
.27
-.11
.03
.52
.29
.07
-.19
.41
Annual recruitment practice
.11
.15
.51
-.30
.24
.28
.53
In-house newsletters
.10
.22
.47
-.01
.13
.03
.30
In-house cultural activities
.31
.18
.47
.05
.12
-.21
.41
In-house athletic meet
.37
.09
.45
.15
-.01
.11
.38
-.01
.11
.44
.14
-.22
-.03
.28
.05
-.01
.37
-.19
.18
-.10
.22
Employee stock holding system
Housing loan
Morning meeting
F4 '.Long-term Commitment Incentives
Long-term employment
a =.50
-.10
.17
-.07
.62
.12
-.07
.45
Seniority-based practice
.12
.01
.09
.50
.28
.13
.37
Recreational trip
.04
-.18
-.10
.47
.14
-.01
.28
Season's recreational party
.12
.08
.10
.44
.04
.23
.28
-.17
-.22
.24
.28
.42
Retirement allowance system
.13
.32
-.14
.40
Symbolic egalitarianism
.55
-.10
.17
.40
Seasonal vacation
.03 '
-.20
.02
.40
-.38
.45
.13
.55
a =.43
F5
Annual salary system
-.23
.08
.01
.09
.60
.02
.43
Promotion practice
.38
.04
.10
.06
.50
.09
.42
Job rotation
.11
.09
.16
.22
.46
.02
.31
.34
.19
.29
Personnel assessment system
.07
.33
-.16
.07
-.02
.20
-.22
.15
.19
.59
.14
.17
.03
.02
-.26
.59
.46
.12
.56
.34
1.80
1.73
9.46
a =.41
F6
Bonus system
Open room office design
Uniform supply
Variance Explained
.08
-.04
.03
.03
2.67
2.34
2.28
2.16
-117-
.50
bc
e»?T»*4¥*15*»2
m
-*?
Correlational Analysis
transfer on business performance in the overseas
Before conducting hypothesis testing, correla
affiliates.
tional patterns among all variables used for the
Secondly, Table 2 shows that the four HRM
study as shown in Table 2 need to be explored.
resources tend to show negative associations with
Findings from Table 2 can be summarized as
of HRM resources, namely EDUC, SOLV, WELF
the ratio of Japanese expatriate managers
(%JEX), and nationality of the general (GM
NAT) and personnel (PM NAT) managers.
and COMM, are all correlated with each other
Namely, the affiliates led by PCN (Japanese)
significantly and positively. This clearly indicates
managers are less likely to transfer and imple
follows. First, it should be noted that the four sets
that there are interdependent relations taking
ment the Japanese origin HRM resources. This
place among four HRM resources in the process of
finding suggests that localization of managers is
transfer from Japanese parents to overseas affili
one of the important determinants for facilitating
ates. Four resources are mutually interrelated
transfer of home-derived HRM resources among
within the firm, but should be seen as relatively
Japanese firms in China and Taiwan. This raises
independent each other, since the level of inter-
a concern that an ethnocentric staffing policy that
correlations is low: mostly less than r=.33. An
permits a large number of PCN managers to be
implication of this finding is that these home-
allocated to the managerial positions in overseas
derived HRM resources may not work quite inde
affiliates may actually delay the process of trans
pendently, but should function as elements within
ferring strategically important HRM resources
the integrated affiliate's HRM system. The exact
from Japanese parents to overseas affiliate firms.
relationships among four HRM resources should
Thirdly, as shown in Table 2, out of the four
be explored by using regression and path analyses
HRM resources, problem solving (SOLV) was
designed for examining the effect of HRM resource
found to have most significant and
Table 2.
