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The Linkage of HRM and Knowledge-related Performance in China’s Technology-intensive Industries

Irene Hau-siu Chow

Department of Management

The Chinese University of Hong Kong

Shatin, N. T.

Hong Kong

Tel: (852) 2609-7798

Fax: (852) 2603-6840

Email: irene@baf.msmail.cuhk.edu.hk

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The Linkage of HRM and Knowledge-related Performance in China’s Technology-intensive Industries

Abstract

This study examines the interaction effect of corporate culture and business strategy to

fully understand the role of HR practices in knowledge-related performance. The relationship

between the knowledge-driven HR practices, corporate culture and business strategy were tested

by using 132 firms in China’s high technology industry in the Pearl River Delta area. The

findings support that both capability and incentive systems are significant predictors of

knowledge-related performance. Significant interaction effect of HR- culture and HR-business

strategy in knowledge-related performance were observed. Innovation had no significant impact

on knowledge-related outcomes. The firm’s commitment to quality has been found to be an

important determinant of firm performance.

Keywords: knowledge-driven HR practices, corporate culture, business strategy, firm

performance, China

Introduction

Knowledge-intensive industry faces a dynamic and fiercely competitive environment. Products

in high technology industry are more complex, with shorter life cycle that needs constant

innovation in order to meet the changes in market conditions and customer expectations (George,

et al. 2001). Technological innovation becomes critical in responding to rapid changes and

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innovation depends heavily on acquiring new knowledge in high-technology firms. Therefore

organization must fully exploit its resources and capabilities in order to remain competitive.

Leveraging intellectual capital as sustainable competitive advantage depends upon a firm’s

ability to exploit existing knowledge and to generate new knowledge. Human resource will be

crucial in meeting the challenges in the formalization of and access to experience, knowledge

and expertise that create new capacities, superior performance, and innovation (Beckman 1999).

Human resource practices can support and contribute to the creation, integration and utilization

of knowledge.

HRM practices and knowledge- related outcomes are associated, but their link still misses some

important aspects of the interpretation and empirical support (Minbaeva 2005, p. 126). This

paper addresses this void by examining the impact of various HR practices that support

knowledge creation and utilization which in turn influence knowledge-related outcomes. The

corporate culture and business strategy could be considered as mediating link between HRM

practices and knowledge-related outcomes. The relationship between the knowledge-driven HR

practices, corporate culture and business strategy were investigated by using 132 firms in

China’s technology-intensive industry in the Pearl River Delta area. The results contribute to

advance our understanding of the complex relationships between HRM practices and operating

efficiency and the potential interaction effects of corporate culture and business strategy.

The following section starts with a brief review of the literature on knowledge-oriented HR

system, organizational culture and the contingency of business strategy on firm performance.

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Based on the literature review, hypotheses regarding the role of HR practices and the interaction

effect of corporate culture and business strategy and their impact on firm performance are

developed, followed by a description of the empirical test and presentation of results. The paper

concludes with the discussion of the implications for managerial practices and direction for

future research.

LITERATURE REVIEW AND HYPOTHESES

Knowledge is a key success factor in high technology industry and through acquisition of new

knowledge can improve the firm’s innovative activities. The organizational learning literature

views the value of knowledge as a key resource and emphasizes the importance of a firm's ability

to assimilate, utilize, and leverage information to derive a competitive advantage (Grant 1996).

Such competitive advantage depends more on “people-embodied know-how” (Prehalad, 1983),

particularly in the knowledge based industry. Increasingly, competitive advantage is seen to be

derived from human as opposed to physical capital. Capability as a source of competitive

advantage is derived from the resource-based view (Barney 1991; Wernerfelt, 984). HR

capabilities serve as a firm's ability to combine, develop, and exploit its resources to create a

competitive advantage. Cabrera and Bonache (1999) presented a theoretical framework for the

alignment of organizational culture and business strategy by integrating knowledge from

strategic HRM and specific design of HR practices.

