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DDeakin Research Online Research Online This is the authors’ final peer reviewed version of the item published as: Zheng, Connie 2009, Keeping talents for advancing service firms in Asia, Journal of service management, vol. 20, no. 5, pp. 482-502. Available from Deakin Research Online http://hdl.handle.net/10536/DRO/DU:30032758 Reproduced with the kind permission of the copyright owner. The final published version is available from the journal homepage www.emeraldinsight.com/journals.htm?articleid=1816819&show=abstract& Copyright : 2009, Emerald Group Publishing

Keeping talents for advancing service firms in Asia

The Authors

Connie Zheng, School of Management, College of Business, RMIT University, Melbourne, Australia

Acknowledgements

The author thanks three special issue Editors for their comments; and two anonymous reviewers for their suggestions to refine the earlier versions of this paper.

Abstract

Purpose – Skill shortages worldwide have intensified the need for talent management. Few papers examine the pattern of human resource (HR) and talent management practices that help retain competent employees among service multinational companies (MNCs) in Asia. The purpose of this paper is to map out a number of HR practices used by service companies and to examine the effect of talent retention as perceived by MNC managers on service delivery capacity and business growth. Design/methodology/approach – A survey data of 281 service MNCs in six Asian countries (namely Indonesia, Malaysia, Philippines, Singapore, Taiwan, and Thailand) are used to compare country and sectoral differences. Standard multiple regression analysis is conducted to test the link between HR practices, employee retention, and service firm performance. Findings – The results confirm that there are statistically significant linkages between HR practices, talent retention and firm performance. In particular, various skill training and development programs are seen to be significantly associated with capacity to deliver quality service and on firm growth as perceived by managers surveyed. Informal recruitment methods that are used more by Asian-bred firms have contributed to better retention rates. Not all formalised HR practices lead to talent retention; and the degree to which HR is perceived to have impacted on firm performance varies. Research limitations/implications – The paper focuses on examining the perceptual impacts of human resource management (HRM) practices on firm performance, rather than actual HRM impacts. The interpretation of results should be taken with caution. Originality/value – Talent management is influenced by country specific variables. This paper shows how important it is for service firms to focus on strategic selection of both formal and informal HR practices in order to deliver high quality service and to drive service firm growth.

Introduction

Over the past decades, firms have increasingly recognised the importance of harnessing intangible human resources (HRs) and building strong customer-employee relationships particularly for the advantage of developing the service industry (Graf, 2007; Schneider, 1994). The links between the internal effective human resource management (HRM) and external customer response to quality service have been discussed conceptually by a number of scholars (Schneider, 1994; Baum et al., 1997; Worsfold, 1999; Francis and D'Annunzio-Green, 2005; Murphy et al., 2007) and tested empirically (Rees, 1995; Hoque, 1999; Lucas, 2002; Tsaur and Lin, 2004; Little and Dean, 2006). The central argument of these studies is that intangible, non-imitable abilities or capabilities developed within will enable organisations to deliver superior services to outside customers, as such, differentiating firms from their competitors in the marketplace. It is thus crucial for companies to make strategic choice of investing in capabilities and talents, manage and develop human capitals which could help firms to drive overall organisational performance and compete in today's turbulent business environment. This line of argument is also deeply embedded in the resource-based view of strategic HRM (Barney, 1991; Bartlett and Ghoshal, 2002; Becker and Huselid, 2006).

Research on HRM was largely originated in the manufacturing sector (for example, Arthur (1994) in steel mills; MacDuffie (1995) in automobile industry), investigating the impact of “high performance” or “high commitment” HRM practices on firm performance (Huselid et al., 1997; Wood, 1999). In recent years, as the proportion of service sector in the national economy of both developed and developing countries has increased, the focus has shifted to address the need to pursue high quality services, via a set of sophisticated “high cost and high skill employment strategies” (Francis and D'Annunzio-Green, 2005, p. 71). The service sector is rather heterogeneous, including finance, banking, retail, transport, tourism, hospitality, and telecommunications industries, just to name a few. The majority of prior studies in the service areas to date have tended to examine HRM practices in a single service industry of a specific country. For instance, Hoque (1999) looked at HRM and performance in the UK hotel industry. Batt et al. (2002) explored the relationships among employee participation via unions and team voices, cost-cutting versus commitment-enhancing HRM practices and employee quit rates in the US telecommunications industry. Tsaur and Lin (2004) examined the role of HRM practices in promoting service quality in tourist hotels in Taiwan. Little and Dean (2006) evaluated the link between service quality and employee commitment in an Australian out-sourced call centre. It is important to compare, within and between groups, different HRM functions in a range of service industries. We see this approach adopted in Rees (1995) who studied two cases, New Bank and Hotel Co., to compare different effects of various HRM functions on quality management between financial service and hospitality firms, even though still in a single country of the UK. So far, very few studies examine the pattern of HRM practices in a range of different service firms among multiple countries, particularly, not among service multinational companies (MNCs) in Asia. The current research intends to fill this gap.

