ISSN 0872-8496EURO ASIA JOURNAL OF MANAGEMENT 39 Vol. 20 No. 2DECEMBER 201039Vol. 20 No. 2Japanese Hybrid Factories in Australia: Analyzing Labor Relations and Reflecting on the Work of Tetsuo AboHRM-Strategy Integration and Organizational Performance: Empirical Evidence from IndiaThird Generation Family Businesses: A Comparison of Succession Issues in Two Brazilian CompaniesAn Investigation of Determinants of Job Satisfaction for Macau Civil Servants

AIM AND SCOPEEuro Asia Journal of Management (EAJM) is devoted to provide a forum for discussion over a wide range ofmanagement issues defined in the broad sense. However, particular emphases are placed on the advancement ofmanagement theory and practice in Asia, especially China, and the European continent. Published twice yearlyby the Macau Foundation, EAJM welcomes submissions in the following areas:Accounting and finance, information technology management, strategic management, cross-cultural andinternational management, organizational behavior and learning, human resources management, public sectormanagement, corporate governance, quality management, and tourism management.EAJM will include scholarly peer-reviewed papers in the form of empirical studies, qualitative inquiries,case studies, as well as critical literature reviews. From time to time, special sections are opened for debates,interviews, and commentaries.EDITORIAL BOARDNelson António, Instituto Superior de Ciências do Trabalho e da Empresa, PortugalVirgínia Trigo, Instituto Superior de Ciências do Trabalho e da Empresa, PortugalCarlos Noronha, University of Macau, MacauTiffany Lam, University of Macau, MacauEDITORIAL ADVISORY BOARDTetsuo Abo, Teikyo University, JapanDouglas Allen, University of Denver, USANick Bowen, European Business School London (Regent’s College), UKRobert Boyer, Centre D’etudes Prospectives D’economie Mathematique, FranceEduardo Gomes Cardoso, Instituto para o Desenvolvimento da Gestão Empresarial, PortugalSu Mi Park Dahlgaard, Linköpings University, SwedenHarukiyo Hasegawa, University of Sheffield, UKHideo Inohara, Sophia University, JapanJorge Correia Jesuino, Instituto Superior de Ciências do Trabalho e da Empresa, PortugalEkkehard Kappler, University of Innsbruck, AustriaMartin Kenney, University of California at Davis, USAMário Murteira, Instituto Superior de Ciências do Trabalho e da Empresa, PortugalTerutomo Ozawa, Colorado State University, USASung Jo Park, Free University of Berlin, GermanyTanya Phonanan, ASEAN Human Resource Management Federation & Thompson Television ThailandWan Ahmad Shaffie, Malaysian Association of Human Resources Management & Menara Maybank MalaysiaHannes Streim, Bochum University, GermanyKay-Chuan Tan, National University of Singapore, SingaporeRobert Terpstra, Monash University, Sunway Campus, MalaysiaIngemar Torbiörn, University of Stockholm, SwedenTadashi Umezawa, Toyko Keizai University, JapanYoumin Xi, Xian Jiaotong University, ChinaOliver Yau, City University of Hong Kong, Hong KongShuming Zhao, Nanjing University, ChinaNote: The views of articles may not be those of the Journal.

Vol. 20 No. 2, December 2010http://eajm.webnode.comCONTENTSIndexed in Ulrich’s Periodicals Directory and Cabell’s Directory of Publishing Opportunities in ManagementEuro Asia Journal of Management will appear in the Business Source Complete (tm) and Business SourceCorporate Plus (tm) databases on EBSCOhost (tm).1. Japanese Hybrid Factories in Australia: Analyzing Labor Relations and Reflecting onthe Work of Tetsuo Abo ............................................................................................................................. 111-134Celal Bayari, Graduate School of Economics, Nagoya City University, Japan2. HRM-Strategy Integration and Organizational Performance: Empirical Evidencefrom India .................................................................................................................................................... 135-157Feza Tabassum Azmi, Department of Business Administration,Faculty of Management Studies and Research, Aligarh Muslim University, India3. Third Generation Family Businesses: A Comparison of Succession Issues inTwo Brazilian Companies ......................................................................................................................... 159-174Virginia Trigo, SCTE Business School, Lisbon, PortugalNelson António, SCTE Business School, Lisbon, Portugal4. An Investigation of Determinants of Job Satisfaction for Macau Civil Servants ......................... 175-191Carry K.Y. Mak, Faculty of Business Administration, University of Macau, Taipa, MacauJacky F.L. Hong, Faculty of Business Administration, University of Macau, Taipa, Macau

Euro Asia Journal of Management Issue 39, Vol. 20, No.2, December 2010, pp.111-134 JAPANESE HYBRID FACTORIES IN AUSTRALIA: ANALYZING LABOR RELATIONS AND REFLECTING ON THE WORK OF TETSUO ABO1 CELAL BAYARI2 ABSTRACT This paper provides an analysis of Japanese hybrid factories in Australia in a context of labor relations aspect of the Japanese management and production system. The paper argues that the labor relations aspect of the Japanese system is the most successful transfer to Australia. In its second part the paper compares the data from Australia with Tetsuo Abo’s research in the UK and the US where ‘labor relations’ is the most successful transfer detected by Abo. This paper is not a reconstruction of Abo’s hybrid framework but instead seeks to draw a qualified comparative analysis using Abo’s results. The paper argues that there is a parallel between research findings from the UK, the US and Australia in terms of the success of labor relations that is inherent to the Japanese management and production system. It is suggested that future research can investigate this point with larger comparative data sets. Keywords: Japanese management, hybrid factory, production system, labor relations 1 The author would like to thank Professor Fumito Matsumura (Nagoya City University), Professor Tetsuo Abo (Teikyo University) and Professor Tsutomu Nomizu (Nagoya University) for their help. 2 Graduate School of Economics, Nagoya City University. Email: gakumonkenkyu@wind.ocn.ne.jp.

Celal Bayari 112 JAPANESE MANUFACTURERS IN AUSTRALIA Japanese transnational corporations began manufacturing in Australia in the 1960s. Some examples of factory start up dates are: Toyota Motor Corp Australia (Melbourne, 1963), Nissan (Sydney, 1966), Matsushita (Sydney, 1968). There were also several smaller Japanese companies that began manufacturing in Australia in the 1960s and the 1970s. Aisin, Daikin, Denso, Toyota Motor Corporation Australia, YKK, Nissan Casting, Shinagawa, Yazaki, Sansetsu are examples of companies that still manufacture in Australia. Hence many Japanese companies have long been a part of the local labor market. While Japanese factories in Australia predate the ones in the US and the UK there are many reasons for this phenomenon, the main one being the high Australian tariffs against imports at the time which encouraged these companies to set up production in Australia (Bayari, 2008; Drysdale, 2010; Edgington, 1990). The Japanese system of management and production has been shown to be transferable and adaptable to foreign environments (Abo, 2007a: 2). Pudelko and Harzing (2010) state that there is a debate on whether one is able to speak of a specific ‘management model’ referring to a set of identified management practices attributable to a particular country and that if the differences within one country are not at least as significant as differences between various countries. They conclude however that the term ‘management model’ specific to a country is justified especially given the differences between major economies such as Japan, Germany and the US. From the 1980s onwards the Japanese management and production practices were transplanted into the UK and the US (Dunning & Lundan, 2008: 136-138). This process took place in Australia earlier and Japanese factories have long been a part of the local manufacturing sector, industrial relations system and the labor market. Labor relations are inherently a part of a country’s social, political and economic institutions. These institutions have a reciprocal relationship with foreign corporations that invest in the host country (see Dunning, 2007: 21). One of the aims of this paper is to discuss how the Japanese factories in Australia can be compared to Japanese factories in the UK and the US. The Japanese factories overseas are defined as ‘hybrid factories’ and they differ from one another in terms of their degree of ‘hybridity’, according to Abo (2007a). The way in which the Japanese management and production system is modified in transfer (which is its ‘application’) is called ‘adaptation’, of which the hybridity is the end result (Abo, 2007a: 11-12). Cultural distance in transnationals’ overseas subsidiary management is a major factor (Shenkar, 2001). Australia is culturally closest to the UK and the US despite the geographical distance and such distance is a factor for foreign subsidiaries in Australia and their performance levels (Harzing & Noorderhaven, 2006a: 169). In the Anglo-Saxon nation-states in the last three decades, the dominant method of economic governance has been dubbed neo-liberal economics (Cahill, 2002: 21-26). Although neo-liberal economic orthodoxy has also spread elsewhere, it is referred to as Anglo-Saxon or Anglo-