Creating Knowledge-oriented HR System

There is considerable interest in studying the role of knowledge-driven HRM practices that

contribute to sustained competitive advantage through developing firm specific competencies

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and acquiring organizational knowledge which in turn improves the firm’s ability to innovate

(Keegan and Turner 2001). The kinds of HRM practices organizations could employ to enhance

knowledge-related outcomes are

1. Acquisition of capabilities, recruiting the right people, having the balanced skill sets,

create effective innovation teams

2. Performance management, encouraging risk taking,

3. Reward systems- motivating people to achieve productivity, innovation, and profitability

4. Career management, empowering people, continuous education and development

(Minbaeva, 2005).

The core HR practices, i.e., staffing, training and development, reward and performance

management may facilitate the diffusion of knowledge and innovation. Organizations identify

the needed skills and knowledge through staffing process of acquiring, developing and retaining

human capital. Training or self-development programs can be an important knowledge

acquisition mechanism. When properly organized, training programs are important vehicles for

promoting collaboration and knowledge exchange (Lyles and Salk 1996; Lane et al 2001).

Comprehensive training to develop unique or firm-specific skills, socialization programs, job

enrichment, and cross-functional career paths encourage employees to build knowledge. Skill-

based pay systems and developmental performance appraisals may be used to facilitate the

development of firm-specific knowledge and competencies (Snell et al. 1999).

In addition, HRM practices may influence individual performance by providing incentives that

elicit desirable behaviors. Performance-based pay and internal promotion systems provide

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incentives to secure commitment from knowledge workers. Employees' willingness to share

knowledge with others is crucial in determining the contribution HR practices to managing

knowledge (Currie and Kerrin, 2003). The extensive use of training, performance management,

performance-based compensation and internal communication contribute to knowledge transfer

(Minbaeva, et al., 2003). Thus capability and incentives are regarded as being conducive to

knowledge creation and utilization.

HR-Performance Link

There are a number of theoretical and empirical studies linking HRM to firm

performance. The current literature shows that HRM practices, in the form of high performance /

high involvement work practices, are associated with positive performance outcomes

(Appelbaum et al, 2000; Berg, 1999; Levering & Moskowitz, 1993), and higher financial success

(Bae and Lawler, 2000; Huselid, 1995; Lawler et al, 1995). The accumulated research evidence

shows that effective human resource management can have substantial impact on firm

performance.

Laursen and Foss (2003) investigated the link between HR practices and innovation performance.

They identified two major categories, that is capability to innovate and internal /external training.

Investment in capability to innovate can be developed through interdisciplinary work groups/

quality circles, planned job rotation, delegation responsibility, and performance –related pay.

Managing human resources to achieve better knowledge-related outcomes focuses on retaining

people, building their expertise through on-going learning process, fostering a supportive culture

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for sharing knowledge, establishing mechanisms for distribution of benefits arising from the

utilization of this expertise (Collins & Smith, 2006; Kamoche & Muller 1998).

Previous studies showed that HRM practices applied as a coherent system had greater effect on

organizational outcomes than the sum of the individual effects from each practice separately

(Huselid 1995; MacDuffie, 1995). Huselid (1995) and Delaney & Huselid (1996) bundled set of

HRM practices into two main categories: employees’ abilities and employees’ motivation. This

is consistent with the literature of the role of HRM practices in the organizational absorptive

capacity. The ability to assimilate /apply the knowledge and motivation incentives are two key

aspects of the firm’s absorptive capability (Cohen & Levinthal, 1990).

Innovation depends heavily on knowledge. Performance-based pay provides incentive to acquire

and share knowledge. Incentives aim at promoting knowledge acquisition /sharing are

increasingly prevalent ingredient in the innovation process. Hensen at al’s (1999) study shows

that knowledge use and sharing are embedded in appraisal and reward system. We need to have a

system in place that motivate and reward knowledge creation and sharing (Bartol& Srivastava,

2002). Therefore, it is hypothesized that a significant and positive relation exists between HRM

and innovation performance.

