RESEARCH AND PRACTICE
IN HUMAN RESOURCE MANAGEMENT

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Kam, B. H., Tsahuridu, E. E. & Ding, M. J. (2010). Does Human Resource Management Contribute to the Development of Logistics and Supply Chain Capabilities? An Empirical Study of Logistics Service Providers in China, Research and Practice in Human Resource Management, 18(2), 15-34.

Does Human Resource Management Contribute to the Development of Logistics and Supply Chain Capabilities? An Empirical Study of Logistics Service Providers in China

Booi H. Kam, Eva E. Tsahuridu & Ming Juan Ding

Abstract

China’s position as the world’s manufacturing hub led to the greater importance and monumental growth of its logistics and supply chain management services. This growth was paralleled by dramatic yet inadequate changes in human resource management practices. To explore the effect human resource management has on logistics capabilities in China, this paper examines the relationship between induction, recruitment and selection, performance management, reward management, and training and development with the key logistics capabilities of integrated logistics services (ILS), information and communication technology (ICT), flexible supply chain (FSC) solutions, and industry specific logistics expertise (ISLE) in 98 logistic service providers. Using hierarchical regression analysis, induction, training and development were found to enhance ILS and FSC capabilities, while recruitment and selection were found to have a negative impact on ILS and ISLE capabilities. Reward management was found to affect ILS and ICT capabilities, while performance management was effective in building ICT and FSC capabilities. The implications of these findings on the contextual characteristics of logistics and supply chain service capabilities in China are discussed, including avenues for further research.

Introduction

Globally, logistics has emerged as a significant growth sector in most nations. Reputed to be the world’s manufacturing hub, China is among the nations where the demand for logistics and supply chain services has been growing at a monumental pace (Bolton & Wei 2003, Goh & Ling 2003, China Logistics Yearbook 2006). The growth of the logistics service market in China has outstripped the pace of logistics infrastructure development, despite the vast amount of investment being channelled to develop transport and logistics related infrastructure. China’s lack of modern logistics infrastructure exposes its logistics operations to a large array of risks (Kerr 2005). More prominent, however, is the distinct shortage of logistics and supply chain management expertise, including information system support capabilities, which have become hurdles to supply chain development in China (Hong, Chin & Liu 2004).The inadequate logistics infrastructure coupled with lack of skilled workers and management are blamed for the high levels of loss, damage and deterioration of stocks experienced, especially for perishable goods (Dolven 2002, Kerr 2005). These challenges, however, also generate opportunities for companies with advanced logistics systems and skilled people to grow their market.

Human resource management (HRM) as a practice and an academic discipline has developed substantially in China (Cooke 2009, Kim,Wright & Su 2010). Given the development of the logistics industry in China and the challenges it faces, HRM would be expected to play an important role in improving its effectiveness. Logistics service providers (LSPs), however, seem to share the general reluctance among business organisations in China to emphasise HRM practices in order to improve quality, despite the relative devilment of HRM and evidence that effective HRM practices are an important element of service quality and customer satisfaction (Li, Yang & Wu 2008). LSPs in China tend to concentrate more on systemic or structural, rather than human resource aspects, to improve their organisational effectiveness. The very limited emphasis on HRM among Chinese firms is encouraged by the view of employees as “a cheap, expendable resource” (Glover & Siu 2000: 867). To overcome this perception in the Chinese context, Glover and Siu (2000) propose the development of specific approaches appropriate for China to address issues of recruitment, training and development, and reward, instead of mimicking Western quality management models that are unlikely to work.

The key aim of this paper is to explore the relationship between HRM functions and key logistics capabilities in the logistics service industry in China and the identification of any possible effect HRM practices may have on the development of key logistics and supply chain (LSC) capabilities. This paper reports the findings of an exploratory research project that examines the relationship between the HRM functions of induction, recruitment and selection, performance management, reward management, and training and development and the key LSC capabilities of providing integrated logistics services (ILS), using information and communication technology (ICT) to solve complex logistic problems, devising flexible supply chain (FSC) solutions and offering industry specific logistics expertise (ISLE).

The next section presents the literature review of HRM in China, the key LSC capabilities examined and their relationship. Following is the methodology section, which outlines the data collection process, the sample and instrument used. The findings and their implications for HRM policies and practices are discussed in the final section.

Literature Review

Drawing on empirical and theoretical studies on HRM practices (Cutcher-Gershenfeld 1991, Pfeffer 1994, Delaney & Huselid 1996), Harel and Tzafrir (1999) identified that the six HRM practices of recruitment, selection, compensation, employee participation, internal labour market and training, have a positive relationship with organisational and market performance. Delaney and Huselid (1996) also found a positive association between HRM practices and organisational performance measures in their survey of both profit and not for profit organisations. Their findings show that staff selection, employee skills, employee motivation, structure of jobs and training are positively related to organisational performance. Examining the impact HRM practices have on the performance of enterprises in the Dhaka Export Processing Zone, Islam and Siengthai (2010) further confirm that the positive relationship between HRM practices and organisational performance is upheld even in the context of a less developed economy.

Birdi, et al. (2008) who studied the impact of HRM practices on employee empowerment, training and teamwork, indicated that from an organisational behavioural perspective, HRM practices develop individual knowledge and skills, as well as employee attitudes and behaviour. In another study, Ahmad and Schroeder (2003) also found that many HRM practices, such as selective hiring, use of teams and decentralisation, compensation for performance, training, and information sharing, have a positive relationship with operational performance in organisations. These findings suggest that while HRM practices have a positive impact on organisational performance, it is the effects that HRM practices have on individuals within organisations, who possess the requisite skills and expertise to contribute to various organisational capabilities, which make this relationship possible. This study focuses on the relationship between the five key HRM functions of induction, recruitment and selection, performance management, reward management, and training and development and the four LSC capabilities: ability to provide integrated logistics services (ILS Capability); ability to use ICT to solve complex logistics and supply chain problems (ICT Capability); ability to devise flexible supply chain solutions (FSC Capability); and ability to offer industry specific logistics expertise (ISLE Capability).