Why study service firms in Asia?

Although Asia has over four billion people and represents a very unique dynamic business environment with thousands of MNCs operating in various countries, severe skill shortages have posed challenges to both manufacturing and service sector alike (Stahl and Zheng,

2002). A limited talent pool means that service firms have to compete not only with one another but also with increasingly rejuvenating manufacturers for the best people. Zheng et al. (2008) argued that as growing manufacturers among Dragon and Tiger[1] Asian economies fight for talents, this has created a temporary “crowding out” effect, squeezing highly-transferable managerial and professional skills from the service sector to manage the operation and HRs in the manufacturing sector. Consequently, the service firms in Asia have faced an even more challenging task to keep talents for their continuous growth and expansion.

Keeping talents is not an easy task. It involves a complex process of designing HRM policies, practices and procedures of organisations for recruiting, motivating, developing and retaining competent employees (Schneider, 1994; Bartlett and Ghoshal, 2002). Whilst many skill sets might be transferable between industries, different industries indeed require some specific skill sets, which can be quite different (car manufacturing versus insurance, for example requiring different sets of skills). It is reasonable to assume, therefore, that different approaches may be necessary to attract, retain and motivate employees with these different skill sets. Indeed, differences in HRM practices between different sectors have been identified (Datta et al., 2005), and it is now widely accepted that practices of HRM are context-based (Jackson and Schuler, 1995). Not all companies are inclined to adopt a full set of the high-performance high commitment HRM practices. Instead, organisations are more likely to make strategic choices by taking up some HRM practices and rejecting the others (Subramony, 2006; Zheng et al., 2007). Nonetheless, limited research attention has been paid to industry differences and how these differences may moderate the degree of adoption and value placed on particular HRM practices (Datta et al., 2005; Kalleberg et al., 2006). It is contended that attracting, developing and retaining talents in the service sector that can provide a positive link between the organisation and customers requires a different HRM focus. With this in mind, the first research question has to be “what is the key HRM focus for service firms?”

HRM focus in the service industry

Theoretically, Korczynski (2002) provides a prescriptive account of best practice HRM in the service industry. In his “new service management school” view, the “soft” side of HRM practices that emphasise empowerment and teamwork is regarded as a combination of developing service culture and harmonising the relationship between employer, employees, and customers. Other writers (Hoque, 1999; Lucas, 2002; Worsfold, 1999; Francis and D'Annunzio-Green, 2005) tend to dispute the existence of the “soft” side of HRM approaches in the service sector. Instead, contingent and well-calculated “hard” HRM approaches are more often adopted by service firms in their utilisation of HRs (Lucas, 2002). The hospitality industry, in particular, has historically been dominated by images of poor working conditions and underdeveloped HRM practices, which largely focus on cost control, instead of employee commitment. Arguments in these two camps have been largely limited to the hospitality industry, not going beyond to look at service providers in other industries. Legge (1995) pointed out that in general, an organisation choosing to compete in a labour intensive, high volume, low cost industry is likely to adopt HRM policies that treat employees as a variable input or a cost to minimise. On the other hand, an organisation competing in the knowledge-based, high-skilled and high-cost industry, such as financial

services, is likely to adopt HRM policies that treat employees as an asset that enables the organisation to create added-value.