Hypothesis 1: The more extensive use of HRM practices (capability and incentive) is

positively associated with knowledge –related outcome

Fostering a Culture for Creativity and Innovation

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A firm’s future abilities are strongly influenced by its knowledge assets and its collective

learning. Organization with highly capable and motivated employees will not be effective in

recognize new knowledge, assimilate it and apply it if the unit is not successful in building a

supportive learning environment. The personal nature of knowledge increases the need for

motivation in sharing and utilizing it (Alvesson, 2000). Culture is the most critical factor that

influences knowledge creation, sharing and use (DeLong & Fahey, 2000). Innovation must be

supported by organizational culture which encourages participation, questioning conventional

wisdom, innovation and risk taking. Thus, organizations should provide continuous learning

opportunities to share learning.

High-tech companies, differ from manufacturing or service companies, particularly with regard

to their people management practices. Their people are engaged in the creation and assimilation

of new knowledge. Knowledge workers enjoy a highly informal, egalitarian working

environment, in which they are granted significant autonomy, trust and ample resources to

facilitate knowledge creation processes. Personal growth and achievement are important to this

type of worker. These characteristics pose particular challenges for managing knowledge

workers.

Furthermore, the sharing of knowledge is critical to facilitate and sustain processes of knowledge

creation. Organizational culture that promotes knowledge sharing is featured as informality,

richness of communication, and openness to transfer of learning and knowledge absorption

(McDermott & O’Dell 2001). Inter-disciplinary teamwork, active self-development programs

and a climate for learning are conducive to knowledge exchange and collaboration.

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Knowledge-intensive organizations must develop and sustain an organizational culture that

supports knowledge creation and innovation (Storey and Quintas, 2001). Vital to this will be

creation of a supportive environment that will facilitate trust and sharing, exchange, creativity

and innovation activities. Supportive culture for cooperation reduces competition among

employees and increases their willingness to share the critical information with each other

(Szulansk, 1996). Denison and Mishra (1995) found support for the effects of organizational

culture on firm performance. Chan, et al.’s (2004) study also revealed that organizational culture

had direct impact on firm performance.

Hypothesis 2: Corporate culture, particularly sharing/ learning culture, is associated

with knowledge-related outcome

The Moderating Effects of Corporate Culture

Wallach (1983) identified three types of corporate cultures: bureaucratic, innovative and

supportive cultures. Bureaucratic culture is characterized as hierarchical and compartmentalized.

There are clear lines of authorities. The work is organized and systematic. Bureaucratic

organization is power oriented, regulated, procedural and hierarchical. It is not suitable to attract

and retain creative and ambitious people. The explicit rules and regulations are likely to inhibit

idea generation and constrain employees in using various sources of knowledge for developing

new products and services. Innovative culture is exciting and dynamic. It provides a creative

place to work, filled with challenge and risk. Supportive culture is described as trusting,

encouraging, relationship-oriented and collaborative. It provides an open, harmonious and warm

place to work. People are friendly, and helpful to each other. It is reasonably expected that a

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supportive culture provides a vital environment for strengthening the relationship between HR

practices and firm performance.

A supportive organizational culture is needed for HR practices to result in advantage-creating

capabilities. Human Resource capability and organizational culture are likely to reinforce each

other and enhance firm performance. Chan et al. (2004) found organizational culture moderated

the impact of HR practices on firm performance. Creating a supportive culture together with the

appropriate HR system could be utilized to shape the willingness of workers to share their

knowledge. Thus, it is logical to posit the interaction effects of HR practice and organizational

culture on firm performance.