positive
Correlation Matrix among HRM Resources, Affiliate's Characteristics and Affiliate's
Performance
10
1
11
12
13
14
15
Transfer of HRM Resources
1 EDUC
2 SOLV
.50"*
3 WELF
.32***
.33 "*
-
4 COMM
.20"
.29 "*
.15*
Affiliate's Charcterisatics
.11
.37"*
6 SIZE
.23***
.21-
.33"*
.10
.09
7 INDUSTRY
.18"
.12*
.13*
.04
-.02
5 REGION
-.03
8 OWNERSHIP -.06
-.21**
-.06
.11
.14*
-.10
.18"
.00
-.03
-.18"
.29**-.58"* -.03
-.06
.06
9 AGE
-.07
10%JEX
-.10
-.17" -.37*"
.01
11 GM NAT
-.05*
-.20" -.14*
.20"
.17"
12 PM NAT
-.10
-.12*
.26*"
-.16"
-.06
-.52"'-.04
-.05
.16"
.08
.05
-.05
.31"* -.11
.20"
.11
-.04
-.10
.31"* -.09
.31"*
.28"*
Affiliate's Performance
23"* -.20" -.22"*-.13*
13 PROFIT
.08
.27*"
.07
.19" -.11
.05
.08
-.10
14 EVALUAT
.06
.17"
.18"
.01
-.02
.12*
-.03
-.09
-.01
15 TURNOVER
.02
.05
-.02
.10
-..07
.05
-.09
.05
.01
16 ABSENT
.10
.10
-.10
.09
-.22*"
.11
-.04
.04
.14*
*p<.05, "p<.01, "*p<.001
118-
-.27"*-.15*
.05
-.07
-.16"
.57*"
.09
.05
- .05
- .06
.14*
.00
-.07
-.12
.21*
Strategic Transfer of HRM Practices for Competitive Advantage
correlations with both objective (PROFIT) and
subjective (EVALUAT) measures of affiliate's
like conditions in local labor market and wage
levels in addition to those used for the present
profitability. Namely, the problem solving re
analysis.
source that contains practices of MBO, QC circle
Secondly, as shown in the second column in
activities, suggestion and improvement (Kaizen)
Table 3, employee absenteeism (ABSENT) was
systems, and Off-JT is likely to be a key HRM
found significantly and negatively affected by
input to generate higher financial performance for
transfer of the welfare resource (WELF: fi = —.18,
the affiliates in China and Taiwan. Moreover, two
p<.05) with producing a significant incremental
effect (ARh-2) =.022, p<.05). In other words,
profitability measures (PROFIT and EVALUAT)
were found to have significant and negative asso
transferring the in-company welfare resource
ciations with the ratio of Japanese expatriate
uniquely contributed to the reduction of employee
managers (%JEX), nationality of the general
(GM NAT) and personnel (PM NAT) managers.
absenteeism in overseas affiliates in China and
Taiwan. This finding is consistent with Hypothe
In other words, highly localized Japanese affili
sis 1. Moreover, ABSENT was found significantly
ates that also implement SOLV practices in China
influenced by other variables, negatively by RE
and Taiwan tend to have superior business per
business performance correlates with the degree of
GION (£ = -.23, p<.01) and positively by GM
NAT (0 = -.20, p<.01), indicating that affiliates
in "China" with "non-Japanese" (Chinese) gen
transfer of Japanese-style problem solving re
eral managers tend to have lower employee absen
sources essential for the quality production and
teeism. Overall, 12 independent variables
services, combined with the localization of man
combined could account for 9.7% of total variation
formance. These results suggest that affiliate's
all
agement functions. The other aspects of affiliate's
in absenteeism (R23 =.097, p<.001). Obviously,
performance including TURNOVER and
inclusion of more relevant variables (job atti
AB
SENT, however, failed to show statistically sig
tudes, personal characteristics, and so forth) is
nificant associations with the four HRM transfer
desired to better explain employee absenteeism in
measures.
Japanese overseas affiliates.
Regression Analysis
ioral performance indicators was found not ex
Determinants of Behavioral Consequences
plained significantly by the transfer of home-
In summary, the turnover rate as one of behav
Hypothesis 1 states that the transfer of resources
derived HRM resources, although one HRM vari
for in-company welfare and long-term commit
able (COMM) showed the predicted effect. The
ment will enhance behavioral consequences in
other aspect of behavioral outcomes, employee
foreign affiliates, and thus have positive effects on
absenteeism was found reduced by the transfer of
reducing laborforce turnover and absenteeism.
in-company welfare resource from the Japanese
The first column in Table 3 shows that TURN
parent. These findings partially support Hypothe
OVER is significantly and negatively affected by
sis 1 predicting the positive contribution of trans
COMM (£ = -.15, p<.05), indicating that the
fer of in-company welfare to turnover and absen
more the long-term commitment resource being
teeism reductions (behavioral outcomes). How
transferred to the overseas affiliates, the lower the
ever, the weak explanatory power of the predictor
turnover rate. Although this finding is congruent
variables in Table 3 in terms of R squares may
with Hypothesis 1, the overall regression failed to
indicate that employee's turnover and absentee
reach the statistically significant level with ad
ism must be explained by introducing other fac
justed R23 = .010 (p>.05). This result indicates
tors which are more relevant to these phenomena.
