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Informal China's retail sector

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Informal China's retail sector This article was downloaded by: [De Montfort University] On: 23 January 2012, At: 07:34 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK T...

Informal  China's retail sector
This article was downloaded by: [De Montfort University] On: 23 January 2012, At: 07:34 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK The International Journal of Human Resource Management Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/rijh20 Informal institutional constraints and their impact on HRM and employee satisfaction: evidence from China's retail sector Qihai Huang a & Jos Gamble b a Lancaster University Management School, Lancaster, UK b School of Management, Royal Holloway, University of London, Surrey, UK Available online: 05 Apr 2011 To cite this article: Qihai Huang & Jos Gamble (2011): Informal institutional constraints and their impact on HRM and employee satisfaction: evidence from China's retail sector, The International Journal of Human Resource Management, 22:15, 3168-3186 To link to this article: http://dx.doi.org/10.1080/09585192.2011.560879 PLEASE SCROLL DOWN FOR ARTICLE Full terms and conditions of use: http://www.tandfonline.com/page/terms-and-conditions This article may be used for research, teaching, and private study purposes. 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Informal institutional constraints and their impact on HRM and employee satisfaction: evidence from China’s retail sector Qihai Huanga* and Jos Gambleb aLancaster University Management School, Lancaster, UK; bSchool of Management, Royal Holloway, University of London, Surrey, UK This paper seeks to assess whether informal institutions can affect human resource management practices. Specifically, we examine whether the social norm of respect for authority, an important informal social institution in countries like China, constrains employee participation, and whether this affects employee satisfaction in foreign- invested and state-owned retailers in China, respectively. Data are derived from questionnaires completed by almost 1900 employees at 22 foreign-invested and state- owned retail stores in nine Chinese cities. We indicate that a norm such as respect for authority can operate as a constraint on human resource management practices such as employee participation with related impacts upon satisfaction levels in foreign- invested and state-owned retailers, but that these play out in unexpected ways. Keywords: China; HRM; institutions; participation; respect for authority; retail Introduction Effective human resources management can bring competitive advantages to firms and is often considered as a critical determinant of organizational performance and profitability (e.g. Huselid 1995; Fey and Bjo¨rkman 2001; Bjo¨rkman and Fan 2002; Lau, Tse and Zhou 2002; Law, Tse and Zhou 2003; Sun, Aryee and Law 2007). Meanwhile, it is widely believed that powerful institutions, which include both formal organizations – social, economic and political bodies – and the social norms and rules that these organizations articulate (North 1990; Scott 1995), can constrain the style of management, such as the form of human resources management, as institutional inertia may drive firms’ choices of human resource management (HRM) practices (Buck, Filatotchev, Demina and Wright 2003; Warner 2008). Although researchers increasingly examine the importance of institutions in shaping business practices in transitional economies (e.g. Child and Tse 2001; Law et al. 2003; Peng 2003; Meyer and Peng 2005), much remains to be done, especially with respect to the role and impact of informal institutions. Much research has focused on the influence of formal institutions on management, such as legislation, ownership and regional development (e.g. Tang 1993; Child 1994; Warner 1996; Lau et al. 2002; Law et al. 2003; Meyer and Peng 2005; Bjo¨rkman, Fey and Park 2007). While formal institutional changes have been implemented, though, informal institutions may lag behind. North (1990) argues that informal constraints come from the cultural transmission of values, underpinned by ideological reinforcements. Developing ISSN 0958-5192 print/ISSN 1466-4399 online q 2011 Taylor & Francis http://dx.doi.org/10.1080/09585192.2011.560879 http://www.tandfonline.com *Corresponding author. Email: qihai.huang@lancaster.ac.uk The International Journal of Human Resource Management, Vol. 22, No. 15, September 2011, 3168–3186 D ow nl oa de d by [D e M on tfo rt Un ive rsi ty] at 07 :34 23 Ja nu ary 20 12 norms of behaviour that will support and legitimize new formal rules is a lengthy, incremental process (North 1994). The inertia of informal institutional structures is likely to inhibit the application of new management prescriptions (Gooderham, Nordhaug and Ringdal 1999; Child and Tse 2001). So far, much less attention has been paid to the role of informal institutions, which may constrain management practices and accordingly firm performance. Our study aims to fill such a gap by assessing the constraints of informal institutions with specific reference to the norm of respect for authority on employee participation and satisfaction in retailers in China. Employee participation is reported to be a key element of high performance HRM systems (e.g. Huselid 1995; Pfeffer 1998; Boxall and Purcell 2003). In the Chinese context, respect for hierarchy has been built into the social structure of organizations (Farh, Earley and Lin 1997), which still guide individual actions and attitudes in modern Chinese societies (Hofstede and Bond 1988). Such a norm may constrain or at least affect the styles of communication across organizational hierarchies and employee participation, which in turn may have an impact on employee satisfaction. In exploring this dimension, the current paper also tests assumptions about the impact and efficacy of participative management styles in a non-Western context. The contribution of this paper is twofold. First, it constitutes an early attempt to assess the impact of informal institutions on human resources management, which is poorly understood in both China and other transitional economies. Transitional economies are not only an ideal laboratory to assess the impact of formal institutional