In reality, in view of the continuing shortage of talent and high employee turnover in the service sector in Asia, it remains unclear how MNCs operating in the region select their HRM practices. Yeung (2006) recently interviewed Mark DeCocinis, General manager of the Portman Ritz-Carlton and regional vice president, Asia-Pacific, of the Ritz-Carlton Hotel Company – a multinational company. In the interview, DeCocinis pointed out some key HRM functions that have helped his hotel attract, develop, and retain high-quality talent to deliver excellent customer service and to ensure continuing profitable growth. Portman Ritz-Carlton in China has not only been named as the “Best Employer in Asia” by Hewitt Associates for three consecutive times, but has also been rated as the highest in employee satisfaction among all of the Ritz-Carlton's 59 hotels worldwide for five consecutive years (Yeung, 2006, p. 267). DeCocinis' philosophy and practices on talent management seems to be the key. According to DeCocinis (Yeung, 2006, p. 268), the secret of success in the service business is that “services come only from people.” From this perspective, customer satisfaction comes from employee satisfaction, and employee satisfaction is generated from three key HRM functions:

1. selection of the right people using innovative recruitment channels; 2. provision of relevant and effective orientation and on-job training; and 3. encouragement of employee participation and engagement (Yeung, 2006).

This set of HRM practices seems to fall into the “soft” side of HRM approaches. Little and Dean (2006) provided similar evidence in the call centres examined. They confirmed the interface of employee commitment and delivery of service quality from call centres via a number of HRM practices. These HRM practices included training, development of interpersonal and problem-solving skills, and provision of resources to support employees. In the book by Heraculeous et al. (2009), the authors explained how the leading Singapore Airline managed to consistently deliver service excellence by focusing on key areas of HRM, which are stringent selection and recruitment, extensive investment in training and re-training of employees, building high-performance service delivery teams, empowerment and motivation of frontline employees by rewards, and recognition. From the limited group of studies conducted so far, it appears that the success of service businesses is reliant on the delivery of quality customer service, which in turn depends on employee commitment and satisfaction. The focus of HRM on recruitment, training, and skill development, as well as resource support is the key to enhance employee commitment and satisfaction, which in turn increase the service capacity and ultimately lead to better overall firm performance (Heraculeous et al., 2009; Little and Dean, 2006; Tsaur and Lin, 2004).

In this paper, these four identified areas of HRM practices – recruitment, training, support resources, and skill development – in 281 multinational service companies in six Asian countries, namely Indonesia, Malaysia, Philippines, Singapore, Taiwan, and Thailand, will be investigated. The intention is twofold. First, it is necessary to map out the recruitment methods used, the training and skill development approaches adopted, and the support resources provided by service MNCs in Asia. Second, it is aimed to explore the potential impacts of these HRM practices on retaining employees, delivering quality services,

maintaining harmonised relations between employer, employee and customers, and driving the overall growth of the service firms in Asia. In addition, HRM practices within different sectors, countries and parent sources of MNCs will also be compared and discussed. The concluding remarks address key limitations of the study and future research direction in people management in the service sector. The results from the current study provide us with some sketchy pictures of how service firms in Asia manage and keep their talents to serve their developmental advantage.

Research methods

Data source and sample

The data were sourced from the multi-national research project conducted by the author under the auspices of the Asia Pacific Economic Cooperation (Stahl and Zheng, 2002). The entire sample of 529 manufacturing and service companies were split, and only 281 service firms in the sample were selected. The survey questionnaires in English were completed by chief executive officers, financial controllers, and HR managers in the host country of MNCs. A translated version of the survey questionnaire in Chinese was distributed to MNCs in Taiwan. The back translation was verified and the returned survey questionnaires were coded by a Chinese-speaking researcher, to ensure consistency and accuracy of the responses.

The profile of companies included in this study is shown in Table I. Here, financial companies refer to those companies engaging in banking, insurance and other financial advisory businesses. All other service companies cover a scattered range of business services of wholesale, retail, transport, security, information technology and communication, hospitality, and consultancy. For a more meaningful comparison, all service companies were amalgamated into two groups: financial institutions and all other service type companies, consistent with Rees' (1995) case study. A significant proportion of Asian-bred MNCs were represented in the sample (139 firms, 49 percent). These companies were largely owned by Japanese, Singaporean, and Taiwanese, whilst the parents of those non-Asian owned companies (51 percent) were predominantly European, American, and some from Australasia.

Variables and measurement

All variables and their measurement included in this study are displayed in Table II. Our intention is to identify the pattern of the key HRM practices and to what extent the service firms in Asia have adopted these practices.