Human Resource Management in China

The ‘opening up’ of the Chinese state run economic system and its transition to a market economy in the late 1970s has improved the autonomy of Chinese firms. This change resulted in the adoption of some Western style management practices’ and subsequently, a greater emphasis on specialised human competencies. Consequentially, HRM processes and practices started to ‘take roots’ in China, though the term was viewed primarily as a synonym to personnel management. More recently, this interpretation began to ease and the term has been used in a broader sense to include staff training and development (Zhu, Cooper, De Cieri & Dowling 2005), with clear evidence that traditional Chinese HRM practices have changed (Cooke 2005). What is evolving is a hybrid form of HRM “with Chinese characteristics”that, at present, is mainly concerned with short term issues rather than more strategic ones (Warner 2008: 779).

The development of HRM in China has been found to be related to a number of characteristics. These features are often reported as organisational ownership structure, size and location with foreign owned, larger organisations located in the country’s south likely to have more developed and sophisticated HRM practices (Warner 2008). Strategic human resource participation and the changing business environment were also found to be the strongest influences underlying the adoption of HRM in China (Zhu, et al. 2005).

A firm’s ability to attract, motivate, train, appraise, reward and retain valuable employees is very important for local and foreign firms in China, given its historic development and dynamism (Ahlstrom, Bruton & Chan 2001, Zhu, et al. 2005). The economic and political developments in China affect not only the availability of labour, but also its characteristics.The large number of people who used to work in state owned enterprises, the general low skill levels, high turnover rates and the cultural characteristics of face and harmony present unique challenges (Ahlstrom, et al. 2001) to HRM practitioners. For instance, research (see e.g., Ahlstrom, et al. 2001, Wilkinson, Eberhardt, McLaren & Millington 2005) indicates that firms in China face great difficulties in recruiting and retaining competent and professional staff. Guanxi, the “… system of personal connections that carry long-term social obligation.” (Wilkinson, et al. 2005: 1889), has been cited frequently (Warner 1993, Ahlstrom, et al. 2001) as an important element of the recruitment process and career development in China. Such an informal approach, however, is seen to be easing and there is evidence that Chinese firms are beginning to adopt more transparent and sophisticated recruitment processes (Cooke 2005).

To deal with the difficulties associated with recruiting and retaining competent and professional staff in China, multinational corporations (MNCs) generally rely on training, development and mentoring to develop the necessary skills and improve motivation of local employees, rather than hiring expatriates due to the high costs associated with such appointments (Wilkinson, et al. 2005). Despite these efforts, however, staff may not remain with the firm due to the myriad opportunities available for qualified and skilled workers in the Chinese labour market, making staff turnover a persistent issue (Ahlstrom, et al. 2001). The growth of manufacturing has also created more challenges for the service sector as demand for people with highly transferable skills continues to escalate (Zheng 2009). This characteristic of the Chinese labour market is not only a consequence of the structural imbalance arising from an oversupply of unskilled labour and a shortage of skilled labour (Warner 2003), but also the fallouts of market deregulation that increased competition for skilled labour (Cunningham & Rowley 2008).

Since the 1970s reforms that resulted in the move away from the centralised job allocation system and the increased importance of recruitment and selection processes, human resource training in China improved in popularity as a formal method of skill and professional development (Zhu 1998). Training is particularly important where the supply of skilled employees remains short, as is the case in China where cheap unskilled labour abounds (Cooke 2005). Training in Chinese firms continues to be narrowly defined and related to the immediate job tasks (Warner 1993), with little apparent impact on job design or career development (Child 1994).

Performance management is an area of HRM that has been identified as highly problematic in China (Huo & Von Glinow 1995). It is also an area that has not been adequately researched (Hempel 2001). What has been reported, however, is that most Chinese firms use non systematic performance appraisals, while foreign firms tend to use collective or group oriented appraisal approaches (Ahlstrom, et al. 2001). Overall, there has been an increase in the employment of performance management and performance related rewards (mainly extrinsic) in private firms (Ahlstrom, et al. 2001, Cooke 2005). Research on performance management in China indicates that its implementation seems to suffer from similar problems found in Western countries and include system design problem, ambiguous criteria and insufficient or ineffective feedback mechanisms (Cooke 2005).

Employee retention is a crucial issue in China, especially in relation to strategically important, highly skilled and trained employees (Ahlstrom, et al. 2001,Wilkinson, et al. 2005). Unlike the days of the‘iron rice bowl’ that guaranteed life long employment (Warner 2008), the average number of years people stay in the same job in China is diminishing rapidly. Research reported in China Staff indicates that prior to the 1980s people tended to stay in the same job for 15 to 20 years, but these retention rates have declined to an average of 10 years in the 1980s, and then further reduced to five in the 1990s. The main reason that prompted people to change jobs was dissatisfaction with wages, a finding that confirms the importance of financial rewards in recruiting and retaining staff (Jackson & Bak 1998). Ahlstrom, et al. (2001) suggest that extrinsic rewards, such as pay, working conditions and housing benefits, as well as intrinsic rewards, empowerment, participation and increases in task significance and task identity, can improve employee retention.

Private firms in China have also been found to exhibit low trust relationships between employees and managers, with the consequence of low employee commitment and participation and high employee turnover (Wilkinson, et al. 2005). There are also different structures and power distance relationships (Warner 2008). These relationships and their resulting behaviours do not augur well with many supply chain and logistics techniques, such as just in time and total quality systems that are essential for the establishment of operational flexibility and service responsiveness (Wilkinson, et al. 2005). It is little wonder that LSPs operating in China face a number of HR related challenges.