changes, but also of informal institutions on management and performance. As Peng (2000) postulates, for instance, China’s social institutions remain central to understanding how firms operate and perform in this country. Second, it uses a unique large survey database collected in the retail sector in China. Research examining the influence of institutions in transitional economies tends to focus on the manufacturing sector (e.g. Lau et al. 2002; Law et al. 2003), with data often drawn solely from the surveys of managers (e.g. Law et al. 2003; Bjo¨rkman et al. 2007). In China, Child and Tse (2001) claim that the entry of foreign ventures in the retail sector has engendered fundamental and far-reaching changes. However, with few exceptions (e.g. Gamble 2003, 2006) there is little empirical research that examines whether foreign retailers have adopted different HRM practices compared with indigenous firms and none that focuses on employee participation. Our data include both managers and shop-floor employees in indigenous and foreign-invested retailers. In the following sections, we first outline the research context, followed by a review of the literature on institutions, and the potential impacts of the norm of respect for authority on employee participation and employee satisfaction with these practices. We then propose a number of hypotheses and test them using survey data, followed by a discussion of the findings. We draw out the implications for both management and theory before a brief discussion on future research and a conclusion. Research context Since China’s ‘open door’ and reform policy began in the late 1970s, substantial institutional changes have dismantled many barriers to modern business operations (Child 1994; Warner 1996; Child and Tse 2001; Warner 2008). For example, the introduction of labour contracts in the late 1980s and the ‘three systems’ reforms introduced in the early 1990s gave firms greater autonomy to hire, promote and even fire workers (Warner 1996). To a considerable extent, a labour market has been established through formal institutional changes. Since transition is a path-dependent transformation The International Journal of Human Resource Management 3169 D ow nl oa de d by [D e M on tfo rt Un ive rsi ty] at 07 :34 23 Ja nu ary 20 12 (Child and Tse 2001), it is likely that both formal and informal institutions can inhibit firms from adopting institutional solutions which conventional economic theory would regard as optimal. In fact, informal institutions may lag behind. As North (1994) points out, developing norms of behaviour that will support and legitimize new formal rules is a lengthy, incremental process. The retail sector is of great economic and social significance not only in the developed world but also in the developing countries. In the case of China, the overwhelming focus on its role as a global manufacturing base neglects the importance of the service sector in that country. According to the People’s Daily (2004), the proportion of China’s GDP accounted for by the service sector increased from 21.4% in 1978 to 33.7% in 2002. In the same period, the number of people employed in this sector rose from just 48.9 million to over 210 million. It is estimated that the contribution of this sector to China’s GDP will be 50–60% in 2020. As a major component of the service sector, the retail industry is of considerable importance. Since China’s retail sector began to reopen to foreign involvement in 1992, it has witnessed an influx of multinational retailers eager to take part in its ‘consumer revolution’. By 2005, the 18 largest foreign-invested chain stores in China already operated 4502 outlets (Ernst and Young 2006). According to the management consulting firm Kearney (2007), foreign retailers are fuelling the rapid growth of China’s retail market. However, China’s retail market is becoming saturated, limiting expansion opportunities for overseas retailers. Competition among retailers has also become increasingly fierce (Wang 2010). How to develop and retain competitive advantage is essential for the success of both foreign and domestic retailers. Institutional constraints and employee participation Informal institution: the norm of respect for hierarchy According to North (1990), institutions include formal rules (laws, regulations) and informal constraints (customs, norms, cultures). Scott (1995) conceptualized institutions as composed of three pillars: regulative, cognitive and normative. Regulative institutions consist of regulative rule systems and enforcement mechanisms which centre on rule- setting, monitoring and sanctioning activities, with national laws, inspection routines, police and courts – along with organizational counterparts such as workplace rules, monitoring and incentives. Normative components introduce legitimate means to pursue valued ends. According to this institutional approach, the basis of regular behaviour stems from broad social agreement, which is often implicit, on what binding expectations apply to the members of the society. Cognitive institutions centre on shared conceptions of social reality and frames for meaning, which are taken-for-granted beliefs and values that are imposed on, or internalized by, social actors (DiMaggio and Powell 1983). The traditional Chinese value of social order and customs in this aspect overlaps with both normative and cognitive institutions. This is evident in the teaching of Confucius, where the social system is defined not in terms of individuals or organizations, but in terms of dyadic ties between individuals, what Confucius called the principles of wu-lun (‘five cardinal relations’). Lun is a system of social roles with distinct status differences, which stress the differentiation between individuals: prince and subject, father and son, husband and wife, elder brother and younger brother and friend and friend. For each dyadic wu-lun relationship, role prescriptions specify what should and should not be done by the actors (Baker 1979). All these relationships are intrinsically hierarchal, involving superior and subordinate except for friend to friend. Moreover, even the latter relationship is still Q. Huang and J. Gamble3170 D ow nl oa de d by [D e M on tfo rt Un ive rsi ty] at 07 :34 23 Ja nu ary 20 12 constructed on a hierarchical basis, with the senior member having a wide range of prerogatives