Japanese Hybrid Factories in Australia: Analyzing Labor Relations and Reflecting on the Work of Tetsuo Abo 113 American capitalism because of its geographical and cultural origins (Dore, 2002: 11-12). The UK and the US are, like Australia, market-oriented systems (see Hirst & Thompson, 1999: 224). Australia, like the Anglo-Saxon nations of Canada, New Zealand and the US, used to be colonial economic extension of the UK. In terms of market structure and capital formation Australia has more in common with these countries than any other. Australia has embraced neo-liberal economics and the Anglo-American model of the market as much as Canada and New Zealand did. In fact Australia’s adoption of neo-liberal economics is highly related to the fact that it is a nation that is part of the sphere of the UK and the US. Australian industries are largely extensions of the multinational firms from the UK and the US (Nicholas et al., 2003: 7). One other possible explanation (which will need to be left to future research) for these common points is that it is the peculiarity of the Japanese system that has led to this outcome. Home-cultures of transnational corporations can have global effects. The more homogenous the home-country of a transnational corporation, the stronger the country-of-origin effect is (Noorderhaven & Harzing, 2003: 20). Research that focus on foreign transnationals in Australia lack comparisons with data from the UK and the US (see Johnston, 2004; Nicholas et al., 2003, 2005). This paper provides such a comparison by looking at data from Abo (2007b). It is evident that the US and the UK data in Abo (2007b) and Kumon and Abo (2004) have some common points with the findings in Japanese factories in Australia in one particular area: labor relations. Abo (2007b) describes the extent and the volume of the JMNESG (Japanese Multinational Enterprise Study Group) database and compares the results from the UK with that of the US. New JMNESG data on the US is also included in a forthcoming publication and can contribute to this discussion (see Kawamura, 2011). The structure of Abo’s data analysis is different from that of the Australian data presented herein. Abo and his colleagues carried out a medium size field research in Australia the results of which is not published (Abo, 2009). Professor Abo communicated to the author that while the ‘measurement method’ the author utilises in this paper is different from Abo’s own (2007a), the ‘similarities’ in the results in Abo’s UK and US data and the Australia data, as presented here, are real and should be explored by further research (Abo 2009). This paper attempts to make the case for this point and hence it is a form of preamble. Previous Australian studies on Japanese factories have not made any comparisons to other Japanese factories outside Japan (Iida, 1983; Dedoussis, 1990; Edgington, 1987; Hoshino & Varvel, 1987; Hutchison & Nicholas, 1994; Jackson, 1991; Negandhi et al., 1985; Newell, 1984; Nicholas, 1995; Nicholas & Purcell, 1998a, 1998b, 2001; Nicholas et al., 1996a; Orpen & Viljoen, 1985; Otsuka, 1984; Park et al., 1997; Purcell et al., 1999a; Sekine, 1992; Shadur et al., 1995; Yamanaka, 1991). Thus while many research were carried out on Japanese factories in Australia there have been little effort in connecting their results with factories in other countries. In its latter part, this paper provides such a connection.

Celal Bayari 114 THEORISING TRANSNATIONAL MANAGEMENT There has been substantial debate on whether Japanese corporations will eventually assume a Western model of labor management (Tokoro, 2005: 43). There appears to be no immediate prospect of the Japanese organisational model form ‘converging’ on the Anglo-Saxon model (Olcott, 2009). Even though the core of the Japanese management style endures, this debate continues (Schonberger, 2007: 417). The term ‘cross-vergence’ is used to hypothesise the way in which Japanese and other management styles can influence each other (Ralston et al., 2008: 8). While there may be similarities between Japanese and Western management styles, the differences are pronounced and articulated in the way in which a global manufacturer succeeds or not (Tung, 2008: 44). Transnational corporations transfer their core competences to their overseas operations (Pudelko & Harzing, 2006; Pudelko & Mendenhall, 2007). This is the basis of their competitive advantages. Moreover, the place corporations have in society also significantly is different in Japan in comparison to Anglo-Saxon economies (Witt, 2008: 49). However firms from Anglo-Saxon economies have been able to adopt the Japanese management and production practices (Robinson, 2003: 439). This shows the applicability of these practices in different social, cultural and economic environments. Australian researchers have previously utilised Dunning’s ‘eclectic paradigm’ in their analyses of Japanese manufacturers in Australia (Bayari, 2004, 2001; Beeson, 1999; Edgington, 1990; Nicholas, 1995; Nicholas & Purcell, 1998a, 1998b, 2001; Nicholas et al., 1996a; Purcell et al., 1999a). According to Dunning, the choice of location of transnational foreign investment is not wholly determined by a distinct corporate strategy (Dunning, 2005). Transnational corporations have organisational advantages which stem from management of production (Dunning, 1988b: 106). The advantages that are transferred overseas can be ‘ownership-specific advantages’ (tangible assets and practices) vis-à-vis firms of other nationalities. When a firm uses these advantages in it its output it also has ‘internalization advantages’. Further, the firm will gain ‘locational advantages’ if it utilises its ‘ownership-specific advantages’ overseas (Dunning, 1988b: 26). Transnational production can be explained by different configuration of these conditions (Dunning, 1988c: 204). For example, in their Australian operations, Japanese manufacturers, Matsushita and Fuji Xerox have used their advantages based on their ownership of ‘industrial ecology’ technologies. They instituted ecologically sustainable production and management practices in their Sydney factories in high skill and high-end technology environments (Benn et al., 2006: 106-108). Fuji Xerox calls the production system in its Sydney factory ‘eco-manufacturing’ and is a winner of the prestigious Museum of Sydney Eureka Prize, Environment Section. When the author visited the former Matsushita factory in Sydney in 2001, the company was installing a lead free soldering system, which was the third ever case in the world at the time. Hence, in Australia Japanese companies have transferred technologies that their competitors did not possess.

Japanese Hybrid Factories in Australia: Analyzing Labor Relations and Reflecting on the Work of Tetsuo Abo 115 The concentration of foreign investment by the transnationals of a country in the host country is primarily a manifestation of their respective gross domestic products and the bilateral trade (Dunning et al., 2007b). Japan has been a major investor in Australia which has consistently enjoyed a trade surplus in the bilateral trade (Bayari, 2004, 2008). Japanese manufacturing corporations’ subsidiary and headquarters relationship is quite differentiated in comparison to the corporations of other nations (Harzing & Noorderhaven, 2006b). Organisational advantages of firms of one nationality can be transferred to their affiliates in another country if cultural and ideological factors allow it (Dunning, 2006: 217). By proxy, such a transfer is possible from one country to several countries especially if the recipients have common cultural traits. One important question is whether such common cultural traits are conducive to the transfer of particular sets of practices of the Japanese system (such as those relating to labor relations) to all the recipients. The ‘organisational, locational and internalisation components’ can be considered holistically to account for the increasing interdependence in the economic activities of both firms and countries (Dunning et al., 2007a: 22). The trend that Dunning et al. (2007a) present is apparent in Toyota Motor Corporation’s investment patterns in Australia and its new productive capacity to manufacture hybrid vehicles (Spinks, 2009; Hagon, 2010). In this instance competitive advantage refers to the hybrid technology because Toyota is the only corporation that manufactures hybrid vehicles in Australia. The government has created a multi million dollar initiative for eco-friendly manufacturing including automobiles (Blackburn, 2009). In 2004-2009 Toyota Motor Corporation has invested close to a billion dollars in Australian manufacturing (TMCA, 2010). In terms of ‘location advantages’ which brings in Japanese investment, the Australian government has a $6.2 billion investment in the automotive industry for 2010-2020 (Automotive Australia, 2010). This replenishes the previous $4 billion fund for 2001-2010 (ACIS, 2010). Foreign investment decisions have a reciprocal relationship with location advantages (Dunning, 2004). For example, the three big US auto manufacturers (versus foreign manufacturers in the US) altogether have historically possessed the largest share of the US market (Rothstein, 2006). They possess locational advantages in investment decisions at home. Japanese investment in Asia Pacific region (where Australia is located) became a vertically oriented efficiency response to the competitive advantages of the investing firms in line with endowments of recipient nations (Dunning et al., 2007a). Dunning’s ‘OLI components’ of the eclectic paradigm reflect the changing nature of the competitive advantages of investing firms and the host country. It is possible that neo-liberal market policies, as defined above, have allowed the possibility of ‘labor relations’ component of the Japanese system to be transferred to the US, the UK and Australia in the same manner.