HRM and Logistics Service Providers in China

Recent research in supply chain management in China indicates that a lack of logistics professionals has become an issue that can no longer be ignored (Trunick 2003, 2004a, 2004b,Hong, et al. 2004, Kerr 2005). In addition, a survey conducted in 2002 by the Asia Pacific Logistics Institute in Singapore in association with the Logistics Institute of the Georgia Institute of Technology in the USA indicated that both international and domestic LSPs identified lack of talent as one of the key challenges of operating in China (Bolton & Wei 2003). Hong, et al. (2004) also found that shortage of logistics management expertise, coupled with inefficient information support systems, are impediments to supply chain development in China. It is also worth noting that the lack of qualified logistics personnel is expected to worsen inmainland China (Wang, Zantow, Lai & Wang 2006). In contrast, LSPs in Hong Kong do not consider lack of qualified personnel to be a major issue that could affect the future of the logistics industry in Hong Kong (Yeung, Selenm, Sum & Huo 2006). This, rather obviously, is a reflection of the greater availability of skilled local and expatriate labour in Hong Kong, compared with the tight supply situation of skilled human power in Mainland China.

Richard Armstrong, president of Armstrong and Associates (a supply chain market research and consulting firm), comments that whether a company is able to undertake any logistics project in China still depends on the strength of its contacts within the Chinese bureaucracy (Kerr 2005). This characteristic of the Chinese context increases the market value of logistics professionals with a deep understanding of the local culture. Furthermore, training remains a ‘black hole’ in logistics in China as there is little practical training in information and communication technology (ICT) skills or warehouse management, let alone the development of competencies at a strategic level (Kerr 2005). Hong, et al. (2004) indicated that many Chinese businesses have not realised the benefits that logistics best practices can bring, so they are not interested in outsourcing opportunities or modern supply chain management techniques. Zhou, Min, Xu and Cao (2008) argued that building a critical mass of expertise in logistics and supply chain management is a major challenge for Chinese LSPs and explain that the short term solution to this problem is usually partnering with a foreign based LSP by establishing joint ventures.

Impact of HRM in the Chinese Logistics Industry

Several studies (see e.g., Li & Vellenga 1993, Bookbinder & Tan 2003, Lin 2007, Lieb 2008) have provided data to show a work force with the appropriate talent and skills would be a positive contributing factor in service capabilities of LSPs in China. For instance, Bookbinder and Tan (2003) comment that state of the art equipment requires a skilled workforce. Modern logistics companies need talented people who can learn quickly about a tool and apply it towards productivity gains, as well as workers who emphasise customer service and are motivated to ensure fewer work shortages. Lin (2007) suggests that the higher the quality of human resources, the more likely that China’s LSPs will adopt innovative logistics technologies. Based on the results of factor and regression analysis, Lin (2007) found that organisational encouragement, quality of human resources, environmental uncertainty and government support, significantly influenced innovations in logistics technologies for China’s LSPs. High human resource quality implies that employees are more technologically innovative. Lieb (2008) contends that the regional‘talent shortage’in the Asia Pacific region will continue thus, making improvements in recruiting, training and retention essential for LSPs to tackle the skill shortage problem, especially in China. A contributing cause of the unavailability of logistics experts in China is the absence, until 1978, of logistics and supply chain as a field of study in Chinese academia (Li & Vellenga 1993).

In addition to the lack of modern logistics infrastructure, logistics and supply chain operations in China also sustain higher levels of risks compared to other countries. Dolven (2002) reported that the average Chinese manufacturer keeps goods in a warehouse for 51 days, with over two per cent damage in shipment, while some international LSPs operating in China, such as APL, expressed concerns about logistics security. Indeed, Pau Man, the General Manager for North and East China at APL said:“All players, big and small, are constrained by a key factor: if the people loading the trucks aren’t good enough, the system breaks down. And they are usually small, independent operators, untrained and perhaps untrainable.’’

(Dolven 2002: 28). In addition, Goh and Ling (2003) further confirm that the costs incurred due to loss and damage of goods are significant and common during transport in mainland China, as vehicles used for freight transportation are usually open backed trucks covered only by tarpaulins.With the handling of goods with hazardous components increasing in China, lack of logistics infrastructure and expertise to deal with industry specific needs is quickly becoming a primary concern.

Logistics and Supply Chain Capabilities

The four key LSC capabilities examined in this study, which are the ILS capability, the ICT capability, the FSC capability and the ISLE capability, were chosen because they are among some of the most important logistics and supply chain attributes in promoting service quality and effectiveness in the logistics industry (Kenderdine & Larson 1988, Angeles 2000, Hannon 2003, Qureshi, Dinesh & Pradeep 2008, Han, Trienekens & Omta 2009).

Integrated Logistics Services (ILS) Capability

Broadly, LSPs can be segmented into two groups: operational specialists (or functional service providers) and integrated logistics service providers (Bowersox, Closs & Cooper 2002,Wanke, Arkader & Hijjar 2007). The former provide specialised services, such as transportation or warehousing, while the latter provide a larger range of logistics services that include all work necessary to service customers, from order entry to product delivery (Bowersox, et al. 2002). The ability to offer integrated logistics services, indirectly, implies a capability to deal with a wider range of logistics issues, endemic to different parts of the supply chain, such as procurement, production, warehousing and distribution.

The ILS capability, therefore, binds all logistics activities together in a system that simultaneously works to minimise total distribution costs and maintain desired customer service level (Kenderdine & Larson 1988). Research conducted by Han, et al. (2009) in eastern China, for example, found that integrated logistics management and integrated ICT had an indirect impact on firm performance through quality management practices. This suggests that effective integrated logistics services enhance quality management practices, which increase firm performance. Integrated logistics best practices, therefore, embrace the transaction tradeoffs that allow simultaneous improvement in economic performance and service quality (Stank & Keller 2001).