that the turnover rate among Japanese affiliates
For example, local economic conditions, struc
sampled for the present study must be explained
ture of labor market, wage levels, employees'
by considering other more influential variables
work attitudes, personal characteristics, and so
119-
esults of the hierarchical regression analyses on affiliate's performance and the transfer of HRM resources
Behavioral Consequences
TURNOVER
Y
ABSENT
.01
.02 (1.23)
.20
.08 (1.51)
.13
.08 ( .80)
.00
.04 ( .78)
.01
.00 (1.30)
.06
.11 ( .58) t
.08
.07 ( .80)
.23
.15 (1.63) t
0
0
(SE)
T
(SE)
T
(.47) **
0
.05
Financial Performance
PROFIT
.26
.12
-.05
.08
(.30) t
.097
T
(.26)
EVALUAT
0
-.03
-.02
(.13)
-.07
(.09)
-.02
(.20)
(.12) ***
(.13) **
(.24) *
(.19)
.00
-.20
-.06
-.07
.112
(.43) *
(.40)
.099
.009
-.05
(SE)
T
.08
-.04
(.14)
WELF
(SE)
.01
(.26)
.21
(.13)
.08
(.09)
.02
(.20)
.16
(.12)
(.13) **
.20
.10
(.24)
.06
(.19)
T
0
Transfer of HRM Resources
COMM
(SE)
-.27
(.07)
(.03) **
(.02)
.08
.03
.08
(.06)
(.03) *
(.03) **
(.06) t
.11
.01
.06
.18
(.05)
.185
.061
(.24)
-.08
(.22)
.115
T
(.07) ***
(.03)
0
.14
EDUC
.02
(.03)
-.12
.14
-.12
-.02
T
(.10)
S
0
.14
(.05) ***
(.04) t
.08
.01
(.08)
.04
(.05) t
.06
(.05) *
(.09) *
(.08)
.03
.08
.02
.089
.1
(.09) ***
(.09) **
(.16)
.17
.12
.39
.074
.000
(.16) ***
(SE)
-.04
.24
.10
(.03)
(.06)
(.04)
(.07)
(.06) **
.190
.22
(.23)
.18
(.22)
.163
.061
.003
.24
(.29)
-.002
.001
.010
(SE)
.14
.09
(.23)
.08
(.17)
.00
(.37)
(.22)
.22
(.23) t
(.43) ***
.03
(.35)
.076
.004
-.18
.01 (1.50)
.13
.02 (1.05)
.15 (1.41) *
.024
.005
.05
.08 (1.02)
)
***
.3
***
.1
(.16) *
.071
.151
.036
.010
%, and R23 denote the adjusted R square generated by the first-, second-, and third-step regressions, respectively.
-2) — R 2 — R 1. Ai? (2-3) = R 3 ~~ R 2.
0, p<.05, "p<.01, ~p<.001.
Strategic Transfer of HRM Practices for Competitive Advantage
forth are expected to account for the turnover
general manager positions (GM NAT) showed
behavior more effectively. Therefore, even if effec
significant and negative influences on PROFIT,
tive HRM systems were successfully transferred to
with the beta coefficients being —.22 (p<.01) and —.
the overseas affiliate, the macro- as well as micro-
12 (p<.05), respectively. The variable, %JEX,
level variables as discussed above might ulti
also showed a
mately come to determine the turnover and absen
EVALUAT on the fourth column regression (0 =
similar pattern of effects on
teeism behaviors. Moreover, prior research re
- .20, p<.01). In other words, these results suggest
ported that the young Chinese are mobile, and
that the localized affiliates in terms of the ratio
voluntary quitting behavior is currently very
and the presence of "national" managers are
common among them, thus making the turnover
likely to enjoy superior financial performance.
rate different among firms depending on the
This is consistent with Hypothesis 4 that predicts a
average age of employees in the firm (NIRA,
positive association between the presence of non-
1997). In conclusion, transfer of HRM resources,
Japanese (HCN or TCN) managers and affiliate's
although it is meaningful, may not solve behav
financial performance.