Recruitment

Selecting and recruiting the right people into the service business is crucial to achieve business success (DeCocinis, cited in Yeung, 2006; similar comments were made by Heracleous et al., 2009, p. 142). In the face of labour shortage, even large MNCs may need to take the advantage of both formal and informal recruitment channels to achieve better firm performance (Henkens et al., 2005). Although there might be more complex relationships between the choice of recruitment methods and job performance outcomes

(Werbel and Landau, 1996), the extensive review of research on recruitment sources in the West for the past 50 years seems suggesting that informal recruitment methods such as employee referrals or in-house job postings be more effective in retaining employees and enhancing job performance (Zottoli and Wanous, 2000, p. 364). Certainly, in Asia, strong social network may even induce further the legitimacy of using informal recruitment methods rather than the formalised recruitment and selection process via media advertisement (Chen, 1995; Yeung, 2006). Nevertheless, it has been the persistent practice by many HR managers around the globe to adopt formalised recruitment methods (i.e. newspaper ads) despite the research evidence (Zottoli and Wanous, 2000, p. 379). With the development of technology and need for broadening the scope of recruitment pool, many large companies have also adopted innovative recruitment methods different from the traditional ones. For example, internet recruitment has emerged as a popular recruitment method (Zottoli and Wanous, 2000). Extensive use of internet, expertise recruitment agencies and graduate job fair has also become common practices among some Asian Dragon and Tiger economies in recent years (Zheng et al., 2008). Therefore, three recruitment methods, formal, informal, and innovative methods are propounded, to test the extent to which the service firms investigated have taken up these practices.

Skill development and training

The extent to which the service firms stress the importance of various skill development and training was evaluated. The respondents were asked to nominate whether their firms have developed employees in all ten-skill sets listed in Table II. The data were then transformed into one single scaled variable for analysis. Those did not nominate at all were given the value of 1, being “never developed,” and those nominated all ten skills as being 10, “comprehensively developed all skills as listed.”

Data collection on training were quite comprehensive, ranging from money used to support staff training and three types of training methods, to a number of scholarships, traineeships, and apprenticeships provided. Consistently, US dollars were used to measure the amount of resources devoted to support staff training across all six countries. To avoid the confounding effect of firm size on training resources (i.e. the larger organisations may have a higher training budget because there are more people to be trained), average training expenditure per person per annum was calculated and used as an independent variable. Some companies did not indicate any training budget while others provide extremely high value in dollars term to overestimate their training budget. To overcome this problem of outliers, a scaling approach was adopted (Siegel and Castellan, 1988; Gravetter and Wallnau, 2000), using means and frequency table as guidelines to determine the scale used for variables in “resources to support categories 1 and 2” (Table II).

Retention and performance indicators

A considerable amount of literature has been built to test the link between the intent of “voluntary” turnover to employee job satisfaction (Mobley, 1982; Mowday et al., 1982; Griffeth et al., 2000; Hom and Kinicki, 2001). It is reasonable to assume that if employees were satisfied with their jobs, they would have less intention to leave their firms. Hence, to examine the link between employee satisfaction and employee capacity to deliver quality

service, low level of voluntary employee turnover rate was used as a proxy to reflect employee satisfaction.

Recently, Barrick and Zimmerman (2005) and Lee and Rwigema (2005) argued that employee turnover might not be sufficiently explained by job satisfaction only. The large part of variance explaining employee turnover was attributable more to the organisational factors. For instance, Barrick and Zimmerman (2005) identified that better selection, not job satisfaction of employees to ensure “fit” between individuals and organisations would reduce turnover rate. This is confirmed in practice by Portman-Ritz-Calton Hotel in China discussed earlier, as its success had been generated from recruiting and selecting right people. Holtom et al. (2005) pointed to other factors causing employee turnover, such as “shocks” or unexpected events that are to do with alternative job offers, job transfer or acquisition and mergers of company, and changes in marital status or spouse' work. It appears from the current study that employees in Asia, via various skill developments and training might become more competitive in the labour market, hence likely to contribute to voluntary turnover in one way or another. Therefore, employee turnover is not only an independent variable that impact on service firms' performance, but also a dependent variable which is influenced by various HR measures. Thus, both directions of the relationships between employee turnover and HRM practices, and between employee turnover and firm performance will be tested.

Voluntary employee turnover was measured, using Steel et al.'s (1990) approach[2]. Respondents were asked to indicate “how many of the employees have left voluntarily from your local company for the past 12 months?” As suggested by Price (1977), the total number of employees who had left voluntarily in the previous 12 months was then divided by the average number of employees, to obtain the separation rate or attrition index. Again, to overcome confounding effect of firm size as well as the issue of outlier, the scale was used, based on means and frequency tables to provide four levels of employee turnover rates.