Information and Communication Technology (ICT) Capability

ICT is increasingly regarded as a vital resource that supports many business processes (Alshawi 2001). In the logistics industry, ICT such as Intranet, Extranet, Internet and Electronic Data Interchange (EDI), facilitates the integration of supply chain activities (Calza & Passaro 1997, Angeles 2000). The importance of ICT in LSC operations lies in ICT’s contribution to the provision of timely and accurate information, enabling information sharing both within the firm and between supply chain partners and enhancing organisational decision making (Aldin & Stahre 2003). Bowersox, et al. (2002) outline four reasons for the increasing importance of ICT as a valuable logistics resource. First, customers appreciate timely information about order status, product availability, delivery schedules and invoice settlement, which are increasingly enhanced by rapid advances in ICT. Second, timely information is essential for inventory planning and human resource scheduling. Third, timely information increases LSC flexibility with regard to how, when, and where resources may be utilised to gain strategic advantage. Fourth, enhanced information transfer and capability exchange utilising the Internet is changing relationships between buyers and sellers and redefining channel relationships. Therefore, the ability to utilise ICT skills and knowledge to enhance LSC operations is fast becoming an indispensable resource for LSPs.

Flexible Supply Chain (FSC) Capability

Flexibility in operation and delivery is one of the most sought after capabilities of LSPs (Stank, Daugherty & Ellinger 1998). In a dynamic market environment, operational flexibility is not just a customer attractor, but a strong predictor of performance (Anand & Ward 2004). LSPs typically regard service flexibility as an important ingredient for meeting customers’fast changing needs in real time. Expectedly, LSPs capable of providing customers with FSC solutions in a constantly evolving market place would have a competitive edge over those with lesser relevant infrastructure (Qureshi, et al. 2008).

Industry Specific Logistics Expertise (ISLE) Capability

Increasingly, firms are seeking logistics companies to provide them with a turnkey logistics solution, accentuating the importance of industry specific expertise for new market development (Richardson 1997, Huang & Kadar 2002, Bolton & Wei 2003, Hannon 2003). The unique requirements of automotive manufacturers, for example, make handling their logistics operations more challenging than most other manufacturing industries. The manufacturing pace at many automakers requires a constant stream of just in time products to keep production lines on the move. Cost control is also a major issue for automakers especially in a down market. The specific logistics requirements of the automotive industry have led original equipment manufacturers to explore joint ventures as an option to strengthen their logistics activities by combining logistics and automotive industry expertise in their supply chain (Hannon 2003). Bolton and Wei (2003) also note the rise of alliances and joint ventures as one major trend in the distribution and logistics sector in China with many top LSPs building competitive national distribution chains targeting specific industries. The formation of the third party logistics service joint venture, by Legend Group Ltd and APL Logistics, to offer specialised logistics services to the information technology industry in China, is one such example (Huang & Kadar 2002).

HRM and Logistics and Supply Chain Capabilities

Logistics and supply chain operations typically comprise processes that are causally ambiguous and socially complex (Teece 1987), characteristics reflective of valuable, hard to imitate and hard to substitute resources that enable an organisation to build its core competence and gain competitive advantage (Barney 1991). From the HR perspective, these attributes are embedded in both the team, as well as the individuals who form the team. Because of “time compression diseconomies” (Dierickx & Cool 1989: 1507), individually embedded attributes become less important than attributes embedded within the team as a whole, because the whole is greater than the sum of its parts. The four sets of capabilities examined in this study contain individually embedded attributes (human capital), as well as team embedded attributes (organisational capital), with the mix between the two sets of attributes varying from one capability to another.

HRM practices develop individual knowledge, skills, attitudes, behaviour and team building (Birdi, et al. 2008), which are the primary building blocks of organisational capabilities. Given that HRM practices have been empirically found to have a positive relationship with operational performance (see e.g., Ahmad & Schroeder 2003), it is hypothesised that all the five HRM practices of induction, recruitment and selection, performance management, reward management and training and development would be positively related to ILS, ICT, FSC and ISLE capabilities.

Control Variables

Because LSC capabilities are embedded both within the organisation as well as the individuals who are an integral part of the organisation, organisational characteristics such as company size, geographic reach, logistics experience and ICT infrastructure in use, expectedly, would have an effect on LSC capabilities. To examine the impact of HRM practices on LSC capabilities, the five organisational characteristics of years of experience operating in the logistics industry (overall logistics experience), years of experience operating in the Chinese logistics market (China specific logistics experience), company size, geographic reach and availability of secured ICT facilities (secured ICT systems), are included as control variables in the data analysis.

Overall Logistics Experience

Logistics capabilities, manifested in the planning, organisation, scheduling and conduct of operational activities, are typically developed from a long chain of socially complex and causally ambiguous processes. Through a repetitive engagement of similar activities overtime, these processes are progressively modified and refined, eventually becoming embedded in organisational routines. Due to time compression diseconomies (Dierickx & Cool 1989), therefore, the more experience a LSP has in the logistics industry, the higher its LSC capabilities would be, all things being equal.

China Specific Logistics Experience

While logistics experience is essential in building LSC capabilities, specific operation experience in the Chinese logistics market is also crucial, as confirmed by Hong, et al. (2004) who found that years of operation in China has been instrumental in expanding the service capabilities of many LSPs. Huang and Kadar (2002) also noted that the majority of foreign LSPs in China lack local knowledge (or on the land capability), which invariably increases their cost of operations. As a result, many have to expand their business by building partnership with Chinese companies. Expectedly, China specific logistics experience will have a positive effect on LSC capabilities.

Company Size

All things being equal, conventional wisdom will suggest that the LSC capabilities would be positively related to company size, which could either be measured in terms of number of employees or annual turnover. However, Hong, et al. (2004) found that the majority of private LSPs in China are smaller in size than their state owned counterparts, in terms of employee numbers and physical assets. Yet, private LSPs in China have also been repeatedly found to be generally better able to service their customers than their state owned competitors, despite their size (Powers 2001, Huang & Kadar 2002, Hong & Liu 2007). Therefore, in the context of the Chinese logistics industry, a negative relationship between firm size and LSC capabilities could be expected: the larger the firm size the lower the expected LSC capabilities.

Geographic Reach

Extensive spatial reach is a desirable feature for shippers (Qureshi, et al. 2008). A number of studies (see e.g., Bolton & Wei 2003, Fung, et al. 2005) have found that when foreign LSPs seek strategic alliances in China, they not only target those with strong strategic assets (e.g., transport and warehousing facilities), but also those with extensive domestic network coverage. These findings lend support to the proposition that geographic reach would contribute positively to LSC capabilities among LSPs in China.