Celal Bayari 116 AUSTRALIAN LABOR AND MANAGEMENT RELATIONS AT WORKPLACE Management and production practices that govern the labor relations have long been part of Japanese style management and are still operational (Carr & Pudelko, 2006: 84-88). Especially on ‘the shopfloor level’, the Japanese management and production system is likely to remain a socially oriented labor process in comparison to styles in other countries (Okabe, 2002: 296). As a management style it is able to absorb challenges posed by new social norms (Cole et al., 2006: 320). The Anglo-Saxon economic discourse of labor management, driven by neo-liberal deregulation, gained prominence in the 2000s but the Japanese management and production system, especially its labor-management relations continue to be used (Vernon, 2006: 400-411). Labor relations strategies in the Japanese management style reinforce the totality of the management and production practices (Schonberger, 2007: 403-404). The ‘labor and management relations at workplace’ is a major issue in Australia which cyclically suffers chronic shortages of skilled labor (see Weller & Webber, 2001). At the same time the pool of excess skilled labor is not readily transferable between sectors due to many factors (Beer & Thomas, 2007). Under the Japanese management and production system quantity and quality of work are far more structured and controlled in manufacturing than other sectors (Kanai & Wakabayashi, 2001: 131). So, the labor and management relation at workplace is evermore crucial for manufacturing. The paper will now consider labor relations in Australia in terms of legislation, management literature and practice. The notion of ‘communication’, interpersonal and at intra-firm level, is a major element of the Japanese management and production system (Yamaguchi, 2005). Japanese and Australian employees who work in Japanese transnational corporations in Australia can often have different work attitudes due to several factors including those that are cultural (Jackson, 1991; Neustupny, 1991). Potential miscommunication hazards are present in work interactions between Australians and Japanese due to cultural differences (Soutar et al., 1999: 203). Potential communication issues at workplace may also arise due to the multicultural nature of the labor market in Australia (Sekine, 1987). It needs to be noted that in Australia the labor market’s cultural, ethnic and linguistic demographics are fluid due to migration from many countries (skilled and semi-skilled) which may serve to disallow theoretical frameworks that originate from concepts such as cultural power distance and power relations (see for example Hofstede, 1991, 2001). As a consequence there is a scope for the use of Japanese-style management and production practices to create a standardized approach to work among all the employees. The hybrid management style (and its variations) in Australia that developed within Japanese transnational corporations came about because the Japanese management and production

Japanese Hybrid Factories in Australia: Analyzing Labor Relations and Reflecting on the Work of Tetsuo Abo 117 practices were able to function within Australia’s industrial relations system (Purcell et al., 1999a; Yamanaka, 1991, 1995). For example, Toyota Motor Corporation was successful in negotiating the coverage of its entire workforce within a single union (which is a nation-wide trade union with members in many manufacturing firms) representation. A single union representation in one major manufacturing facility was a rarity at that time (the exact form of Japanese style company-based unionism does not exist in Australia). It is not easy to define the Australian style of management on clear terms given the traditional effects of the British style in Australia and the post war input of the American management style. Australia’s business culture is often characterised by the low opinion that managers have of their labor force (Burgess, 1989: 26). It is sometimes identified as an inward looking business culture (Townsend, 1988: 330). Australian corporations have a poor innovation and entrepreneurial reputation (Kabanoff et al., 2000: 44-45). Further, transnational corporations’ Australian subsidiaries are characterised by lower levels of research, innovation and development capabilities in comparison to the subsidiaries in other countries (Harzing & Noorderhaven 2006a). Management culture is a product of social organisation. Due to a lack of sufficient integration between Australia and the rest of the world, management and production practices in pursuit of productivity have not been easy to develop in Australian corporations (Beeson, 1997: 167). See, for example, Graen et al. (1999) for a discussion of a Japanese factory in Sydney which was plagued by wild cat strikes and low quality production. Overall, Japanese corporations began developing strong inter-firm links in Australia quite early on (Edgington, 1987: 19). The connections between the two countries are multidimensional. Japanese economy is known to transmit its business cycle fluctuations to Australia (Selover & Round, 1996: 569-571). RESTRUCTURING THE MANUFACTURING WORK IN AUSTRALIA In the last two decades Japanese ‘lean production’ has maintained profitability while the ‘Fordist-Taylorist’ model began facing a harsh ‘global mega-competition’ (Kawamura, 2007: 41). The stagnation of the Fordist-Taylorist model in the Anglo-American world began in the 1970s (Reich, 1992: 3). Japan and Germany long ago rejected the Taylorist division of labor that, along with intense mechanisation, formed the basis of Fordism, and instead applied skilled labor at the production line (Lipietz, 1992: 39). These nations continued to compete successfully with the Fordist work organisation (Lipietz, 1992: 39). By the early 1980s many sectors of the Australia’s manufacturing base that were designed along the Fordist division of labor were no longer competitive (MsQueen, 1982: 218). Hence there developed a deep interest in the Japanese management and production system. By the late 1980s the Japanese management and production system was being used in a large scale in Australia (Edgington, 1990; Sheridan;

Celal Bayari 118 1992). Japanese foreign investment in Australia is connected with the development of the tariff barriers. A transnational corporation’s overseas investment is a defensive move in the sense that ‘a firm undertakes production in a foreign country to which it had previously exported extensively only when foreign production is necessary to stave off the loss of the market to local firms or other MNEs … often [in] a response to increasing trade barriers’ (Dunning & Pearce, 1985: 135). Japanese manufacturers set up production in Australia to get behind the tariff walls because producing and selling in the local market was cheaper than exporting from Japan (Edgington, 1990). Japanese foreign investment and management practices in Australia show that direct investment in Australia’s manufacturing sector means lower costs for the investing Japanese firm, an advantage that could not be replicated by competing transnational from other countries (Purcell et al., 1999a: 72-74, 1999b: 80-81). With the rise of neo-liberal market orthodoxy, this profitability was no longer guaranteed and investment in the Australian market began to shrink. Hence from the 1980s onwards trade liberalisation and tariff removal began to affect Japanese foreign direct investment (Anderson, 1999: 1-5; Beeson, 1997: 150). Final example of this is the shut down of the Mitsubishi manufacturing facilities in Adelaide in 2008 as the company could not compete with cheaper imports despite producing award top award winning products such as Magna and 380 models. The Australian manufacturing sector has experienced two great restructuring phases in the last two decades. In the early 1980s the Labor government used a series of political settlements with the business world and the labor movement to encourage the expansion of the Japanese management and production practices in the Australian manufacturing sector (Reed & Blunsdon 1998; Murakami, 1999). From the late 1990s onwards the major manufacturing corporations were engaged in multi-skilling training and integrating their production into the global supply chains (Bramble, 2008; Shanahan & Treuren, 2003). Essentially, the second stage of restructuring utilised the benefits that were derived from the first one (Stilwell, 2000). Overall, the ‘new institutional’ theory’s main axiom (see Powell & DiMaggio, 1991) that companies adopt work practices more for legitimacy instead of efficiency reasons does not apply in this instance. In Australia from the early 1980s onwards, the government, unions and business sought to bring in the Japanese system into play across the industrial landscape on the face of a declining manufacturing sector that was severely uncompetitive internationally. The Japanese system had already been transferred and applied at Japanese factories (Toyota, Nissan, Mitsubishi, Matsushita and Sharp) in Australia, since the 1960s. Australia has been open to foreign mergers and acquisitions far longer than many of the OECD nations, due to its alliances with the US and the UK and its global exports of raw materials in massive volumes. But this ‘openness’ was skewed and economically irrational in many ways which are impossible to cover here. There may be indeed be different perspectives on what some of the elements of the Japanese system may mean in Australia, the US or the UK, as in a framework of ‘symbolic interactionism’ (see Stryker & Stratham, 1985; Stryker, 2001). However this paper focuses on Japanese corporations in Australia and their own perspective of the transfer of the Japanese