Hypothesis 3: The matching of human resource system and corporate culture will

enhance firm performance

Hypothesis 3.1 Incentive system matching with supportive corporate culture is positively

related with higher level of firm performance

The Contingency of Business Strategies

The strategic perspective of HRM examines the fit between various HRM practices and the

company’s business strategies (Delery 1998). Considerable emphasis has been put on the

importance of integrating HR practices and strategy for firm performance (Bird and Beechler

1995; Martell, Gupta, and Carroll 1996). Schuler and Jackson (1987) investigated the

relationship between HR and business strategy designated different types of employee behavior

and HRM systems that are best suited to innovative and quality enhancing strategies. Innovative

strategies focus on offering something new and different. The appropriate HR practices include

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selecting highly skills, creative individuals, granting more discretion with minimal control; long-

term focus and greater commitment. HR practices for quality enhancing strategy include high

levels of participation, feedback and cooperative teamwork. Obviously people management

becomes an integral part of corporate strategy in producing high performance. Thus, HR can

proactively add strategic value by providing innovative products and services and improving

quality.

Hypothesis 4: Quality enhancing and innovation strategy are positively associated with

knowledge-related outcome.

Previous studies found that the organization’s strategy moderated the effect of HR practices on

performance (Hitt et al 2001; Huselid 1995). Similarly, Youndt, et al. (1996) found that business

strategy and HRM practices interaction was an important factor in organizational effectiveness.

HR practices paired up with appropriate business strategies as discussed in the previous section

will have a positive effect on firm performance. Therefore, the interaction effect of HR practices

and business strategies leading to different levels knowledge-related performance are

hypothesized.

Hypothesis 5.1: The interaction of quality enhancing strategy with capability and

incentive system will enhance operating efficiency.

Hypothesis 5.2: The interaction of innovation strategy with capability and incentive

system will enhance operating efficiency.

METHODOLOGY

Sample and Procedures

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The sample consisted of 132 firms from electronic and communication facilities, computer and

software industries in Guangdong China. The average length of establishment was 9.4 years,

ranging from 1 to 35 years in operation. In terms of ownership, 22% were state-owned and

collectively-owned, 57.6% were Hong Kong and Taiwan firms in China, the rest (20.5%) were

foreign invested and joint-ventures. The average number of employees per firm was 1126 with a

range of 50 to 21000. On average, the HR department had 19.7 persons. Turnover rate for

employees was 14.24%. The questionnaire (constructed in Chinese) was designed based on a

combination of previous research and the variables identified in the literature review.

Questionnaires were sent to the person responsible for the company’s HRM by e-mail, and

follow-up calls were made. The respondents were middle (67.4%) or top management (18.6%) of

the firm and the rest were front line managers.

Measures

HR practices were measured by 6 items, covering staffing, training and development,

performance appraisal, performance- based pay, information sharing and participation. These

items were pre-tested with practicing managers to verify the usefulness. Each item was assessed

by a 5-anchored Likert scales, with 1 being inappropriate characteristic, 5 being the most

appropriate characteristic of HR strategies for managerial and professionals in this organization.

The respondents were asked to mark the number that best indicated the degree to which each

statement described HRM practices employed by their organization.

The impact will be stronger when HRM practices are applied as a system of mutually reinforcing

practices. Following the current practice, HRM practices form a set of distinct but interrelated

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activities that are directed at attracting, developing and motivating a firm’s human resources. The

grouping of HRM practices is identified theoretically and then verified through factor analysis.

Results of factor analysis indicated the existence of two groups of HRM practices under

capability and incentives regarded as being conducive to knowledge enhancing. The resulting

two factors accounted for 59% of the variance explained. Examples of capability include ‘the

annual training budget as a percentage of total payrolls,’ and ‘the proportion of vacancies filled

by internal sources for key positions.’ An example of incentives includes ‘linking performance

outcome to compensation, training opportunity and promotion.’

Corporate culture was measured by 18 items using a 5-point scale ranging from 1 (strongly

disagree) to 5 (strongly agree). These items were factor analyzed to form three cultures,

bureaucratic, sharing and competitive, accounted for 60.55% of the total variance explained. An

example of bureaucratic culture is ‘following explicit rules /regulations, orderly operations

procedure.” An example of competitive culture is ‘employees display extremely high level of

competitiveness.’ An example of sharing culture is ‘emphasis on learning process, exchange and

sharing learning outcomes.’ The alpha coefficients for bureaucratic, sharing and competitive

culture were .89, .86, and .89 respectively.