Secured ICT System

The effectiveness of the ICT capability hinges significantly on the security of the ICT facilities in use, such as Intranet, Extranet, Internet, WWW and EDI (Calza & Passaro 1997, Angeles 2000). In a highly competitive market, like the logistics industry of China, information leakage is a primary concern of LSPs ( Alshawi 2001, Aldin & Stahre 2003). ICT security, or the ability to protect proprietary information, can give LSPs an edge over their competitors thus, enhancing their LSC capabilities.

Methodology

Participants and Site

The sample of LSPs for this study was taken from the list of international logistics companies provided by Global Supply Chain Council (2007) and the Chinese logistics companies listed in the China Logistics Yearbook (2006). A total of 162 international logistics companies were found in Global Supply Chain Council (2007), and 210 Chinese logistics companies were found in the China Logistics Yearbook (2006), giving a total of 372 international and domestic LSPs.

Procedure

The 372 LSPs found in the two identified sources constituted the target sample for the survey. Each of the 372 LSPs was mailed a copy of the survey questionnaire in January 2007. One month after the first mail out, a reminder letter, together with another copy of the survey questionnaire, was sent to companies that did not respond, requesting their cooperation to complete the questionnaire. In total, 112 completed questionnaires were received, giving an overall response rate of 34.2 per cent. After checking, 14 of the returned questionnaires were found to be invalid and were excluded from the data file, reducing the usable sample to 98.

Of the 98 valid questionnaires returned, 11 were completed by the company’s General Manager, 34 by the Sales or Marketing Manager, and 53 by either the Operation Manager or an Operational Executive (such as a senior logistics supervisor, warehouse manager or inventory controller).

Measurement

The survey data reported in this paper drew on data collected as part of a larger study on the logistics industry of China. The survey questionnaire used, therefore, contains many questions not utilised in the analysis reported in this paper and consists of three sections. Section A focuses on factors affecting service operation, market expansion and performance of LSPs in China. It is divided into five parts. Part 1 is designed to explore factors relating to barriers and constraints that are perceived to hinder growth and performance. Part 2 contains questions relating to logistics service capabilities and strategies. Part 3 examines issues relating to partnership and relationship building, while Part 4 evaluates at human resource management systems. Part 5 is made up of questions concerning conditions of logistics support infrastructure.

Section B seeks information on market growth and firm performance, focusing on operational outcomes. The final section, Section C, solicits data describing company’s characteristics, such as annual revenue, employment size, years of operations in China and number of cities covered by the company’s operations. Except for Section C, questions in Sections A and B are both perceptual in nature. Respondents were asked to rate their agreement or disagreement to a series of single item constructs depicting the status quo of the factor being explored on a scale of 1 to 5, with 1 denoting strong disagreement and 5, strong agreement. Single item rather than multi item constructs were deliberately chosen in order to contain the length of the questionnaire and achieve a higher response rate, since single item constructs have been found to be statistically equivalent to multi item constructs (Bergkvist & Rossiter 2007).

Table 1 presents the description of the four sets of LSC capabilities being examined in this study (ILS, ICT, FSC and ISLE), as well as the HRM measures selected (reward management, recruitment and selection, performance management, training and development, and employee induction).

Table 1
Variable description
Variable name Description Measurement
LSC Capabilities:
ILS Capability
(Bowersox, et al. 2002, Wanke, Arkader & Hijjar 2007, Han, et al. 2009)
We are capable of providing integrated logistics services to all our customers Perception measured on a 5 point Likert Scale: 1 = strongly disagree; 5 = strongly agree
ICT Capability
(Calza & Passaro 1997, Angeles 2000, Alshawi 2001)
We possess advanced ICT capabilities to enhance the visibility of our customers’ supply chains
FSC Capability
(Stank, et al. 1998, Anand & Ward 2004, Qureshi, et al. 2008)
We are capable of offering flexible supply chain solutions to all our customers
ISLE Capability
(Richardson 1997, Huang & Kadar 2002, Bolton & Wei 2003, Hannon 2003)
We have the capability to provide industry-specific logistics expertise to customers in different industries
HRM Practice Variables:
Reward management
(Ahlstrom, et al. 2001, Zhu, et al. 2005)
We offer very competitive salaries and employment terms Perception measured on a 5 point Likert Scale: 1 = strongly disagree; 5 = strongly agree
Recruitment and selection
(Ahlstrom, et al. 2001, Wilkinson, et al. 2005, Cunningham & Rowley 2008)
We have in place a very rigorous employee selection and evaluation system
Performance management
(Huo & Von Glinow 1995, Ahlstrom, et al. 2001, Cooke 2005)
We have a fair and transparent performance review system to assess employees
Training and development
(Warner 1993, Zhu 1998, Cooke 2005)
We offer ample training and career development opportunities to employees
Employee induction
(Warner 1993, Zhu 1998)
We conduct regular induction training for all new employees
Control Variables:
Overall logistics experience Years of experience operating in the logistics industry, both in and outside of China Years
China specific logistics experience Years of experience operating in the Chinese logistics market Years
Company size
(Powers 2001, Huang & Kadar 2002, Hong, et al. 2007)
Number of employees in China Number
Geographic coverage Number of cities in China covered by operations Number
Secured ICT systems Our information systems are sufficiently secure for business transactions Perception measured on a 5 point Likert Scale: 1 = strongly disagree; 5 = strongly agree

Analysis

Hierarchical regression analysis was used to explore the effect HRM practices have on each of the four LSC capabilities. As multicollinearity is one of the main problems plaguing multiple regression studies, the correlation coefficients between the independent HRM and control variables were first examined. Table 2 shows that the correlation coefficients between the five control variables and five independent HRM variables are generally small (r < 0.5), except for four: that between overall logistics experience and China specific logistics experience (r = 0.830, p < 0.01); that between company size and geographic coverage (r = 0.683; p < 0.01); that between performance management and recruitment and selection (r = 0.583; p < 0.01); and that between training and development and employee induction (r = 0.638; p < 0.01).