ioral outcome problems sufficiently by itself in the
Furthermore, as predicted by Hypothesis 5,
overseas Japanese affiliates in China and Taiwan.
organizational age (AGE) affected PROFIT sig
Determinants of Financial Performance
column regression (y5=.26, p<C001). These re
nificantly and positively, as shown in the third
The third and fourth columns in Table 3 display
sults may suggest that as the overseas operational
results of regression analyses conducted for pre
experiences got accumulated in one geographical
dicting the profit rate (PROFIT) and subjective
area, stock of qualified local managers would
evaluation
develop and become to fill up to top management
of
affiliate's
performance
(EVALUAT), respectively. Findings from these
positions in foreign affiliates. Under these circum
analyses can be summarized as follows. First, as
stances, management authorities will' be dele
predicted by Hypothesis 2, transfer of on-the-job
gated from Japanese parent firms, making local
problem solving resource (SOLV) showed signifi
managers easier to manage local business and
cant and positive impacts upon both the objective
human resources for high performance.
measure (PROFIT: 0 =.24, p<.001) and the sub
The overall contribution of all independent
jective rating (EVALUAT: 0 =.14, p<.05) of
variables combined reached adjusted R22 = .151
affiliate's financial performance. These results
(p<.001) for PROFIT and R2z = .071 (p<.001) for
indicate that out of four HRM resources, transfer
EVALUAT. These findings indicate that consis
of the problem solving resource has most signifi
tent with Hypothesis 2, 4, and 5 for the present
cant positive effects on affiliate financial out
study, transfer of on-the-job problem solving
comes. In addition, the increment made by SOLV
resource, managerial localization in terms of
in terms of an adjusted R square reached Ai?2(2-5)
nationality of local managers, and the accumula
=.036 (p<001) for PROFIT and AR\2-3) =.010
tion of organizational experiences, respectively,
(p<.05) for EVALUAT, indicating that transfer
plays an important role in explaining the affili
of the SOLV resource had an independent and
ate's financial performance. Moreover, the pre
significant effects upon both objective and subjec
sent findings suggest that the problem solving
tive measures of the affiliate's financial perform
resource which has a direct relevance to the cost-
ance beyond the effect of all other variables com
saving and quality production processes in the
bined in the regression. This finding gives a strong
firm constitutes a core aspect in an affiliate's
support to Hypothesis 2 of the present study.
HRM resource system for facilitating firm's
performance in overseas operations at least in
Second, it was found that as predicted by Hy
pothesis 4, the ratio of Japanese managers in
China and Taiwan.
overseas affiliates (%JEX) and occupancy of
However,
121
what
is
left
unexplored
is
the
«s?fmn^mi^m 2 ^
m
mechanism by which a set of HRM resources are
combined into an effective human resource system
4.50 \
that confers a competitive strength to the firm. In
other words, a research question still remains
Transfer of
COMM
4.25
regarding how the four HRM resources can be
combined systematically to be capable of generat
H
4.00 -
ing positive financial outcomes in overseas opera
o
tions. Theoretically speaking, the mere transfer of
£ 3.75
the on-the-job problem solving resource, when
isolated from other bundles of HRM resources,
3.50 -
may not yield high profitability (Cole, 1994). To
answer this question, a series of two-way ANOVA
3.25
L
tests were conducted to examine the pattern of
effects between problem solving and other re
Two-way ANOVA result:
source factors upon affiliate business perform
For the whole model, F = 486.82, p<.001,
Effect of SOLV, F = 3.40, p<.05,
Effrct of COMM, F = 7.42, p<.01, and
Interaction effect, F = 2.62, p<.10.
ance.
Figure 1 shows the result derived from a two-
way ANOVA test conducted by crossing the SOLV
factor (high vs. low) with COMM (high vs. low)
for testing effects of these factors on PROFIT. The
ANOVA test produced statistically significant F
H
Transfer of SOLV
Note: H and L represent the high and low groups for each
factor, respectively.
Figure 1. Effects of problem solving (SOLV) and
long-term commitment (COMM) resources
upon the profit rate (PROFIT) of Japanese
ratios for main effects of SOLV and COMM: F
affiliates in China and Taiwan.
= 3.40 OC05) andF=7.42 (p<.01), respectively.