Japanese Hybrid Factories in Australia: Analyzing Labor Relations and Reflecting on the Work of Tetsuo Abo 119 system to their own subsidiaries. The content of a management and production practice such as teamwork may be different in GM Holden, Ford Australia and Toyota Australia factories in Australia but that will have to be the focus of a comparative study. GM Holden and Ford Australia both adopted teamwork from the ‘Japanese system’ along with other practices. Further on the ‘institutional theories’ perspective, while other foreign manufacturers use elements of the Japanese system which were first brought to Australia by Japanese transnational corporations there is no suggestion here of a process of ‘isomorphism’ (‘coercive’, ‘mimetic’ or ‘normative’) as in Kostova and Roth’s definition (2002: 215). If such a process has occurred in Australia it can only be detected by applying the same research criteria to a sample of foreign manufacturers from different countries. This is outside the scope of this paper which focuses on Japanese corporations only. Moreover, from a ‘duality theories’ perspective it may be assumed that manufacturers in Australia act in a certain way because they are under simultaneous pressure towards integration to the rest of the world and adapting to local conditions (see Evans et al., 2002; Guler et al., 2002). This perspective may prove to be too broad to be utilised on this very topic. Moreover on the theory front for this study of Japanese manufacturers in Australia, neither applicable is the original ‘institutional’ framework (see Selznick, 1957) that the collection of work practices (in this case, the Japanese system) may gain acceptance due to their ‘symbolic’ values. As stated above, the Australian business, in its desperation to survive, was pushed towards efficiency seeking measures to increase the value extracted from labor power. It is worth noting that Australia has been historically well integrated to the world economy because it is a high volume exporter of minerals and fuels and its resources sector is largely foreign owned. Advanced industrial economies have come to rely on these steady exports since the post-war boom. The structure of the Australian economy is hence significantly different from other OECD nations that export high value added manufactured goods. LEGISLATIVE FRAMEWORK OF LABOR RELATIONS IN AUSTRALIA The element of ‘labor and management relations at workplace’ in Australia can be understood within a discussion of the framework of neo-liberal deregulation and its legislative expression. In the period subsequent to the Workplace Relations Act 1996 (Commonwealth), ‘the exclusion of unions and the removal of the processes of collective bargaining’ were reported to be ‘critical objectives’ (Deery & Mitchell, 1999: 14). Weak employee bargaining power and ‘non-unionised’ and ‘high commitment’ labor management strategies are positively correlated to reduction in the collective will of employees to challenge employment conditions and managerial authority (Sharpe, 2006: 336). The aim in legislating the Workplace Relations Act 1996 (Commonwealth)

Celal Bayari 120 was to de-unionise the Australian workforce and to enhance managerial prerogative (Stewart, 1999: 44). Consequently, employers’ ‘real unit labor costs’ declined and ‘work stoppages’ and their frequency somewhat decreased from the mid-1990s onwards (Perry, 2007: 22, 32-36). Moreover, organisational structures were flattened and job classifications were rationalised (Bamber et al., 2006). Overall, the introduction of the individual work agreements in the style of the Workplace Relations Act 1996 (Commonwealth) meant that there would be no legal requirement for a trade union presence at workplaces and that each employee could have a separate contract with the employer. This attitude became a part of the Australian business culture but the unions maintained their workplace presence especially in the manufacturing sector. In the 1980s the levels of unionisation in Australia was higher in Japanese manufacturers in comparison to their UK and the US operations (Pang & Oliver, 1988: 17). Australia was a relatively more union-friendly environment at that time. However, from the late 1990s onwards, the government-styled individual agreements appear to have, to some extent, co-existed with unions, according to the results of the author’s research survey (see APPENDIX). By the end of 2001, Australian Workplace Agreements had made little impact on the unionisation levels on the manufacturing sector and was covering mainly employees in retailing (17% of all agreements), property and business services (16%), transport and storage (10%) (Gittins, 2003: 48). Under the 1996-2007 governments’ rule, the Australian labor relations system was put through a series of changes that included company-based individual work contracts. But at the same time the 2000s saw a rise in positive business opinion towards unions in Australia (Peetz, 2002: 57-59). This is reflected in the author’s research survey results in which the ‘labor and management relations at workplace’ variable is the most successful among respondent Japanese factories. Managerial control in Japanese subsidiaries is largely a matter of communication and information management rather than one of behaviour and power (Putti et al., 1993: 120). Variations on the Japanese management and production practice of ‘non-union channels of communication’ between the management and the employees have come to exist in Japanese transnational corporations in Australia (Purcell et al., 1999a). This is a reflection on the conditions of the post-Workplace Relations Act 1996 (Commonwealth) period. In the period under discussion there also developed a greater involvement of ‘line management’ over work relations and the management practice of direct employee supervision (Wooden & Hawke, 2000: 35). Hence from the late 1990s onwards the role of the ‘line managers’ increased significantly in conjunction with the reorganisation of the Australian work model along the lines of the ‘lean production’ model typically associated with the Japanese manufacturing sector (Wooden, 2000: 195). Lean production method is not only adaptable to production processes in different social systems, but also an embodiment of the historical development of manufacturing in the West (Hampson, 1999: 369-371). As a result its applications in Australia was deemed unproblematic.

Japanese Hybrid Factories in Australia: Analyzing Labor Relations and Reflecting on the Work of Tetsuo Abo 121 THE AUSTRALIAN DATA The author’s research survey tested management and production practices that have long been identified with the Japanese labor management style in Australia (Nicholas & Purcell 1999, 1998a, 1998b; Nicholas et al., 1996a, 1996b, 1996c; Purcell et al., 1999a). In the author’s research four groups of management and production practices (‘labor and management relations at workplace’, ‘production management’, ‘team system’ and ‘structure of work process’) of the Japanese management and production system were tested in 18 corporations to see, firstly whether they were transferred to Australia, and if so whether they were ‘functioning’. In other words, the management responses to the survey indicate the levels at which these groups of management and production practices are transferred. As they function in Australia at levels that are different from the home base there is a process of change, a transformation of these practices, which is called ‘hybridisation’, as per Abo’s definition (2007a). Labor market in Australia suffers ‘extensive labor under utilisation’ (the worst in the OECD) due to federal government employment policies and dominant employer strategies (Campbell, 2008: 175-176). From the 1990s onwards the Australian labor relations became characterised by a focus on ‘the performance management’ of individual employees (Deery & Walsh, 1999: 126). Australian subsidiaries of transnational corporations face less centralised control from the home base due to the liberalised nature of the nation’s economy and industrial relations (Fenton-O’Creevy et al., 2008: 154). The author’s survey tested the four groups of management and production practices but here the focus is on the ‘labor and management relations at workplace’. The period of industrial relations in which the survey took place is identified with ‘replacing collective bargaining with individualised bargaining’, effective reduction in demand for ‘union representation’ and management practices ‘designed to increase communication between management and employees’ (Wooden & Hawke, 2000: 37). According to the survey results, 1981-1990 appears to be the period in which most of the factories in the sample started manufacturing (Table 1). The number of factories in automotive sectors is the highest in the sample, followed by the electronics and component manufacturers.