Table 2
Correlation matrix
1 2 3 4 5 6 7 8 9 10 11 12 13
Overall logistics experience
China specific logistics experience 0.830**
Company size 0.348** 0.343**
Geographical coverage 0.397** 0.438** 0.683**
Secured ICT systems 0.087 0.063 0.234* 0.241*
Reward management 0.066 0.045 -0.008 -0.079 0.028
Recruitment & evaluation 0.054 -0.083 0.005 -0.086 0.101 0.354**
Performance management -0.093 -0.12 -0.059 -0.141 0.131 0.413** 0.583**
Training & development -0.048 -0.088 0.026 -0.04 0.246* 0.317** 0.445** 0.414**
10. Employee induction 0.085 -0.025 0.018 -0.084 0.173 0.275** 0.274** 0.333** 0.638**
11. ILS capability -0.141 -0.096 -0.028 -0.032 0.163 0.214* -0.06 0.107 0.272** 0.235*
12. ICT capability -0.042 0.016 0.123 0.126 0.208* 0.337** 0.228* 0.327** 0.173 0.053 0.286**
13. FSC capability 0.096 -0.058 0.210* 0.172 0.136 0.012 0.075 0.243* 0.204* 0.258* 0.205* 0.340**
14. ISLE capability -0.046 -0.067 0.086 0.179 0.278** 0.078 -0.037 0.118 0.179 0.178 0.491** 0.298** 0.281**

The notably large correlation coefficient between overall logistics experience and China specific logistics experience is not unexpected, given the dominance of domestic LSPs in the sample (see sample profile in next section). Webster (1998) suggests two ways to deal with highly correlated independent variables in multiple regression analysis. The first is to use only one of the two highly correlated variables and the second is to combine the two highly correlated variables by factor analysing them. In the case of the overall logistics experience and China specific logistics experience it was decided to use only one of the two variables in the regression analysis.

Of the four LSC capabilities being studied, the ILS and FSC capabilities are highly dependent on the Guanxi and connections to relevant authorities. The ISLE capability, in turn, is deeply linked to an understanding of the cultural practices of the specific industry. These three capabilities, in short, are relatively place dependent, implying that China specific logistics experience would be more appropriate than overall logistics experience as a control variable for these three regression models. The ICT capability is expected to be associated more with ICT knowledge and skill and less dependent on the context or place. Therefore, for the regression model with the ICT capability as the dependent variable, overall logistics experience the choice.

The relative large correlation between company size and geographic coverage implies that the larger the company size, the more extensive would be its geographic coverage. That being the case, the use of either geographic coverage or company size could serve as a proxy measure for both firm size and extent of physical distribution. Company size was eliminated from the control variable list as geographic coverage is conceptually an outcome of company size. Besides, geographic coverage also has a higher correlation with three of the four dependent variables than company size (see Table 2).

The relatively strong correlation between employee induction and training and development is dealt with by combining the two. The rationale for this combination is that employee induction typically includes training, in addition to a range of other orientation programmes. A factor analysis of the two HRM variables produced a factor (to be referred to as ITD for induction, training and development) that explains 81.9 per cent of the variance with high reliability (Cronbach a = 0.778). The correlation coefficients between ITD and all the other independent variables were then checked and none was found to be greater than 0.415.

Performance management and recruitment and selection were not combined in a similar manner because conceptually the two variables represent two rather distinctive aspects of HRM practices (Guest 1987). The need to specifically examine the individual effect of the two HRM practices on LSC capabilities informed the choice to use both in the four regression models.

Results

The 98 responding LSPs were made up of 11 international and 87 domestic LSPs. Briefly, the profile of the 98 responding LSPs in terms of the types of logistics services offered, years of experience in logistics industry, years of operation in China, annual revenue (in US$), number of employees in China, number of cities being serviced in China and information system used, is shown in Table 3.

Table 3
Profile of responding LSPs
Firm Characteristics Category Percentage
Types of logistics services offered* Freight forwarding 66.2
Transportation 42.9
Warehousing 38.5
Distribution 42.6
Inventory replenishment and control 16.2
Logistics information systems 32.1
Value added services 17.1
Logistics system design 6.0
Years experience in logistics industry 0-5 35.7
6-10 29.6
11-15 26.5
16-20 3.1
> 20 4.1
Years of operation in China 0-5 38.9
6-10 34.7
11-15 16.8
16-20 5.3
> 20 3.2
Annual revenue last year (US$) Less than $500,000 20.0
$500K - $ 1M 43.3
$1M - $ 10M 17.8
$11M - $50M 7.8
$51M - $100M 4.4
More than $100M 6.7
Number of employees in China Less than 100 45.9
100-499 30.6
500-999 10.2
More than 1000 12.2
Number of cities covered in China 1-5 36.7
6-10 23.5
11-15 15.3
16-20 10.2
> 20 12.2
Information system used* Website portal 41.1
EDI system 33.4
ERP system 29.5
CRM system 25.4
WMS system 17.3

Note: * Percentages exceed 100 per cent as firms can select more than one category.

Table 4 presents the results of the hierarchical regression analysis. Noticeably, the inclusion of HRM practice variables substantially increases both the R2 and adjusted R2 in all four regression models. This clearly suggests that HRM practices do contribute to the building of LSC capabilities.