The result also indicates that the highest profit
note that major functions in overseas affiliates
ability score is benchmarked in a combination of
may not be in reducing turnover and absenteeism
high-SOLV and high-COMM (mean = 4.44), while
rate, but in facilitating the SOLV resource to
the lowest is in the low-SOLV and low-COMM
produce a stronger instrumental effect on finan
combined (mean = 3.44) with a trend of an interac
cial performance. Then, the next question is to
tion term CF=2.62, £<.10) being created between
explore how high performing Japanese affiliates
them. In this case, it appears that transferring the
in China and Taiwan manage to combine the
problem solving resource to the affiliates with
problem solving resource with other resource
enough resources for long-term commitment may
bundles for assuring high financial performance
result in the superior financial performance. The
of the firm.
similar additive pattern of effects was found
between SOLV (F=4.47, £=.05) and EDUC (F
HRM Path to Affiliate's Performance
= 2.33, /><.10) resources, indicating that the prob
Results of regression analyses on affiliate's per
lem solving resource, when combined with the
formance demonstrated that out of four HRM
educational investment resource, tends to produce
resources, the transfer of on-the-job problem
superior performance consequences in overseas
solving resource including MBO, QC circle activi
manufacturing activities. No significant interac
ties, Kaizen systems and off-the-job training (Off-
tion effect was found between them (F = 2.84, n.s.).
JT) had direct effects on affiliate's performance,
These results clearly suggest that the fundamental
especially on financial performance (PROFIT and
HRM resources, particularly COMM and EDUC,
EVALUAT). However, results of ANOVA shown
need to be matched with the SOLV resource for
in Figure 1 suggested that on-the-job problem
generating higher profit.
solving resource is not the only source of produc
Based on the above results, it is interesting to
ing
122-
high
business
performance
in
overseas
Strategic Transfer of HRM Practices for Competitive Advantage
Japanese affiliates. As predicted in Hypothesis 3,
alone can not become the direct source of profit-
the effect of on-the-job problem solving resource
making in overseas Japanese affiliates. Rather, it
on affiliate's performance will be strengthened by
serves as a catalyst HRM resource by which the
the effects of other HRM
resources.
In
other
more instrumental problem solving resource can
words, affiliate firms would not be able to gener
get energized for achieving high performance. In
ate maximum
this respect, these two HRM practices may consti
performance
outcomes,
unless
whole sets of HRM resources were transferred
tute core resources as a set for Japanese affiliates
systematically and reorganized to reinforce each
to outperform competitors through HRM in over
other within an integrated system. These insights
seas operations.
necessitate the further exploration on the mecha
Secondly, the significant paths which link the
nism of performance functions of the HRM re
in-company welfare (WELF) and commitment
source system and its strategic transfer to over
(COMM) resources with the educational resource
seas affiliates.
were confirmed. These two fundamental
Based on the regression results in Table 3, a
path analytical diagram was designed. Initially,
HRM
resources were found to facilitate the function of
the educational resource (0 =.18, £<.01 and 0 =
all possible paths to PROFIT were identified by
.22, £<.001, respectively), and at the same time
interpreting statistically significant 0 weights
reinforce that of the problem solving resource
presented in Table 3. Next, paths to transfer of the
significantly (£=.12, /K.05 and 0 =.17, /><.01
problem solving resource (SOLV) were confirmed
respectively). In other words, transfer of these two
by regressing SOLV to all other independent
basic HRM resources helped promote the function
variables. Thirdly, the remaining three HRM
of education and training systems which enabled
resources (WELF, COMM, and EDUC)
were
subject to explanation by regressing each one on
on-the-job problem solving practices to work
effectively in overseas affiliates.
all background variables. Then, significant 0
Thus, all these findings combined give support
coefficients atthe/><C05 level were interpreted as
to Hypothesis 3 that states the transfer of basic
linkages that comprise a path diagram of HRM
HRM resources, covering educational investment,
transfer as shown in Figure 2. Figure 2 highlights
in-company welfare and long-term commitment
the path diagram for explaining PROFIT. Similar
resources, works for underpinning
results were confirmed for the other measure of
problem solving activities. Again, this result
financial performance, EVALUAT. Based on this
clearly indicates that the problem solving resource
on-the-job
diagram, the following two findings can be dis
alone would not fully function to yield rents,
cussed in detail, regarding the pattern of interde
unless other underpinning HRM resources were
pendence among four HRM resources and its
simultaneously transferred and became embedded
effects upon affiliate's financial performance.
in affiliate's organizational structure in a system
First, a path was found bridging the effect of
atic manner.