Two performance indicators relevant to the current study are capacity to deliver services and harmonised industrial relations. It is assumed that better industrial relations between employer and employees would have a spill-over effect on better interrelationship between employer, employee and customers (Schneider, 1994; Watson and D'Annunzio-Green, 1996; Batt et al., 2002). Respondents were asked to indicate the degree (scale 1-5) of HR impact that they perceived on their firms' service delivery capacity and on harmonising industrial relations. Use of perceptual data could be biased especially for those respondents with HRM responsibilities who may have overrated the impact of HR on firm performance (e.g. the halo effect); whilst non-HR managers may have undervalued the HR impacts but emphasised other factors (e.g. operational effectiveness, business strategy, organisational structure, etc.) for overall business success (e.g. the hell effect). Nevertheless, it is assumed that such bias in analytical outcomes could be reduced if perceptual data were equally collected from HR and non-HR managers in the current study. In addition, even if cognitive feedback (i.e. perception) provided by respondents about the link between HR practices and their impact on organisational outcomes such as quality service delivery and harmonised industrial relations is an uncertain and probabilistic one, it is, as argued by Brunswik (1956), still a fundamentally valid measurement to help us better understand the undeterred field. Moreover, perceptual data were used in the prior studies to measure the impacts of HR

practices on organisational HR outcomes and firm performance when researchers found it impossible to gather objective data from a large-scale of survey often conducted in an anonymous fashion (Delaney and Huselid, 1996; Ngo et al., 1998; Zheng et al., 2006). In the similar strand, anonymous respondents in this study were asked to indicate the degree of impact they perceived HR practices on their firm expansion and growth, as well as on improving productivity.

A conceptual framework illustrating the relationships between independent and dependent variables in this study is shown in Figure 1.

Statistical analysis

To compare differences between industry, country, and parent source of MNCs, t-tests and two-way between-groups analysis of variance (ANOVA) were performed. The relationship between HR practices and employee retention and between employee retention and perceived HR impact on firm performance were examined, using multiple regression analysis. The data analysis results are as follows.

Data analyses

Table III provides the Spearman correlations between key HRM measures as independent variables and perceived impact of HR on firm performance as dependent variables with their means and standard deviation (SD). The reliability analysis of 15 standardised items was conducted. The reliability coefficient Cronbach's alpha (α=0.604) reaches to an acceptable level (Gliem and Gliem, 2003), given the variables included in this study are largely ordinal. Most of the correlations have a value of less than 0.4, indicating that no pair of constructs is so intercorrelated that they could reflect the same construct. Understandably, the more companies provide one type of employees with scholarships for further education and training, the more likely they also would provide the other type of employees with traineeship/apprenticeship. Hence, the provision of scholarships is highly correlated with the provision of traineeships/apprenticeships (r=0.82, p<0.01). Another two highly correlated variables are the perceived HR impact on “productivity” and “harmonised relationships” (r=0.62, p<0.01). The widely-investigated literature does not support a positive link between indicators of harmonised relationships among employer, employee, and customer (job satisfaction, customer satisfaction, positive felt, displayed emotion, etc.) and productivity. For instance, one leading perspective suggests a negative relationship between these indicators and productivity (Rafaeli, 1989; Rafaeli and Sutton, 1990; Sutton and Rafaeli, 1988; Anderson et al., 1997), whilst another indicates minor or no relationship at all between these variables (Bateman and Organ, 1983). Therefore, the high correlation coefficient might be due to the possibility of “same-source bias,” which is caused by the use of self-reported data for both the perceived HR impacts on “productivity” and on the “harmonised relationships.” Consequently, this might have generated a spurious association between the two variables[3]. To avoid the issue of multicollinearity and to support the discriminant validity of all constructs, we excluded the highly correlated variables from the subsequent regression analysis.