Business Strategies included innovation and quality enhancement. The argument for focusing on

these two strategies is the HR practices contribute more to technology-intensive firm by pursuing

quality and innovation strategies. Following Schuler & Jackson (1987) and Huang (2001), ten

items were adopted for the present study. Respondents were asked to rate each item on a 5-point

scale ranging from 1 (strongly disagree) to 5 (strongly agree). These items were factor analyzed

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using principal factor with varimax rotation method. The factor structure of business strategy

accounted for 61.74% of the total variance explained. An example of quality enhancing strategy

is ‘the company has very strict quality management procedures.’ An example of innovative

strategy is ‘the company is usually the first to introduce new products or services in the market.’

The alpha coefficients for quality and innovation were .87 and .79 respectively.

Performance measures. Knowledge related outcomes are measured by productivity, research and

development capability, products and services quality, and market shares. R&D activities are

often undertaken to add new knowledge to the existing knowledge base of an organization.

Maintaining a strong R&D program allows them to attract and keep talented scientists. Past

studies have used R&D spending as a measure of a firm's input into innovative activities. The

number of products on the market indicates firm success in developing and introducing new

products (DeCarolis & Deeds, 1999; Shan et al., 1994; Smith et al., 2005). These items were

measured on a 5-point Likert scale ranging from 1 (very low) to 5 (very high). Responses were

averaged to yield a composite index reflecting the organization’s operating efficiency. The alpha

coefficients were .82.

Control variables. Since firms with superior resources will be able to formulate and implement

unique and innovative strategies, firm age, firm size and ownership types are controlled for the

prediction of organizational performance. Firm age is related to firm survival and mortality rates.

Firm size was measured by number of full-time employees. Natural logarithmic transformation

was used to normalize the distributions and made it more consistent with existing literature.

Ownership structure is another characteristic that can influence HRM and performance function.

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State-owned firms tend to be more embedded in institutional constrains and therefore less

flexible in adopting innovative HR practices. In terms of ownership structure, Hong Kong and

Taiwan firms were used as base for comparison; three dummy variables were created to

represent state-owned, collective, and foreign-invested /joint ventures.

RESULTS

Table 1 presents the descriptive statistics and correlations among the variables. As Table 1

indicates, most of the study's predictions are supported by the significant correlations observed

among the variables with many of the correlations being quite large (p<.001). It is observed that

significant positive correlation exists among HR practices, corporate culture and business

strategy measures and these measures were all significantly correlated with operative efficiency.

Years of operation and firm size had no significant correlation with any of the HR practices and

business strategy measures. In terms of ownership types, Hong Kong and Taiwan firms showed

negative correlation with HR practices, corporate culture and business strategy measures while

foreign direct invested and joint venture firms showed positive correlation with these measures.

----------------------------------

Insert Table 1 about here

---------------------------------- To test the hypotheses, hierarchical multiple regression analysis were conducted to examine the

relative effects of HR practices, corporate culture, business strategy and their interaction on

knowledge- related outcome. Regression results are given in Table 2. First, I entered the control

variables, i.e., company age, size (number of employees), and type of ownership. Controls were

not statistically significant in the regression equation as indicated in Table 2. Next, I examined

the increase in adjusted R2, the unique amount of variance explained by each block of variables.

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When the two HR factors were entered, the overall model was statistically significant (F=11.40,

p<.001; ∆R2=.32, p<.001). The effect of HR on knowledge-related outcome was positive and

highly significant. As hypothesized, H1 was supported. The measures of corporate culture on the

whole added significant effect on operation efficiency, particularly the effect of competitive

culture. As expected, H2 was confirmed.