Contrary to the positive relationship found
educational investment with that of the problem
solving resource to the performance variable.
between HRM resources and financial perform
Namely, transfer of the educational resource was
ance, it was found in Figure 2 that variables
found to have a significant and positive contribu
associated with the ethnocentric staffing policy
tion to the function of on-the-job problem solving
pursued by Japanese firms in overseas operations
resource (/3=.39, p<.001), which directly im
produced
pacted on the profit rate ( 0 =.24, p<.001). As
Namely, whether the nationality of managers is
Japanese or not (GM NAT and PM NAT) and how
large the ratio of Japanese expatriates to total
employees (%JEX) were found all negatively
affecting performance except for the effect of
such, transfer of the educational resource played a
vital role for the problem solving resource to exert
its positive impact on performance. It is, however,
important to note that the educational resource
123 -
negative
effects
on
performance.
«EifiB*¥*i5#s&2^
J!
%JEX upon the educational resource. In particu
provide evidence to the negative effect of Japanese
lar, GM NAT (general manager's nationality)
excessive management control upon affiliate's
was found negatively affecting the educational
financial performance.
resource transfer (0 = —.12, £<.05) and the profit
rate ( 0 = - .12, p<.05) in overseas affiliates,
indicating that overseas affiliates
with
local
6. Discussion
Figure 3 summarizes mechanisms for achieving
(non-Japanese) general managers are more likely
high business performance by overseas Japanese
to transfer the educational resource
affiliates through transfer of a set of home-derived
from
the
Japanese parent, and to achieve a higher profit
HRM resources. As shown in the diagram, the
rate. The variable, %JEX, showed a similar
HRM resource system in overseas Japanese affili
pattern of effects over in-company welfare ( # =
ates was found to have a hierarchical structure.
- .20, p<M) and the profit rate ( 0 = - .22, p
<.01). This result again shows that the absence of
becomes to be influenced by the three underpin
Japanese expatriate's dominance may lead to
ning HRM resources, i.e., in-company welfare,
First, performance of overseas Japanese affiliates
more transfer of HRM resource that produce
long-term commitment and educational resources
higher economic performance. The implication of
transferred from the parent firms. Second, these
the above findings may be that the highly localized
HRM resources enable the overseas affiliate to
Japanese affiliates in China and Taiwan are likely
acquire capabilities to incorporate the more
to have more home-derived HRM resources and
instrumental HRM resource, namely on-the-job
enjoy higher performance relative to the less
problem solving resource, which will directly
localized ones in terms of nationality of managers
contribute to the high-quality and cost-saving
and percentage of Japanese expatriates. These
production in overseas affiliates. Thus, it is im
results do not merely provide evidence to the
portant for Japanese firms to make a strategic
criticism toward the ethnocentric staffing policy
decision for the systematic transfer of home-
by Japanese firms, but also more interestingly
derived HRM resources to their overseas business
Input Factors
Affiliate's
Characteristics
Fundamental
HRM Resources
AGE
Commitment
Incentives
Outcome
Instrumental
HRM Resource
Long-term
SIZE
Affiliate's
Problem
>( Performance
Solving
(Profit Rate)
PMNAT
.12 ^ '
GMNAT
-.22
->• Positive effect
%JEX
-> Negative effect
Figure 2. The path analytical diagral for affiliate's performance (profit rate) and human
resource management in overseas Japanese affiliates
124-
Strategic Transfer of HRM Practices for Competitive Advantage
units, from the basic educational to more instru
called laborforce management functions,
are
mental resources. For this purpose, the present
likely to be transferred and developed at the ear
study suggests the three-phased, sequential proc
lier stage in overseas operations lead by PCN
ess of transferring home-derived HRM resources
(Japanese) expatriate managers.
Practically,
to overseas affiliates for achieving high business
PCN managers responsible for constructing the
performance. Based on Figure 3, the strategic
basis to develop laborforce management functions
transfer process of HRM resource to the overseas
at the initial stage of their overseas operations.
affiliates by Japanese firms can be summarized as
Second Phase: Strengthening
Education and
Training Functions. The second phase for trans
follows.