The correlation matrix shows that use of formal recruitment methods (e.g. media advertisement, and face-to-face interview) is significantly related to all three training methods used and various staff skill development. It seems when firms pay attention to one area of HR practices, they tend to also formalise all other areas of HR practices. In contrast, informal recruitment methods, i.e. via word of mouth and employee referral, are negatively related to innovative methods used (r=−0.29, p<0.01) but positively related to the use of external training mode (r=0.15, p<0.01). Similarly, the use of innovative recruitment methods (e.g. internet, school/graduate fair, and agencies) is also significantly related to the use of external training mode and skill development. Surprisingly, the more firms made use of informal recruitment methods, the less likely the firms would have a high employee turnover rate (r=−0.18, p<0.01). But the greater use of innovative recruitment methods, on the other hand, led to a higher level of turnover (r=0.25, p<0.01). It seems that people who come through the innovative recruitment channels may also be the very people often looking for other job opportunities, so their turnover rate turns out to be higher. Nevertheless, the use of innovative recruitment approach is perceived to be positively related to “impact on growth” (r=0.18, p<0.01). It appears that if respondents rated higher on the use of innovative recruitment methods, they might have also perceived such methods as necessary staffing source to drive business growth, when companies are expanding.

Second, use of the on-the-job, off-the-job, and external training methods is perceived to be significantly related to impact on “harmonised relationships” between employer and employee but does not relate to the perceived impact on service capacity. To some extent, use of external training methods is moderately associated with the perceived impact on growth (r=0.16, p<0.05).

Third, provision of scholarships is also highly correlated to various employee skill developments, such as management, interpersonal, planning, new technology, self-management, multi-skilling, teamwork, literacy, numeracy, and other job-related technical skills. Skills development is positively related to perceived HR impact on most performance indicators (growth, r=0.42, p<0.01; service capacity, r=0.26, p<0.01; and harmonised relationships, r=0.19, p<0.01).

Comparison of parent source and sectoral differences

An independent sample t-test was conducted to compare HR practices used by different types of service companies; and by Asian and non-Asian owned firms. There were no significant differences in the use of formal and informal recruitment methods, resource support by average training per person, and skill development. However, there were differences among Asian and non-Asian firms in terms of their use of innovative recruitment methods, off-the-job training, and provision of traineeships/apprenticeships. Non-Asian owned firms were more inclined to use the innovative recruitment methods (M=2.99, SD=1.23, t(279)=1.67, p=0.05), yet the magnitude of the differences in the means was very small (η2=0.009<0.01, very small effect) (Pallant, 2001, p. 181). This indicates that some Asian-owned firms are also using to some extent innovative recruitment methods. The magnitude of the differences in the means for using off-the-job training and provision of traineeships and apprenticeships were relatively higher (η2=0.05 and 0.04, respectively),

indicating that more of off-the-job training (M=2.94, SD=1.33, t(279)=3.70, p=0.000) and traineeships/apprenticeships (M=1.93, SD=0.77, t(279)=3.18, p=0.002) were provided by non-Asian firms.

In terms of sector, financial firms were more likely to provide off-the-job training (M=2.94, SD=1.32, t(279)=2.87, p=0.004) and provision of scholarships (M=1.84, SD=0.69, t(279)=2.96, p=0.003; η2=0.03 both). There were slightly differences in offering external training and traineeships/apprenticeships between financial and other type of service firms, but the magnitude of the differences is rather small (η2<0.01) for both variables.

Country comparison

Two-way between-groups ANOVA were conducted to explore the differences of employee turnover rate and ten HR practice variables among six countries. There was a statistically significant main effect (0.05<η2<0.19) for country in all variables examined, except skill development with inception to sector and parent source of MNCs (see the ANOVA results displayed in Table IV). Two observations can be made here. First, developing service economy has been much emphasised by some Asian economies in recent years, particularly those more advanced Asian economies such as Singapore and Taiwan (ADB, 2005; see also the discussion by Zheng and Hu, 2008). Service MNCs hence either have to focus on developing service skills or might have been required by host governments to develop necessary skills lack within the country as a part of the deal of being allowed to operate in local subsidiaries. Therefore, it is seen that skill development has been adopted without differentiation across all MNCs examined. However, the second observation is about the “divergence” of HR practices, significant differences among six Asian countries, as shown in the current study, in terms of MNCs' HR measures and employee outcomes suggest that HR practices are very much contextualised, influenced by the country specific variables, such as cultural and institutional settings (Warner, 2002; Carr and Pudelko, 2006).

Despite the interaction effects between country and sector, and between country and parent source did not reach statistical significance for most variables tested, the results show that financial companies were more likely to use “off-the-job training” (F(1, 269)=6.62, p=0.01), “external training” (F(1, 269)=5.17, p=0.02) and to provide more “scholarships” (F(1, 269)=4.50, p=0.03) than all other type of service companies in Asia; and non-Asian firms were more likely to provide “traineeship/apprenticeship” (F(1, 269)=6.55, p=0.01), and to use “off-the-job training” (F(1, 269)=8.24, p=0.01), consistent to the t-test results.