Celal Bayari 122 TABLE 1 Factory start-up years 1956-1960 1961-1970 1971-1980 1981-1990 1991-1999 Total Number of factories 2 4 3 6 3 18 Source: Author’s data (2001) TABLE 2 Manufacturing sectors Number of factories Electronics manufacturers 5 Auto manufacturers 2 Auto-parts manufacturers 4 Plastics and rubber manufacturers 2 Component manufacturers 5 Total 18 Source: Author’s data (2001) TABLE 3 Japanese management and production practices and success scores Japanese system in Australian Japanese factories Percentage of factories Labor and management relations at workplace 93Production management 74Team system 69Structure of work process 58Source: Author’s data (2001) As apparent in the results shown in Table 3, the ‘labor and management relations at workplace’ is reportedly the most successful transfer. That is, ninety-three per cent of the respondents reported this element to be successfully functioning in Australia. In short, the order of success is ‘labor and management relations at workplace’, ‘production management’, ‘team system’ and ‘structure of work’ but the details of this will have to be the topic of another paper. Here it should suffice say that the nature of labor relations is found to be highly satisfactory for the Japanese manufacturing corporations in Australia and the association of this finding to the

Japanese Hybrid Factories in Australia: Analyzing Labor Relations and Reflecting on the Work of Tetsuo Abo 123 legislative and political developments was discussed above. As Japanese corporations increasingly spread overseas it became possible to transfer the elements of the Japanese system into foreign environments wherever the right conditions were present. As pointed out above, Dunning shows that the elements of the Japanese system provides advantages to Japanese corporations that corporations from other countries do not have. These advantages have been transferred to Australia as part of the Japanese management and production system. This transfer is symmetrically reciprocal with the development and maintenance of hybrid Japanese factories in Australia. TETSUO ABO’S ANALYTICAL FRAMEWORK The Japanese management and production practices (including quality control, flexible work, teamwork, multi-skilling, just-in-time and training) have been discussed in Australian research on Japanese factories (Nicholas & Purcell, 1999: 6; Purcell et al., 1999a: 75). The author’s research survey draws from the terminology of other Australian studies in its construction. In the past four decades Australia has hosted numerous Japanese factories that were studied in terms of their management and production practices (Nicholas, 1995; Nicholas & Purcell, 1998a, 1998b, 2001; Nicholas et al., 1996a; Purcell et al., 1999a). Until now Australian researchers have not directly engaged with the paradigm offered by Abo (2007a) and as a result there has not been a connection established between these two strands of empirical research. The author’s data essentially covers the same ground with Abo’s variables discussed below even though they are not exactly the same. Abo’s discussion of ‘Labor Relations’ group contains the elements of ‘hiring policy’, ‘long-term employment’, ‘harmonious labor relations’ and ‘grievance procedure’ (Abo, 2007a: 13). By contrast, in the author’s research framework, the ‘labor and management relations at workplace’ variable consists of three elements that measure the success of labor relations: 1) ‘employee-supervisor direct communication’, 2) ‘non-union employee/management committees’, 3) ‘communication from shop floor up’. Therefore, this paper makes no suggestion of a direct comparison between Abo and the author’s methodologies. The body of research by Abo (2004a, 2004b, 2004c, 2007b, 2007c, 2007d) on Japanese hybrid factories in Europe, Asia and North America have greatly enhanced the understanding of the Japanese management and production system and the way it operates in foreign environments. Abo’s discussion of ‘Labor Relations’ in Japanese factories in the UK and the US forms a major thrust of his research framework. In Australia there has been research on the transfer of the Japanese management and production system to Australia (Iida, 1983; Dedoussis, 1990; Edgington, 1987; Hoshino & Varvel, 1987; Hutchison & Nicholas, 1994; Jackson, 1991; Negandhi et al., 1985; Newell, 1984; Nicholas, 1995; Nicholas & Purcell, 1998a, 1998b, 2001;

Celal Bayari 124 Nicholas et al., 1996a; Orpen & Viljoen, 1985; Otsuka, 1984; Park et al., 1997; Purcell et al., 1999a; Sekine, 1992; Shadur et al., 1995; Yamanaka, 1991). However these analyses have not engaged Abo’s framework. This presented this opportunity to present Abo’s data on the UK and US with research findings from Australia. Abo’s research since the 1980s has culminated in the detection of several distinct ‘patterns’ of hybridisation: North America, the UK, Continental West Europe, Western Europe, Korea/Taiwan, South East Asia, East Asia and Central and Eastern Europe (Abo 2007d: 237). Abo’s data from the UK and the US is of particular importance. Abo’s analytical framework is an orthodox, performance-oriented approach focusing on efficiency and quality which examines – from the viewpoint of Japanese parent companies and their factories in Japan – to what extent their competitive advantage has been transplanted overseas (Abo, 2007b: 12). Abo refers to the process of transfer of the ‘Japanese system’ as ‘application’ and its modification in that process as ‘adaptation’, which are both, he argues, quantitatively measurable (see Abo, 2007a: 12). Abo’s framework for evaluating ‘hybridisation’ of the Japanese management and production system is highly specific and defined under six main groups of management and production practices as shown in Table 4. In Japan the ‘application’ scores for the elements of the Japanese management and production system are, by proxy, all ‘5’ and the ‘adaptation’ scores are all ‘1’. Outside Japan, in an ideal situation, the reverse would be the case. If an overseas factory implements one of the items in Table 4 one-hundred per cent, it would receive a full ‘application’ score of ‘5’ (which means that there has been zero modification in its transfer) (Abo, 2007a: 11). This also means that the ‘adaptation’ score would be ‘1’. On the opposite extreme, an ‘adaptation’ score of ‘5’ (and hence an ‘application’ score of ‘1’) would mean there had been no transfer. Every manufacturing facility that is researched, is tested under these six elements of management and production system that broadly cover the operations of Japanese manufacturers overseas (Abo, 2007a: 12). TABLE 4 Abo’s research model of Japanese system I Work organisation and administration II Production control III Procurement IV Group consciousness V Labor relations VI Parent-subsidiary relations Source: Abo (2007a: 13)

Japanese Hybrid Factories in Australia: Analyzing Labor Relations and Reflecting on the Work of Tetsuo Abo 125 ‘LABOR RELATIONS’ IN THE UK AND THE US Abo’s paradigm demonstrates the common points shared by various Japanese transnational corporations’ management and production systems in their overseas operations. They are all ‘hybrids’. The only difference between the surveyed factories is the degree of their respective ‘hybridisation’. Abo’s evaluation method allows for specific comparisons between different locations of hybrid factories. The most successful adaptation in the UK and US is the element of ‘Labor Relations’ (2007b). Due to the lack of space there is no reproduction of the whole data set. In Tables 5 and 6, Germany and Hungary, despite being placed in the EU as is the case for the UK, have nevertheless different scores and ranking. China and South Korea too have very different scores. Yet ‘Labor relations’ has the first rank in both ‘US’ data as well as the UK data. ‘Labor Relations’ has the 5th rank in Germany, South Korea and Malaysia and third in Hungary and China. TABLE 5 ‘Labor Relations’ adaptation scores US 1 US 2 UK Germany Hungary China S. Korea Malaysia ‘Labor Relations’ 3.7 3.6 3.6 3.0 3.1 3.1 3.3 3.1 Source: Abo (2007a). The US (1) (collected in 2001), US (2) (collected in 1989), and UK (collected in 1997) data are quoted from Abo (2007b: 13). China data (collected in 2002) is from Abo but quoted by Jia (2007: 192). German and Hungary data (collected in 1998) is from Kumon (2007: 164-165). South Korea and Malaysia data are from Itagaki (collected in 1992-1993) (2007: 101, 107-108). TABLE 6 Ranking of ‘Labor Relations’ US 1 US 2 UK Germany Hungary China S. Korea Malaysia 1st * * * 2nd 3rd * * 4th 5th * * * Source: Abo (2007a). The US (1) (collected in 2001), US (2) (collected in 1989), and UK (collected in 1997) data are quoted from Abo (2007b: 13). China data (collected in 2002) is from Abo but quoted by Jia (2007: 192). German and Hungary data (collected in 1998) is from Kumon (2007: 164-165). South Korea and Malaysia data are from Itagaki (collected in 1992-1993) (2007: 101, 107-108).