---------------------------------

Insert Table 2 about here

---------------------------------- In testing the interaction effects, the mean-centered variables were used for the main and

interaction terms in the regression analysis, as recommended by Aiken and West (1991). The

significant positive interaction effect between incentives and sharing culture was observed. H3.1

was supported. It should be noted that there was no significant interaction effect for incentive *

bureaucratic and incentive * competitive. Figure 1 displays the significant interaction terms.

Under low incentive level, low sharing culture is more efficient as shown in Figure 1. High

sharing culture works better under high incentive system.

---------------------------------------

Insert Figure 1 about here

----------------------------------------

The same tests were carried out for business strategies. Regression results for business strategy

are given in the last two columns of Table 2. When two business strategy variables were entered

in the regression, significant result was observed (∆R2 =.04, p<.05; and F = 9.76, p<.001).

Quality enhancement strategy is statistically significant. H4 was confirmed. When the interaction

terms were entered, the interaction term between incentives and quality was significant but

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negative. The interaction between incentive and innovation was marginally significant (β=.15,

p<.1).

The significant interaction effect of HR practices and business strategy on performance is shown

graphically in Figure 2. Low quality strategy is likely to benefit in operating efficiency,

particularly for high incentive level, as indicated in Figure 2. It makes no difference for high

quality strategy in achieving operating efficiency under any level of incentives.

-------------------------------------

Insert Figure 2 about here

--------------------------------------

DISCUSSION AND CONCLUSION

The present study assesses the direct link between HR practices and firm performance and tests

the interaction effect of organizational culture and HR practices on firm performance; examines

the contingent relationship between business strategy and HR by evaluating the moderating

effect of business strategy. HR practices had highly significant impact in predicting operating

efficiency as indicated by ∆R2 =.32 (p<.001). HR may influence knowledge–related outcomes by

shaping the skills and attitudes of individuals. Thus the findings support that both capability and

incentive systems are significant predictors of knowledge-related performance, which is

consistent with other studies that investment in employees’ ability and motivation contribute to

higher knowledge-related performance (Cohen & Levinthal, 1990). Corporate culture also shows

direct effect as indicated by the significant ∆R2 and F value. The study further explored the

interacting effect of HR and culture to fully understand the role of HR practices in knowledge-

related performance. The results show significant interaction effects with sharing culture on

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performance. The negative non- significant interaction effect between incentives and

bureaucratic was observed. The interaction effect of incentive system and competitive culture

became non-significant. Perhaps fierce competition creates barriers for resource and knowledge

sharing.

Results from the present study showed that the traditional control system, that is, bureaucratic

culture, did not significantly benefit firm performance. The results support that sharing culture

and reward system promote knowledge-related performance (Hensen at al. 1999). From the

practical perspective, results from this study offers significant implications for human resource

professionals in designing HR systems. Incentives under appropriate cultural environment

provide a strong management tool to reward employees. Manager can better develop reward

systems and motivational schemes for their employees. It is desirable that HR systems should

base on collaboration to support the development of exchange programs and group-based

rewards in knowledge-intensive organizations.

The current literature suggests that building a supportive sharing corporate culture, captured as

informality, openness, enhance knowledge sharing and absorption. It is important to create a

sharing culture that supports HR activities and business strategy to enhance firm performance.

Despite the highly significant effect of incentives in enhancing operating efficiency, the present

study did not find any support for a combination of human resource capabilities and an

appropriate culture or business strategy give firms an advantage in achieving high performance.

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In terms of business strategy, innovation had no significant impact on knowledge-related

outcomes. Quality enhancement strategy is statistically significant. The firm’s commitment to

quality has been found to be an important determinant of firm performance. When the interaction

term between quality and incentives entered the regression equation, the β coefficient became

significant but negative. Low quality strategy has substantial increase in operating efficiency as

incentive level increases, while high quality strategy remains at the same level of efficiency as

shown in Figure 2.

The results provide some research guided insights to design of HRM systems. It is important to

link HR to specific business strategy and creating the appropriate culture that is necessary to

execute these business strategies more effectively to gain competitive advantage (Barney, 1986).