Perceived impacts of HR practices on service firm performance

The extent to which the four HR practices affect talent retention (proxied by employee turnover rate); and employee retention on perceived HR impact on service firm performance (proxied by growth, service capacity, and harmonised relationships) were analysed using multiple regression as displayed in Table V. The results from Model 1 indicate that, taken together, the HR practices significantly contribute to employee retention (F(14, 266)=3.073, p<0.01). Similarly, perceived impact of HR practices on all three service firm performance indicators are significantly associated with HR practices and HR outcome, as the indicators for all three models 2, 3, and 4 are significant (Table V). In particular, Model 2

as a whole explains almost 20 percent (R 2 adjusted=0.196) of the variance, suggesting that the combination of specific HR practices and the effort invested in retaining talent was perceived by the respondents in the survey to likely make significant contribution to the service firm growth (F(14, 266)=5.543, p<0.01). Although the variances of HR practices used to explain the perceived impact on service capacity and harmonised relationships were relatively small, Models 3 and 4 are still statistically significant. The impact of HR on service capacity (F(14, 266)=2.339, p<0.01) was perceived to be significantly impacted by skills development (β=0.275, p<0.01) and employee retention rate (β=0.117, p<0.05). The impact of HR on harmonised relationships was perceived to be moderately influenced by on-the-job training (β=0.114, p<0.05) and again largely affected by the level of skill development (β=0.166, p<0.01).

In terms of the effect of individual variables on employee retention, only three variables (formal recruitment, innovative recruitment and provision of traineeships/apprenticeships) had significantly impacted on employee turnover rate. However, as noted earlier, these practices are positively related to employee turnover rate, suggesting that the more firms used formalised and innovative methods and resources (e.g. scholarship, traineeship) provided to support employee skill development, the more likely firms may lose some competent staff. While this is much against the conventional idea of controlling employee turnover through effective skill development and training commonly concluded from earlier studies (Ahmad and Bakar, 2003; Arthur, 1994; Huselid, 1995; Shaw et al., 1998), a reasonable explanation for this phenomenon will be discussed later.

At the same time, employee turnover rate was perceived to be moderately related to the perceived impact of HR on company growth (β=0.102, p<0.05) and on service capacity (β=0.117, p<0.05), whilst there were significant relationships between skill development and all three perceived performance indicators. Together, these results highlight the importance of skill development and retention of competent staff to enhance positive HR impact on organisational performance.

It appears that all other types of service firms were perceived to experience more growth than the financial firms (β=.092, p<0.05); and that more newly-set up service firms in Asia were seen to grow faster, compared to the well-established ones (β=−0.130, p<0.05). Parent source and country did not explain any differences in the perceived impact of HR on all firm performance indicators.

Discussion and conclusion

Examining the perceived impact of HR on service firm performance among MNCs in Asia, this study has shown that there were significant relationships between the strategic selection of industry-specific HRM practices and organisational outcomes, consistent with the argument from the “best-fit” model of HRM-performance linkages (Becker and Huselid (2006), Datta et al., 2005). In particular, extensive skill development across all areas such as managerial, interpersonal, teamwork, and job-related technical skills was strongly perceived to have impacted on service delivery, firm growth, and harmonised relationships between employer, employee, and customers.

However, in Asia, it seems that persistent use of HR practices may not necessarily yield good employee retention outcomes. In fact, employee turnover rates were higher in the service organisations examined, despite their adoption of some formalised HR practices with training resource supports. There are several explanations that could provide some insights into this unusual phenomenon. First, given the continuing “war for talent” worldwide, hyper competition for talents among service companies in Asia is likely. Certainly, skills demands by service companies have been identified as stronger than manufacturing companies in Asia (Zheng et al., 2008). As such, despite the effort companies put into formalising HR practices, in particular training practices, the more trained and highly skilled employees may well become very attractive to the competitors, who simply offer better compensation packages to lure them away. “Job hopping” by employees and “poaching” by competitors were repeatedly reported as key challenges to HRM in Asia (Dowling et al., 1999; Khatri et al., 2001).