Celal Bayari 126 Country-by-country results differ (Abo, 2004b: 73). So the variations in the results are not surprising. But among all the countries, only the UK and the US have the first ranking for ‘Labor Relations’. The degree of ‘hybridisation’ depends on local conditions and while an element is transferred and adapted overseas it does not necessarily function outside Japan in the same way (see Kumon, 2004c: 268). The UK and the US data similarity is interesting given the geographical distance, difference in market size and their bilateral market relations (i.e. the UK is in the EU market-but outside the euro zone, and the US is in NAFTA). The UK and the US results and the correlation with Australian data present a possible trend of conformity in these Anglo-Saxon economies. One last detail is that the element of ‘Production management’ has the second highest rank in the author’s data. According to the data in Table 5 and 6, Abo’s research ‘Production control’ also has the second rank in the UK and the US research. Hence Australia shares another point with the UK and the US but this finding has to be the topic of another paper. CONCLUSION The paper has presented the nature of the change in the Australian labor relations system and how this affected the transfer of the Japanese management and production system. It has analysed the labor relations in Japanese hybrid factories in Australia followed by a discussion of Abo’s own data from the UK and the US. The success of overseas Japanese plants hinges on how various factors constituting the specific aspects of the Japanese management and production systems can be modified and transplanted into local operations, effectively creating a ‘practical hybrid model’ (Abo, 2007b: 26). It is possible to see the trends of ‘hybridisation’ between the ‘Japanese system’ and others by testing ‘application’ and ‘adaptation’ paradigm in different countries (Kumon, 2004a: 18). Future research that can utilise tests of significance may offer other measurements of this point. Overall, the ‘Japanese system’ is a valid as a prototype (Abo, 2007b: 14) and from the viewpoint of this ‘hybrid management model theory’ a ‘trend of global convergence’ is possible for Japanese manufacturers around the world (Abo, 2007b: 33). In this paper the data from two different sources were compared. On a broader outlook, the level of success of labor relations at company level appear to be common to Australia as well as the US and UK. With the use of data from Abo it is possible to study this phenomenon. In the brief analysis offered in this paper it is apparent that the data from Australia emphasises the same elements as Abo’s data. This corresponding relationship between Japanese factories in Australia and the other two Anglo-Saxon economies can be validated by further research. One of the aims of this paper was to lay bare this point. The other aim was to show how the company level labor relations have been reconstructed, from the late 1990s onwards, in Australia and how this affected the transfer of the Japanese system. According to the author’s research survey results, the ‘labor and management relations at workplace’ element of the Australian data is the most

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Celal Bayari 134 participation of Professor Mitsuru Wakabayashi and Japan Chamber of Commerce and Industry (JCCI). The survey questionnaire was sent by JCCI to its Australian membership list of 240 (mail surveys have limitations which do not apply to case studies and factory visit-interviews (see Harzing & Noorderhaven, 2006b). Self-reports surveys in organisational research can also have drawbacks (Podsakoff & Organ, 1986: 531-533). Participation was voluntary. The response rate was 27% (N = 65 made up of 18 manufacturers and 47 non-manufacturers). Harzing (1997) states that response rate for international mail surveys (which mine is) is in a range of 6% to 16%. In this paper, the data from 18 manufacturers are discussed as the focus is on the manufacturing sector. Note: The 1994 survey by Purcell et al. had a response rate of 51% (1999a: 74). Nicholas and Purcell (1998b: 10) and Purcell et al.’s (1999a: 74) studies used a different sampling method than the ones mentioned above. Nicholas and Purcell’s (1998b: 10) samples from the years of 1993 and 1997 consist of manufacturers only. Nicholas and Purcell’s (1998b) samples for 1997 are 100% manufacturers. Approximately 8% of the two FJCCIA samples (1997 and 2000) are manufacturers. The other samples fall in between. In my survey sample, the manufacturers form 27.8% of all the corporations that responded.

Euro Asia Journal of Management Issue 39, Vol. 20, No.2, December 2010, pp.135-157 HRM-STRATEGY INTEGRATION AND ORGANIZATIONAL PERFORMANCE: EMPIRICAL EVIDENCE FROM INDIA FEZA TABASSUM AZMI1 ABSTRACT Debates in the 1980s and early 1990s suggested the need to explore the relationship between HRM and corporate strategy more extensively. Despite the importance of HRM-strategy integration or ‘vertical fit’, there is still a paucity of empirical researches on the subject in the Indian context. Indian research has focused more on traditional HRM practices rather than on the interaction between HRM and strategy. The volatile and changing business environment of India offers a good testing field for a study on HRM-strategy integration. On the basis of an extensive literature review, two constructs of HRM-strategy integration were identified. The scales based on the two constructs were empirically tested for unidimensionality, reliability and validity using Structural Equation Modeling (SEM) capabilities of LISREL 8.50. Thereafter, the two dimensions were linked with effectiveness of HRM function and organizational performance. Mixed support was found for the hypothesized relationships. The findings of earlier researchers were partially corroborated by the present study. The study provides a reliable and valid instrument for measuring HRM-strategy integration that has been empirically tested in the Indian context. Keywords: HRM-strategy integration, Vertical fit, Scale reliability, Convergent validity, Structural Equation Modeling 1 Department of Business Administration, Faculty of Management Studies and Research, Aligarh Muslim University, Aligarh-202002, India. Tel: +91-9411802120 Email: fezaazmi@rediffmail.com

Feza Tabassum Azmi 136 CONCEPTUAL BACKGROUND Starting around the late 1980s, the literature shows emergence of thought on HRM-strategy integration; also termed as vertical fit (Dyer, 1985; Golden & Ramanujam, 1985; Hendry & Pettigrew, 1992; Lengnick-Hall & Lengnick-Hall, 1988; Schuler & Jackson, 1987). Debates in the 1990s suggested the need to explore the relationship between strategic management and HRM more extensively (Boxall, 1994; Guest, 1991; Huselid et al., 1997; Schuler, 1992; Storey, 1992; Truss & Gratton, 1994; Wright, 1998; Wright & McMahan, 1992). The concept of HRM-strategy integration or vertical fit endorses the belief that an organization’s effectiveness is enhanced if HR considerations are integrated into business strategy. In the context of HRM-strategy integration or vertical fit, most scholars (e.g. Becker & Gerhart, 1996; Bennet et al., 1998; Delery & Doty, 1996; Gerhart & Milkovich, 1990; Guest, 1997; Lengnick-Hall & Lengnick-Hall, 1988) have emphasized one or both of the following important dimensions: the inter-linkage between HRM function and corporate strategy and the status and strategic importance of HRM function in the organization. The first dimension emphasizes that HRM has become more central owing to its inter-linkage with corporate strategy (Delaney & Huselid, 1996). Scholars have posited that an organization needs to adopt HR policies to suit its strategies (Jackson et al., 1989; Lengnick-Hall & Lengnick-Hall, 1988). HR practices should be carefully tailored to a firm’s business strategy (Bowen & Lawler, 1992; Golden & Ramanujam, 1985; Schneider et al., 2003). However, the theory is more complex because it implies two-way interactions rather than linear relationships (Van de Ven & Drazin, 1985; Venkatraman, 1989). A number of scholars like Becker and Huselid (1998), Budhwar and Sparrow (1997), Green et al. (2006), Hope-Hailey et al. (1997), Khatri (2000), Kelly and Gennard (1996), Teo (2000), Wood (1995) and others have emphasized issues like importance of human resource in the organization and HR inputs forming an integral part of corporate strategy. Research has found evidence to support the thesis that the linkage between HRM function and corporate strategy leads to increased organizational performance (Becker & Gerhart, 1996; Bennet et al., 1998; Chang, 2005; Chew & Sharma, 2005; Delery & Doty, 1996; Gerhart & Milkovich, 1990; Huselid et. al., 1997; Khatri, 2000; MacDuffie, 1995). Studies have established that the above link helps in attaining higher corporate financial performance (Huselid, 1995), firm profitability (Shaw et al., 2002), return on investment (Delery & Doty, 1996), excellence in cost-oriented manufacturing strategies (MacDuffie, 1995; Snell & Dean, 1992), or innovation strategies (Bennett et al., 1998), employee productivity, profitability/cash flow, and firm market value (Huselid et al., 1997). This leads to the first hypothesis of the study: H1: HRM-strategy link has a direct and positive impact on the performance of the organization