The implications of HR practices for management of knowledge and innovation is profound.

Deployment of HRM practice to increase employee motivation, absorbing capacity has a positive

impact on knowledge-related performance. It also highlights the need to align HRM with

business strategy of the firm to enhance performance

Limitations

Despite the fact that our results are encouraging, they should be interpreted with caution because

of the study's limitations. The data were assessed using perceptual, self-reported measures.

Subjective measure of firm performance was widely used in the literature (Bae & Lawler 2000;

Delaney & Huselid 1996; Harael & Tzafrir 1999). In the absence of objective data, self-reported

measures constitute an acceptable substitute and are equally reliable. Prior research by Dollinger

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and Golden (1992) showed that organizational performance rated by self-reported measures was

positively correlated with objective performance indicators.

In addition to self-reported perceptual measures of performance outcomes, the potential problem

of common method variance cannot be avoided if all variables are collected from the same

respondent in the same survey. Following Podsakoff and Organ (2003), I checked for presence of

common method bias by conducting Harman’s one factor test in our data. A principal

components factor analysis with an unrotated solution shows that no single factor accounted for a

majority of the covariance in the variables. Common method variance is unlikely to be a serious

problem. Causality is difficulty to establish using cross-sectional data. Future research should

collect data from multiple sources to minimize the risk of common method variance. More

research should be done using larger samples.

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Table 1 Descriptive Statistics and Correlations

Mean S.D.

1 2 3 4 5 6 7 8 9 10 11 1. Operative Efficiency

3.86 .56

2. Years of operations

9.41 6.19 .14

3. Size (log) 6.68 1.2 .10 .38*** 4. HKTW .58 .50 -.10 .20* .24** 5. FDIJV .20 .40 .23** -.03 .05 -.59*** 6. Capability 2.80 .86 .45*** .09 .05 -.16+ -.01 7. Incentives 3.44 .69 .55*** .08 -.01 -.18* .14 .37*** 8. Quality 3.83 .77 .48*** .12 .21* -.14 .27** .23** .44***9. Innovation 3.54 .810 .40*** .09 .08 -.16+ .20* .42*** .51*** .49***10. Bureaucratic 3.68 .69 .45*** -.003 -.02 -.02 .14 .30*** .49*** .65*** .63***11. Sharing 3.35 .70 .44*** .11 .04 -.10 .11 .44*** .52*** .49*** .62*** .70***12. Competitive 3.28 .66 .53*** .10 .02 -.23** .21* .46*** .48*** .55*** .65*** .68*** .72***

*** significant at p<.001; ***p<0.01; * p<0.05 level

26

Table 2 Results of Regression Analysis Operating Efficiency Control 1 2 3 4 5 6 Year .16+ .08 .07 .06 .06 .09 Logsize .02 -.004 .08 .08 -.03 -.002 HK&TW -.02 .13 .12 .08 .13 .14 FDI&JV .15 .21* .17+ .12 .16 .17 HR practices HR capability .26** .20** .16+ .26** .23** Incentives .44*** .35*** .33*** .31*** .28** Corporate culture Bureaucratic .10 .04 Sharing -.10 -.06 Competitive .25* .30* Interaction Incentives* Bureaucratic -.18 Incentives* Sharing .22* Incentives* Competitive -.12 Business strategy Quality enhancement .21* .10 Innovation .06 .16+

Interaction Incentives*quality -.27** Incentives* Innovation .15+

R2 .06 .38 .43 .47 .42 .47 ∆R2 .06 .32*** .05* .04* .04* .05* F 1.67 11.40*** 9.2*** 7.99*** 9.76*** 9.54*** The numbers are β coefficients+p<.1, *p<.05. **p<.01, ***p<.001

27

Figure 1 The interaction between Incentives and Sharing culture

Incentives

Ope

ratin

g Ef

ficie

nc

L sharingH sharing

Figure 2 The interaction between Incentives and Quality

Incentives

Ope

ratin

g Ef

ficie

nc

L qualityH quality