Second, the cultural and social network may provide some explanations of higher employee turnover despite the use of formalised HR practices. Turnover, generally in the range of 5-15 percent, is negatively related to informal recruitment. This suggests that personal networks or word of mouth referrals may serve as a buttress to keep down the turnover rate and retain competent employees with the promise of longer-term employment in the Asian service industry. Considering the fact that most firms examined in this study were small- to medium-sized companies, these results are not surprising. Employee commitment is the key factor driving small and medium enterprise performance (Zheng et al., 2006). Hence, working on staff retention using informal HRM practices may have helped service firms in Asia to achieve business growth in the short run.

Third, despite the effort to keep employees, skill shortages across Asia or even globally are still the key factor driving up the employee turnover rate. Using the same data set, Stahl and Zheng (2002) found that skill shortages were more pronounced in more advanced economies than in developing economies. This is also due to the high proportion of the service sectors in the advanced economies that has intensified the skill shortage. Indeed, MNCs operating in the more advanced economies such as Singapore and Taiwan experienced a much higher level of employee turnover rate, despite their adoption of formalised HRM practices (Zhu et al., 2007).

Lastly, while the selection of four HR practices (recruitment, training, resource support, and skill development) was justified by the limited literature examining HR and service industry performance link, the list of variables in the current study may be too narrow to provide a synergistic effect of all HR practices on firm performance (Becker and Huselid, 1999). There is a need to include other HR measurements, for example, compensation, and reward in further testing. In addition to the list of HRM practices as a limitation of this study, it should also be noted that there are indeed limitations of using perceptual data, especially the perceived HR impacts on service firm performance. Subject to the respondents' job responsibilities and firm actual positions in market at the time of survey, it is quite likely that respondents might have either overrated or undervalued the impact of HR on firm performance. Hence, more objective data such as time reduction in delivery, less grievance cases, low strike level, and dollar saved or generated as a result of implementing HRM programs should be collected in future research.

In conclusion, the study has produced evidence that selected HR practices, in particular the development of various skills, appear to be closely associated with service firm growth and capacity to deliver quality services; and that a higher level of employee turnover rate is associated with growth and service delivery as well. Two implications can be drawn from these results. First, in order to drive service firm growth and high quality service delivery, it might be useful for service firms to focus on skill training and development, even though by simply practicing this, it may lead to high levels of turnover rates among marketable employees, at least in the short-term. Second, talent retention is certainly very important for firm growth and delivery of quality service in the longer term. Identifying other HR practices, along with skill training and development may lead to better manage talent attraction and retention in the service industry in Asia.

Figure 1A conceptual model: HRM practices, employee retention, and perceived HR impact on firm performance

Table ISurvey profile – the service MNCs in six Asian countries

Table IIA list of variables and their measurement

Table IIICorrelation matrix

Table IVCountry comparison – all independent variables – ANOVA results and means differences

Table VMultiple regression results

Notes

1. The terms “Dragon” and “Tiger” refer to some fast growing economies in Asia. Zheng et al. (2008, p. 54) reviewed several studies discussing about these two terms and found that Japan, Singapore, South Korea, and Taiwan have been usually described as “Dragon” economies because they have developed more rapidly than other “Tiger” nations, such as Indonesia, Malaysia, Philippines, Thailand, etc. spreading across the South-East Asia.

2. Only voluntary employee turnover was used in this study, based on two reasons. One is that involuntary turnover due to retirement and death is essentially uncontrollable, and is therefore meaningless to evaluate at the organisational level. Second, where involuntary turnover is the result of the employer's decision to terminate employment relationship, because of external economic conditions, such as recession; or because of internal reasons, such as replacement of poor performers (see discussion in Mobley, 1982; Shaw et al., 1998), this would not be a concern to

organisations. It is voluntary turnover that has been a “salient managerial issue” employers need to address at the organisational level (Zheng and Lamond, in press).

3. The suggestion made by the reviewer on addressing this specific correlation is acknowledged.

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Further Reading

Barber, A.E., Wesson, M.J., Roberson, Q.M., Taylor, M.S. (1999), "A tale of two job markets: organizational size and its effects on hiring practices and job search behavior", Personnel Psychology, Vol. 52 No.4, pp.841-68.

Kaman, V., McCarthy, A.M., Gulbro, R.D., Tucker, M.L. (2001), "Bureaucratic and high commitment human resource practices in small service firms", Human Resource Planning, Vol. 24 No.1, pp.33-44.

Corresponding author

Connie Zheng can be contacted at: connie.zheng@rmit.edu.au