HRM-Strategy Integration and Organizational Performance: Empirical Evidence from India 137 The second dimension of vertical fit, that is, the status of HRM function in the organization emphasizes the strategic importance of the HR function. Various studies have pointed towards the key strategic status and role of the HR function (Bowen et al., 2002; Purcell & Ahlstrand, 1994; Tyson & Wikander, 1994). A number of scholars like Green et al. (2006), Khatri (2000), Teo (2000) and others, have emphasized that HR professionals are at the centre of the organization today. This re-definition requires that the HR manager adopt more of a business partner role (Beer, 1997; Schuler & Jackson, 1987; Sheehan, 2005; Schuler, 1992; Ulrich, 1997). Increasingly, top HR executives are sitting on the board of directors and making contribution to corporate decision-making (Chew & Sharma, 2005). Wright et al. (1998) found a strong correlation between HR involvement in strategic matters and organizational effectiveness. Hope-Hailey et al. (1997) concluded that the strategic importance of HRM function was a contributor to business performance. Clark’s (1999) study revealed the contribution of the importance of human resource function to bottom line performance. Karami et al. (2004) concluded that involvement of HR managers in business strategy leads to enhanced organizational effectiveness. Based on the above findings the second hypothesis of the study is formulated: H2: Strategic status of HRM function has a direct and positive impact on the performance of the organization While researchers have emphasized that vertical fit leads to better organizational performance; several authors (Delery, 1998; Edwards & Wright, 2001; Ferris et al., 1998) opine that a one-way causation between HRM fit and organizational performance is unsatisfactory and that there exists an ‘indirect’ relationship between the two. Thus, there are variables that mediate a link between such types of fit and business performance (Fey et al., 2000; Guest, 1997; Huselid, 1995; Paauwe, 1996). Dyer and Reeves (1995) suggested that strategic HR practices have their most immediate impact on HR outcomes since they are in a closer line of sight to HR practice. These HR outcomes result in organizational level performance outcomes (Colakoglu et al., 2006; Fey et al., 2000; Guest, 1997; Paauwe, 1996). Rogers and Wright (1998) stated that the more proximal HR outcomes are a means for achieving distal organizational outcomes. Organizational performance may be viewed as quite distal from HR practices and likely to be influenced by more proximal measures e.g. effectiveness of HRM function (Teo, 2000). Huselid (1995) found a positive impact of HRM effectiveness on firm performance. Thus, in order to study the impact of dimensions of vertical fit on organizational performance, the mediating role of effectiveness of HR function was also examined. This leads to the next three hypotheses of the study: H3: HRM-strategy link has a direct and positive impact on the effectiveness of HRM function H4: Strategic status of HRM function has a direct and positive impact on the effectiveness of HRM function

Feza Tabassum Azmi 138 H5: Effectiveness of HRM function has a direct and positive impact on the performance of the organization RESEARCH GAP AND STUDY OBJECTIVES Most studies on vertical fit are predominantly theoretical in nature, with efforts generally focusing on normative frameworks on how HRM should be integrated with business management processes (Baird & Meshoulam, 1988; Lengnick-Hall & Lengnick-Hall, 1988; Miles & Snow, 1984; Schuler, 1992). Surprisingly, there are few studies that look beyond what the ‘fit’ actually comprises (Bennett et al., 1998; Golden & Ramanujam, 1985; Truss & Gratton, 1994; Wright et al., 1998). There have been no significant efforts to develop a reliable and valid instrument to measure the various dimensions of this fit. Despite the importance of HRM-strategy integration or vertical fit, there is still a paucity of empirical researches on the subject in the Indian context. Indian research (e.g. Amba-Rao, 1994; Bordia & Blau, 1998; Mathur et al., 1996) has focused more on traditional HRM practices rather than on the interaction between HRM and strategy. The volatile and changing business environment of India offers a good testing field for measuring HRM-strategy integration. Although a few instruments have been developed in the Western world, a need was felt to develop a reliable and valid instrument in the Indian context. More recently, there has been a marked shift towards valuing HR in Indian organizations as they become increasingly strategy driven (Budhwar & Boyne, 2004; Chatterjee, 2007; Sett, 2004). In this context, it was felt that a study on the link between the two dimensions of vertical fit and effectiveness of HRM function as well as organizational performance in the Indian settings is both timely and pertinent. Thus, the objectives of the present study were to develop an instrument for measuring HRM-strategy integration or vertical fit, to empirically establish the reliability and validity of the scales and to explore the impact that dimensions of vertical fit have on effectiveness of HRM function as well as organizational performance in companies in India. RESEARCH CONSRUCTS AND PROPOSED MODEL Based on an extensive review of literature, measures and items related to independent variable (dimensions of vertical fit), dependent variable (organizational performance) and mediating variable (effectiveness of HRM function) were identified.

HRM-Strategy Integration and Organizational Performance: Empirical Evidence from India 139 Independent Variables: Dimensions of Vertical Fit Linking HRM and business strategy requires HR departments’ providing appropriate input into strategic decisions, HR managers’ participation in strategic planning and decision-making processes (Fombrun et al., 1984), integrating HRM with business strategy by means of forming and implementing HRM strategies and policies (Schuler, 1992; Sheehan, 2005). Becker and Huselid (1998) as well as Teo and Crawford (2005) measured HRM-strategy integration by the extent of alignment between business and HR strategies, and involvement of HR department in the strategic planning process. In Teo’s (2000) study, measures of HR-strategy integration included integration of HR with strategy and issues related to role and position of the HR function/department. Baron and Kreps (1999) pointed out the importance of HR-strategy link, general managers’ involvement in HR and role of HR executives in strategy building. Wood (1995) measured such a fit through two dimensions viz. integration of HR issues with business planning and role/position of HR executives. Budhwar and Boyne (2004) measured strategic nature of HRM through items like existence of personnel department/manager, HR manager on board of directors, contribution of HR department in managing change, presence of written HR strategy, HRM considerations built into organization strategy, HR’s involvement in formation of corporate strategy etc. Budhwar and Sparrow (1997) derived items to measure level of integration based on Brewster and Larsen's (1992) four measures of integration: a) representation of personnel on the board b) presence of a written personnel strategy c) consultation of personnel in the development of corporate strategy d) translation of HR strategy into work programmes. From the above discussion, it can be concluded that researchers in the area have primarily focused on two broad issues viz. integration of HR in the strategic management process and role/position of HR department. Even the Cranet-G 1999-2000 Survey (Cranfield Network on Strategic International Human Resource Management) which has been the basis of study by authors such as Ozcelik and Aydýnlý (2006), has used two dimensions: the status of the HR department and the strategic integration of the HR function to measure strategic HRM . Thus, two major constructs of HRM-strategy vertical fit were identified from the existing literature: one measuring the degree of HRM-strategy linkage (depicted by VFL) and the other measuring the status of HRM function (depicted by VFS). HRM-Strategy Link (VFL): This construct measures whether HRM is integrated with corporate strategy. Several authors e.g. Becker and Huselid (2006), Baron and Kreps (1999), Wood (1995), Khatri (2000), Schuler and Jackson (1987), Huselid et al. (1997) etc. have pointed out the need for a conscious effort to align business and HR strategies. Budhwar and Boyne (2004), and Green et al. (2006) suggest that HR issues be taken up in corporate strategy formulation by top managers for establishing HR-strategy link. Teo and Crawford (2005) point out that HR activities and plans be consistent with organizational vision.