Initial Phase: Enhancing Employee's Organiza
ferring HRM practices to overseas affiliates is to
tional Commitment. The initial phase for trans
strengthen education and training functions by
ferring HRM systems to overseas affiliates is to
introducing the HRM resources that promote
shift resources for enhancing local employee
introductory training, OJT, supervisory training,
commitment to the affiliate
and so forth. Namely, as the laborforce manage
organization by
providing employees with in-company welfare
ment functions are strengthened through
and long-term commitment incentives. These two
preceding phase, the focus of transfer shifts to
the
may work as fundamental resources on which the
wards cultivating the local personnel to become
other more instrumental HRM resources can be
competent workers, supervisors and managers in
built for generating high business performance in
the affiliate organization. The clear difference
the overseas affiliates. The transfer of in-company
between the educational and problem solving
welfare which includes relatively tangible re
resources can be seen depending on the differential
sources was also found to help reduce employee's
degrees of the firm-specific nature of these re
absenteeism as shown in Table 3. Additionally,
sources. Namely, resources associated with the
transferring the long-term commitment resource
educational function may include those for the
typified by relatively intangible resources such as
entry-level employee training, OJT, supervisory
lifetime employment, seniority-based personnel
training, and task-based training which are ori
practices and a retirement allowance system was
ented toward providing knowledge or skills to
found to reduce employee turnover. These HRM
help employees do their routine tasks. On the other
resources may function to enhance employee's
hand, resources related to on-the-job problem
attitudes toward the job and organization, and
solving that include MBO, QC circle activities,
contribute to improve behavioral outcomes of the
suggestion systems and off-the-job training, are
firm. As pointed out by Cole (1994) based on the
directed
theory of organizational learning, turnover is the
knowledge or skills for solving problems on the
toward
providing
more
specialized
enemy of quality since it involves the loss of or
job for the purpose of quality improvement and
ganizational memory. There needs to be ample
cost
time for employees to build networks for sharing
sources which are more firm-specific in nature,
reduction.
Unlike
these
instrumental
re
information and learning from one another.
the educational resource is considered more gen
However, the issue is not the length of service
eral, and may not contribute to yielding rents
itself, but the capability of building organiza
directly. However, educational resource enables
tional structure that sustains the organizational
affiliate firms to build their absorptive capacities
learning process. In this context, transfer of these
of knowledge and information leading to an
two underpinning resources constitutes the foun
incremental innovation and shop-floor problem
dation for introducing more instrumental HRM
solving. In summary, the educational resource is
resources, i.e., educational and on-the-job prob
the latent source of competitive advantage in
lem solving ones. Moreover, Yoshihara et. al.
overseas Japanese affiliates, while the problem
(1988) noted that these underpinning functions, so
solving resource being a
125-
more salient one.
is
m
gSff»»S**l5«JI£2-
Moreover, Yoshihara et. al. (1988) pointed out
suggestion and improvement (Kaizen) systems,
that when the overseas operations are developed
and Off-JT. As pointed out by Cole, this core HRM
resource constitutes the heart of organizational
beyond a certain degree, the size of production
becomes expanded, and thus the affiliate organ
learning and help yield the valuable return to the
izational system becomes more bureaucratic.
firm. According to him, the above-mentioned
They said this is the point where the delegation of
problem solving activities help develop organiza
management authorities may start, shifting from
tional capabilities for implementing rent-yielding
the PCN managers who contributed to laying
programs through the creation of best-practice
local
solutions to organizational problems and their
managers who have been nurtured to succeed their
rapid diffusion within the firm. This mechanism
managerial positions. Thus, cultivating the com
enhances
petent local personnel through transferring educa
through the rigorous individual learning and the
tion and training resources to the overseas affili
subsequent sharing of the learnt knowledge in the
ates becomes critical in this phase where the
group context. In other words, the transfer of
down the organizational foundation to
organizational
learning
to
evolve
affiliate firms start to expand their operational
problem solving resource may help enlarge organ
and organizational capacities.
izational adaptability and thus capability for
Solving
knowledge acquisition in the overseas affiliate.