and authority over the junior. Confucian values that emphasize the importance of education, obedience to authority and interpersonal harmony are considered to still guide individual actions and attitudes in modern Chinese societies (Hofstede and Bond 1988), with values and norms ‘both internalized and imposed by others’ (Scott 1995, p. 40). The defining characteristics of Chinese traditionality are said to be respect for authority, fatalism, a general sense of powerless and obedience (Chen, Tsui and Zhong 2008). Using the concept of traditionality, Farh et al. (1997) suggest that traditional Taiwanese employees were less sensitive to injustice than were the less traditional employees. Therefore, the norm of respect for authority is still a key aspect of an informal institution in China, which is ‘a pattern of collective action (social practice), justified by a corresponding norm’ (Czarniawska 2010, p. 423). Such social institutions, which can act as ‘internalized cognitive constraints on sense-making (taken-for-grantedness)’ (Weber and Glynn 2006, p. 1640), then, have been built into the social structure of organizations (Farh et al. 1997). The national institutional embeddedness of firms can play an important role in shaping HRM practices (Gooderham et al. 1999). Relatively, little attention has been devoted to the extent to which such informal institutions may constrain the implementation of HRM practices. This paper attempts to fill the gap by assessing how the norm of respect for authority might impact upon HRM in China. In particular, we focus on employees’ responses to participative management style in state-owned enterprises (SOEs) and foreign-invested enterprises (FIEs) in the retail sector, respectively, and assess whether this practice affects employee satisfaction. Institutional constraints and employee participation Employee participation has been a key research theme within the context of strategic HRM since the 1990s (Huselid, Jackson and Schuler 1997; Parnell 2002) and in the literature on ‘high involvement work practices’, ‘high commitment management’, ‘high performance practices’ and ‘best practice’ HRM (e.g. Huselid 1995; Pfeffer 1998; Boxall and Purcell 2003). According to Huselid et al. (1997, p. 175), there are two HRM outcomes within a firm, namely strategic and technical HRM outcomes. Technical outcomes describe ‘how well the HRM function performed activities traditionally associated with personnel management’, whereas strategic outcomes describe ‘how well the HRM function developed a firm’s employees to support its business needs’. Employee participation takes different forms, for example, direct and indirect participation (Poole, Lansbury and Wailes 2001; Bryson 2004). Direct employee participation means that individual employees are involved in certain decisions, which have traditionally been taken by management alone. By contrast, indirect participation refers to the participation of employees collectively in decision making through reliance on union or non-union representatives to deal indirectly with management on their behalf (Poole et al. 2001). In Western firms, employees have been found to prefer participative management styles to autocratic styles (Marchington 2001), and some researchers suggest that direct participation can be more effective in eliciting managerial responsiveness than representative (i.e. collective or union) approaches (Bryson 2004). Furthermore, direct participation is more likely to be associated with higher levels of satisfaction or commitment (Cox, Zagelmeyer and Marchington 2006). Chinese people are often reported to respect authority and to accept hierarchical structure (Kirkbride, Tang and Westwood 1991). As indicated above, the Confucian The International Journal of Human Resource Management 3171 D ow nl oa de d by [D e M on tfo rt Un ive rsi ty] at 07 :34 23 Ja nu ary 20 12 values of obedience to authority and interpersonal harmony are still said to guide individual actions and attitudes in modern Chinese societies (Hofstede and Bond 1988). The contemporary relevance of Confucian ideas in China is evident in the way that the Chinese president, Hu Jintao, stressed the value of order, balance and a ‘harmonious society’ (Economist 2007, May 19). In a study comparing workers’ participation in Germany and Taiwan, Han and Siu (2000) argue that ‘Chinese culture’ impedes employee voice in Taiwan because of a high degree of distance in terms of power relations, subordination and docility of the managed. Strong hierarchical and authoritarian traditions within Chinese society mean that managers are likely to feel threatened by participatory styles of management, and employees might not want to involve themselves in decision making for fear of having their views rejected (Hutchings 2005). The extent of participation by employees has been low in most Chinese organizations (Huo and Von Glinow 1995). In his analysis of a survey of 1200 respondents from 120 factories in four cities, Tang (1993) found that a majority of Chinese workers would rather leave decision making to the firms’ leadership and government departments. Similarly, foreign managers in early joint ventures often complained that Chinese workers were unlikely to exercise initiative to get things done (Holton 1990). According to Huo and Von Glinow (1995), there have been several attempts, championed by China’s central government, to increase workers’ participation in performance appraisal. However, they argue that such attempts have not been successful, because ‘the system contradicts Chinese culture and tradition’ (Huo and Von Glinow 1995, p. 10). More recently, in an effort to overcome Chinese employees’ reluctance to question authority and encourage them to speak up when confronted with a bad idea, Kodak tested teams by suggesting a controversial idea and asking the team members for an opinion. Even though the team members knew it was a bad idea, none was prepared to state this out loud (Hulme 2006). In general, the norm of respect for authority has been found to constrain management practices and employee participation in particular. However, the extent to which it can influence state-owned and foreign-invested firms may be different. We turn to this point in the following section. Ownership and employee participation There is evidence that
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