Table 4
Hierarchical regression results
Independent variables Model 1: ILS capability Model 2: ICT capability Model 3: FSC capability Model 4: ISLE capability
Step 1 Step 2 Step 1 Step 2 Step 1 Step 2 Step 1 Step 2
Control variables:
Logistics experience -0.083 -0.110
China specific logistics experience -0.063 -0.099 -0.129 -0.097 -0.179 -0.194*
Geographical coverage -0.076 -0.030 0.086 0.151 0.180 0.213* 0.199* 0.230**
Secured ICT systems 0.204* 0.164 0.196* 0.175* 0.085 -0.002 0.284*** 0.257**
HRM practice variables:
Reward management 0.259** 0.337*** -0.081 0.116
Recruitment & evaluation -0.300** 0.052 -0.123 -0.249**
Performance management 0.029 0.194* 0.278** 0.120
ITD 0.275** -0.103 0.223* 0.157
R2 0.047 0.208 0.051 0.249 0.040 0.151 0.136 0.203
Adjusted R2 0.015 0.142 0.020 0.189 0.007 0.080 0.107 0.137
F 1.463 3.180*** 1.626 4.124*** 1.225 2.134** 4.667*** 3.084***
N 93 93 94 94 92 92 93 93

Notes: a. Figures shown are standardised coefficients (beta values).
b. * = p < 0.10; ** = p < 0.05; *** = p < 0.01

None of the three control variables was found to have any statistically significant effect on the ILS capability, which was found to be influenced by reward management, employee recruitment and selection and ITD. The effect of both reward management and ITD is positive, implying that reward management and induction, training and development do contribute to nurturing the ILS capability.

The employee recruitment and selection process, however, emerged to be negatively related to the ILS capability. On the surface, this appears to be counter intuitive and contradicts our hypothesis. However, given the prevalence of informal recruitment methods in Asia, such as through word of mouth recommendations of business associates within the Guanxi net (Cunningham & Rowley 2008), the negative relationship between employee recruitment and selection and the ILS capability may be interpreted as an indication that formal methods of recruitment and selection may not have been effective in the case of nurturing the ILS capability.

In addition to the expected effect of secured ICT systems, the ICT capability was found to be significantly influenced by reward management and performance management, both of which show a positive regression coefficient. ITD does not emerge as statistically significant. This finding suggests that an attractive reward scheme supported by a fair and rigorous performance appraisal system would help LSPs in China to retain staff with good ICT skills, thus enabling LSPs to leverage the power of advanced technologies to assist clients in their supply chain operations.

Beside geographic coverage, the FSC capability was found to be a function of performance management and ITD. Both explanatory variables are positively related to the dependent variable. The significance of performance management and ITD in Model 3 indicates that the building of the FSC capability requires that LSPs sufficiently train, monitor and reward staff performance.

While all three control variables were found to be statistically significant, only the HRM variable of recruitment and evaluation surfaced as a statistically significant variable in nurturing the ISLE capability. Further, the regression coefficient of recruitment and evaluation was found to be negative, similar to the case of the ILS capability. This finding reaffirms the counterproductive effect of formalised recruitment methods in the context of LSPs’ operations in China.

Discussion

Reward management, in the form of competitive salaries and attractive employee benefits, is a popular HRM approach to attract, retain and motivate the best talent (Armstrong 2007). It is particularly effective in China where not only pay, working conditions and housing benefits, but also opportunities to attend overseas training, are important (Ahlstrom, et al. 2001). In the context of logistics service provision in China, the analysis indicates that this particular method of securing and retaining talent is significant in contributing only to developing the ILS and the ICT capabilities. Reward management does not appear to be a statistically significant factor in explaining the FSC and the ISLE capabilities.

The results of the hierarchical regression analysis show that a formal recruitment and selection system to attract and select logistics personnel seems to be counterproductive in building capabilities for integrated logistics service provision and offering industry specific logistics expertise. In an environment where personal connection predicated on Guanxi is the dominant social norm that undergirds business practices (Wong 2007), the adoption ofWestern style HRM practices does not appear to result in the theoretical prescriptions. Rather obviously, LSPs excelling in the ILS and ISLE capabilities had relied more on informal ways of recruiting, such as word of mouth recommendations or even poaching, rather than through formal approaches, such as advertisement and candidate selection based on interviews, as commonly practiced by European and American companies. This finding reaffirms the importance of Guanxi on business operations in China (Warner 1993, Ahlstrom, et al. 2001), including employee recruitment. More importantly, it warns that the moderating role of Guanxi in tempering the effects of different HRM measures in the Chinese context cannot be ignored. A fruitful direction for further investigation, perhaps, is to examine the moderating effect of Guanxi on the causal link between HRM practices and LSC capabilities.

While reward management only affects the ILS and ICT capabilities, performance management, a HRM function designed to assess employees’output, work quality and development needs, was found to have a significant impact on the FSC and ICT capabilities. This HRM function, however, does not emerge to be a significant explanatory variable for the ILS and ISLE capabilities. Given that the aims of performance management include rewarding employees using an effective performance review system, the impact that this HRM function has on FSC, a team based capability, and ICT, an individual as well as a team based capability, signals that LSPs in China that have adopted a compensation system that recognises both individual as well as team efforts tend to excel in these two capabilities.

The hierarchical regression results also show that ITD, which builds individual as well as team capabilities, is only statistically significant in nurturing the ILS and FSC capabilities. It does not contribute to the development of the ICT and ILSE capabilities. Since the ILS and FSC capabilities have a high process content, it can be speculated that the training and development programs offered by LSPs that excel in these two capabilities are directed more towards team building in process operations, rather than individual professional development. Given the highly competitive nature of the logistics industry in China, where staff turnover is frequent, such a speculation may not be unrealistic.

In the case of the control variables used, the results of the hierarchical regression indicate that China specific logistics experience does not contribute substantially to building LSC capabilities, except in the case of ISLE capability, where a statistically significant regression coefficient emerged. The sign of the coefficient, however, is negative indicating that the less China specific logistics experience a LSP has, the greater will be its ISLE capability. Indirectly, this finding reveals that foreign owned LSPs are more knowledgeable in many industry specific logistics operations than their Chinese counterparts.

Geographic coverage, an indication of the spatial influence of a LSP, was statistically significant in contributing to building the FSC and ISLE capabilities. This finding reflects the place dependent nature of the FSC and ISLE capabilities in the context of logistics operations in China. Lastly, a secured ICT system was found to have a statistically significant effect only in supporting the ICT and ISLE capabilities. This control variable does not have a statistically significant effect on the ILS and FSC capabilities, suggesting that LSPs in China have not leveraged on the power of ICT to manage their logistics and supply chain activities.

