An Exploration Of The Impact Of Strategic International Human Resource Management On Firm Performance: The Case Of Foreign MNCs In China

Abstract

The intense competition arising from globalization not only demands MNCs to seek low cost, innovation, speed and adaptability, but also brings the need to manage their human resources globally and strategically so that it becomes a source of sustained competitive advantage. It has thus led to the evolution of strategic international human resource management (SIHRM) in the literature, which not only acknowledges the need of balancing global integration and local responsiveness, but also emphasises the importance of seeking strategic fit between HR policies and business strategy, in turn leading to a superior business performance. Although it has been widely accepted that HR policies make a direct and positive impact on firm performance, the researcher believes there appears to be limited research undertaken in the context of the developing world.

Hence this paper focus upon the case of China with reference to foreign MNCs operations and the challenges faced from the dual pressure of balancing globalisation and localisation. Consequently, the researcher selected a case study approach with a triangulation data collection method. Specifically, a two-stage primary data collection process of questionnaires and semi-structured interviews were undertaken in four selected subsidiaries of MNCs in China. Thereafter, a series of statistical process was conducted, i.e. frequency analysis, reliability analysis, correlation and regression tests along with the transcripts from the rich data set of interviews.

The finding of this research strengthened the mainstream literature where there is a direct and positive relationship between HR polices and firm performance. Furthermore, this research also reinforced a number of views from previous studies on the importance of aligning HR policies with business strategy to attain strategic integration and thus the achievement of firm performance.

However, in contrast to previous studies this research found the quality enhancement of products and service was the preferred and currently adopted business strategy amongst the studied foreign MNCs Chinese subsidiaries, whereas the traditional view regards cost reduction as contributing to the competitive edge in China. Moreover, this research also discovered that although headquarters initially transferred their standardised HR policies and procedures to Chinese subsidiaries, they subsequently delegated authority to subsidiaries. Therefore, foreign MNCs are seeking to balance global standardisation and local adaptation, which is a relatively new development although it has been noted in the literature. Thus, MNCs reconcile control and adaptation rather than satisfying one at the expense of the other, whereby the trend is for Western HR policies to be gradually accepted and internalised by the younger generation of the Chinese workforce.

Furthermore, drawing from the findings of this research upon the theoretical principles of Harvard Model (Beer et al., 1984), Guess Model (Guess, 1997, 2000) and Choice Model (Analoui, 2007) in terms of the link between HRM policy choices, HRM outcomes and firm performance, this research made recommendations to foreign MNCs to consider the adaptation of a set of HR policies that can generate competitive advantages, enhance employee commitment, increase job satisfaction, which lead to an improvement of firm performance. In addition, this research suggested foreign MNCs not only need to continually recognise the important role of the HR department in the devolvement of HR functions to line managers with the provision of training and organisational assistance, but also need to acknowledge the role of senior managers in achieving vertical integration between HR policies and business strategy and their influence in HR polices. Finally, foreign MNCs are encouraged to engage the HR department in the strategic level of the organisational operations (i.e. strategic planning process), in addition to its involvement on the functional/operational level of activities to achieve the sustained competitive advantage in the contemporary business context of China.