Resource for Cost and Quality Management. The
Once this learning mechanism is successfully
Third
Phase:
Introducing
Problem
last phase for achieving competitive edge in over
transferred and organizationally embedded in the
seas affiliates through HRM is to facilitate cost
foreign affiliate, it may function to boost perform
and quality management functions by transfer
ance. Again, it should be noted that the successful
ring the HRM resource for on-the-job problem
transfer of the three basic HRM resources must
solving that includes the MBO, QC circle activities,
precede in order to make this final phase transfer
[Outcome]
Affiliate's Performance
Problem Solving
QC Circle Activities
Suggestion and Improve
ment System
[Throughput]
Off-JT
MBO
Long-term Commitment
In-compamy Welfare
[Input Factors]
Provison of Corporate Housing
Employee Stock Holding Sys
tems
Cultural/Athletic Activities
Housing Loan
Educational Investment
Introductory Training
OJT
Supervisory Training
Task-based Training
Incentives
Lifetime Employment
Seniority-based Promotion
Retirement Allowance System
Symbolic Egalitarianism
Japanese HRD Systems
[Tangible Resources]
[Core HRM Resources]
[Intangible Resources]
Figure 3. Transferring process of Japanese HRM practices for affiliate's performance among
Japanese firms in China and Taiwan
126-
take place successfully for achieving competitive
their transplants from the basic to instrumental
edge in overseas operations. Furthermore, the
resources.
present finding indicates that the delegation of
Finally, limitations of this research can be
management authorities from the PCN to HCN/
summarized as follows. First, the present re
TCN managers constitutes another aspect of
search employed the two financial performance
ensuring high business performance in overseas
indicators, i.e., a profit rate and subjective evalua
affiliates. Perhaps, at the final stage of HRM
tion of corporate performance, and two measures
resource transfer where the superior performance
of behavioral consequences, i.e., employee turn
is sustained through the cost and quality manage
over and absenteeism rates. These performance
ment programs, transfer of
indicators
other intangible
may
capture relatively
short-term
firm-specific resources including parent's corpo
performance consequences of the firm. However,
rate philosophy and culture may be completed,
human resource management can be regarded as
enabling the affiliate organization to be an inte
an asset that may constitute a source of the sus
grated unit within the global business network. To
tainable competitive advantage, and thus the
reach this stage,* the tacit organizational knowl
outcomes generated by HRM may not necessarily
edge needs to be transferred to the affiliate organi
be evaluated by the short-term performance meas
zation through development of local managers
ures (Pfeffer, 1994). Recent research, therefore,
and engineers (Botti, 1996). In other words, the
has attempted to introduce the time series finan
sequential transfer strategy of home-derived HRM
cial data (Snell & Youndt, 1995) or Tobin's q
resources needs to be designed to facilitate the
which represents a
localization of human resources and the infiltra
adjusted capital market measure of performance
tion
of managerial
philosophy
and
future-oriented
and
risk-
(Huselid, 1995; Huselid, Jackson, & Schuler, 1997)
culture.
(Wakabayashi & Graen, 1991).
when examining the HRM effects on firm perform
ance. However, due to the difficulty of conducting
international research in general and collecting
Conclusion
Although a large number of studies have investi
the objective data in particular, our study was
gated the transferability of Japanese-style HRM
compelled to use self-reported measures of finan
in China and Taiwan, most studies have used
cial performance. This may constitute a limita
qualitative data or survey data with relatively
tion for this research, but the self-reported meas
small sample. Few studies have examined the
ure is still considered to be an acceptable substi
HRM effects on business success for Japanese
tute in the absence of objective measures (Dess &
overseas operations in these areas based on the
Robinson, 1984).
study of the transfer process of HRM. The present
Second, sample affiliates for the present study
study is one of the few studies which examined the
are limited to those from China and Taiwan,
links between the transfer of parent company's
where the cultural similarity to Japan seems high
human resources and performance consequences
(Hofstead, 1980). To allow generalization of
of overseas affiliates by using the relatively large
findings of the present study, future research needs
sample data in particular. What this study clearly
to be done to examine strategic roles of four HRM
demonstrated is that HRM resources will become
resources in Japanese firms operating in other
the source of competitive advantage for Japanese
foreign countries like US, European and other
affiliates in China and Taiwan, when they are
Asian countries. Moreover, the present study
systematically transferred and become embedded
attempted to propose the sequential
in the affiliate organization. It can be concluded
model of home-derived HRM practices based on
that to acquire global competitiveness, Japanese
the path analysis followed by the multiple regres
firms may need to follow the sequential transfer
sion analyses. However, this analytical technique
strategies of their home-derived HRM resources to
is known to be an explorative approach (Toyoda,
127
transfer
m
mrrmm¥mibmm2-
m
2000), and the transfer model derived from our
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