The findings of this research indicate a number of implications for LSPs and the management of human resources in China. First, they confirm the contention expressed earlier that LSC capabilities have two relatively distinct, though related, sets of attributes. One centres on individual talents and skills, while the other is characterised by team effort and collaboration. Quite obviously, an LSP’s ICT capability depends very much on the information technology and information systems skills of its individual members. On the other hand, FSC and ISLE capabilities, which are vital for supply chain oriented operations, are process dependent and rely more on teamwork and collaborative efforts than individual talents and skills. Because these team based capabilities are relatively complex, to the extent that individual contribution may not be readily distinguishable, reward management directed toward attracting and retaining individuals rather than teams, would thus, have little effect on nurturing team based capabilities. Reward management presently practiced by LSPs in China appears to be directed primarily towards individuals rather than teams thus, having little effect on team based capabilities.

Second, the effectiveness of ITD in nurturing team based capabilities is relatively obvious in the context of the logistics industry in China. However, the non significant effect that ITD has on the ICT and ISLE capabilities suggests that LSPs in China need to improve on the provision of appropriate orientation and professional development programmes for employees. Understandably, the high staff turnover that occurs in most logistics companies in China presents a deterrent to LSPs in providing such professional development programmes. However, offering opportunities for individual career development and professional advancement has also been found to be an effective means to retain employees and reduce turnover (Armstrong 2007). Attention to reward management, performance management and ITD programmes is likely to result in reduced staff turnover and strengthened LSC capabilities. A fruitful avenue for future research would be to examine the effects that different training programmes used by LSPs in China have on developing LSC capabilities as well as staff turnover.

In this study, the exploration of the factors affecting LSC capabilities focused on HRM practices. LSC capabilities are the outcome of a wide range of factors, as evident from the relatively low adjusted R2 obtained for all four models tested. While a discussion of all the factors affecting LSC capabilities is beyond the scope of this paper, a firm’s physical resource bundle deserves mention. The resource based view (RBV) of the firm (Barney 1991) posits that organisational capabilities are a function of a firm’s resources, both tangible as well as intangible. In the context of logistics service provision, the pertinent physical resources would include warehouses, transport fleets and IT infrastructure. The physical resource bundles that an organisation possesses, or has access to at the time when they are needed, to support a supply chain operation constitute a critical success factor in achieving superior LSC capabilities (Wong & Karia 2010). For instance, an ability to provide ISLE services would require LSPs to have available specialised equipment when they are needed. The relative importance of physical resource bundles on the efficacy of a LSP’s capability, vis-à-vis its HRM practices, would be a fruitful avenue for future investigation.

Conclusion

This study investigated the effects that HRM practices have on developing LSC capabilities among LSPs operating in China. The findings suggest that LSPs in China are using rewards to attract, and performance management to retain employees, but have not developed appropriate ITD programmes to provide career advancement and professional development opportunities to employees. Instead, LSPs are concentrating on using ITD to strengthen their team based capabilities to support their operational processes. Further, the use of formal recruitment and selection processes to recruit employees has not been an effective means of inculcating capabilities in the logistics industry in China. In fact, the use of formal recruitment approaches often appears to be counterproductive as the greater the use of such techniques the less able LSPs are in nurturing LSC capabilities. This finding suggests that other forces are at work, which moderate the effects of such widely accepted recruitment approaches in the West. One of these forces could be the hegemonic effect of Guanxi, which underpins business operations in China. In a tight human resource supply situation like the logistics industry in China, experienced and well qualified candidates are not short of offers, the attractiveness of which quickly diminishes in the face of other more appealing upcoming propositions, especially in the fast growing manufacturing sector. More stringent staff selection process and criteria would lead to the recruitment of better qualified candidates, who also command higher market demand, and hence, have a tendency to be more career mobile. Thus, while rigorous staff selection and evaluation recruitment procedures would help to identify suitable talent, it may also have a great impact on high staff turnover, a situation that plagues China’s logistics industry. Emphasis on intrinsic rewards such as participation, empowerment, increases in task significance and the development of trust may also assist LSPs to retain best talents and address staff turnover.

Current HRM practices appear to have mixed effects in contributing to the development of LSC capabilities in China’s logistics market. None of the four HRM practices examined show statistically significant effect on all the four LSC capabilities investigated. Each practice has its merits and limitations in nurturing different LSC capabilities. Sociocultural factors, market demand and supply plus a host of other issues endemic to the China’s logistics market would continue to challenge HRM as well as its ability to contribute towards building LSC capabilities as China gathers momentum to further develop its burgeoning economy.

Authors

Booi H. Kam is an Associate Professor in the School of Business Information Technology and Logistics, College of Business, RMIT University. Booi has consulted extensively in the Asia Pacific Region, having participated in a range of multi disciplinary projects funded by the World Bank, the Asian Development Bank and national and state governments in Asia. He has also published in a diverse range of disciplines, including supply chain risk management, accident analysis, e-marketing, transport and land use planning and postgraduate research supervision. Booi obtained his PhD from the University of California at Los Angeles, USA.

Email: booi.kam@rmit.edu.au

Eva E.Tsahuridu is a Senior Lecturer in the School of Management, College of Business, RMIT University. Her research interests include business ethics, corporate responsibility and organisational behaviour. She has taught management and HRM and her publications appeared in the Journal of Business Ethics and Philosophy of Management.

Email: eva.tsahuridu@rmit.edu.au

Ming Juan Ding is a doctoral candidate in logistics and supply chain management in the School of Business Information Technology and Logistics, College of Business, RMIT University. Her research interests and publications are in the areas of international logistics, business logistics, supply chain management, e-commerce and international marketing. Her current research is focused on investigating the service competencies of logistics service providers in China.

Email: mingjuan.ding@rmit.edu.au

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