Feza Tabassum Azmi 140 Brewster & Larsen (1992), Chang & Huang (2005) and Khatri (2000) propose that strategic integration of HRM is characterized by the extent the HRM function is integrated with corporate strategy. Importance of human resource as an asset is considered vital to HR-strategy link (Bae & Lawler, 2000; Bennett et al., 1998; Schuler & Jackson, 1987; Teo, 2000). Researchers (e.g. Green et al. 2006; Valverde et al., 2006) have opined that some form of training of top managers in HR and soft skills is vital for establishing linkage between HRM and strategy and ensuring that HR issues are considered in their decision-making. Top managers need to be sensitized to human resource issues (Valverde et al., 2006). Based on the above discussion, the VFL was designed focusing on how integrated the HR function was with the overall strategic management process. It focused on issues like importance given to HR, explicit efforts to align business and HR strategies, consistency of HR activities with organizational vision, HR inputs forming an integral part of corporate strategy, top management’s role in HR issues etc. Strategic status of HRM (VFS): Status of HRM function measures whether the HR function has an important place in strategic affairs. Karami et al., (2004) and Truss (2003) have pointed out the need for HR staff’s involvement in overall strategic direction, presence of an HR strategy and HR director on board. Interestingly, a number of researchers (Budhwar & Boyne, 2004; Hope-Hailey et al. 1997; Kelly & Gennard, 1996; Truss, 2003; Wood 1995) have used board-level representation as a measure of status of HR department. Several authors have talked about changing role of HR managers as business partners (Beer, 1997; Ulrich, 1997; Bowen et al., 2002 and Sheehan, 2005). This warrants developing general skills and capabilities among HR managers to enable them to understand the business context (Brockbank, 1999). Bowen et al. (2002), Khatri (2000) and Sheehan (2005) pointed out the need for HR managers to be part of the senior decision-making process and HR representation at the senior committee level. Based on the above, the VFS scale was designed. It focused on issues like representation of HR department at board, position and responsibility of HR executives, HR executives’ role in strategic decisions, relationship of HR executives with CEO, general managerial training to HR executives etc. Dependent Variable: Organizational Performance Prior studies by survey method warned that the objective criteria (profit, sales, etc.) alone cannot capture a firm’s actual performance (Boliko, 1997). Similarly, only subjective or perceptual criteria may increase measurement error and potential for common method bias (Chan et al., 2004). Hence, Takeuchi et al. (2003) recommended adopting both objective and subjective criteria for corporate performance. Research has shown that subjective measures of firm performance by self-reported measures correlate well with objective measures (Chand & Katou, 2007; Powell, 1992).

HRM-Strategy Integration and Organizational Performance: Empirical Evidence from India 141 Thus, the present study is based on both objective (published performance data) and subjective (evaluation of corporate performance by the respondent) criteria for measuring organizational performance. While perceptual data was obtained from respondents, the researcher relied on published data to gather objective performance indicators. Subjective Performance Measure: It involved measuring the respondents’ evaluation of the improvement in overall performance of the company in the past one year. Objective Performance Measure: Objective performance measures included three measures published in Business World2 viz. Return on Capital Employed, Sales and Shareholder returns. Thus, a composite scale, rather than one indicator, was used to capture performance. Mediating Variable: HRM Effectiveness On the basis of suggestions by previous researchers (e.g. Edwards & Wright, 2001; Ferris et al., 1998; Huselid, 1995; MacDuffie, 1995), the present research model assumes a mediating variable in the link between dimensions of vertical fit and business performance i.e. effectiveness of HR function. Teo and Crawford (2005) have tested three measures of effectiveness of HRM which were used in this study too. Influential Effectiveness: Measures the influence of HR department on the organization. Relationship Effectiveness: Measures the relationships of HR department with other stakeholder. Overall Effectiveness: Measures the overall effectiveness of HR department. Moderating Variables: Organizational Profile Previous studies in this area have investigated the influence of a number of moderating variables such as size, sector, level of technology, ownership, nationality, life-cycle stage, unionization etc. (Easterby-Smith et al., 1995; Huselid, 1995; Jackson et al., 1989; Snell, 1992). There are evidences that HR practices and their resultant impact may differ in organizations depending on these variables (Snell & Dean, 1992). To assess impact of HRM on performance, one should first isolate HR practice effects by controlling the rest of the variables bearing on performance otherwise the results may be overstated or understated (Fey et al., 2000; Guest, 1997; Wright et al., 2003). For the present study, four dimensions of organizational characteristics were deemed to be moderating variables viz. sector to which the company belongs (manufacturing/service), ownership pattern (public/private sector), nationality or country of origin (Indian/foreign) and size of the company determined by number of employees (small/medium/large). 2 Business World is a leading business magazine in India that publishes annual rankings of companies operating in India.

Feza Tabassum Azmi 142 The conceptual model developed by the researcher incorporated the research hypotheses discussed above. The model specification for the study is given as: PERF = f{VFL,VFS,EFF} and EFF = f{VFL,VFS where, PERF = Organisational Performance (Endogenous/Dependent Variable) EFF = HRM Effectiveness (Endogenous and Exogenous/Mediating Variable) VFL = HRM-Strategy Link (Exogenous /Independent Variable) VFS = Strategic Status of HRM (Exogenous /Independent Variable) RESEARCH INSTRUMENT The survey instrument finally contained the following items: Independent Variables: Vertical fit dimensions HRM-Strategy Linkage (VFL) scale: Twelve-items Status of HRM (VFS) scale: Eleven-items Dependent Variable: Organizational performance (PERF) dimensions Subjective performance measure (SRANK): Single-item In addition, the three objective performance measures viz. ROCE (denoted by ROCE), Sales (denoted by SALES) and shareholder returns (denoted by SHARE) were obtained from published source (Business World) and were not part of survey instrument. Mediating Variable: HRM effectiveness (EFF) dimensions Influential Effectiveness (E1): Single-item Relationship Effectiveness (E2) Single-item Overall Effectiveness (E3): Single-item Moderating Variables: Organizational profile dimensions Sector (manufacturing/service) Ownership (public/private sector) Nationality/country of origin (Indian/foreign) Size (small/medium/large based on number of employees). The instrument utilized a 5-point Likert scale anchored with end points labeled as strongly agree (5) and strongly disagree (1). Five-point scale has been commonly used in HR research (e.g. Ahmad & Schroeder, 2003; Budhwar & Sparrow, 1997; Khilji & Wang, 2007).

HRM-Strategy Integration and Organizational Performance: Empirical Evidence from India 143 During the process of instrument development, face and content validity were ensured. On the basis of extensive literature review, a preliminary questionnaire was prepared. Face validity was then ensured by having two researchers suggest scale items, a method suggested by Ahmad and Schroeder (2003). Some modifications were made at this stage. Thereafter, two other senior researchers were asked to review the questionnaire and guess what the items were intended to measure to ensure that the questionnaire appeared reasonable. Further Shin et al. (2000) have suggested that if items of a construct are derived from a comprehensive analysis of literature and discussed with experts, content validity can be ensured. The scales were developed by the researcher on the basis of an extensive literature review. The questionnaire was administered for pilot testing on HR practitioners. After the pilot testing, some of the items were redefined or re-worded to be more representative of the constructs, thus enhancing the content validity. METHODOLOGY In order to empirically test the scales, primary data was obtained from companies in India. The respondents were senior HR managers (one from each firm). These are the ‘subject matter experts’ and believed to be in a good position to provide the required information (Chan et al., 2004). Senior HR executives have been used as respondents in similar other studies too (e.g. Budhwar & Sparrow, 1997; Chand & Katou, 2007; Huselid et al., 1997; Karami et al., 2004; Teo, 2000). Huselid and Becker (2000) concluded that choosing a knowledgeable ‘key’ informant provides more valid and reliable data. Following the footsteps of other researchers in the area (e.g. Chan et al., 2004; Kydd & Oppenheim, 1990; Wan et al., 2002), top ranking companies were considered in the present study. The sampling frame for the study was derived from the ranking of Top 450 companies in India published in Business World. Being top-ranked organizations, researchers could assume that HRM is at least nominally supported (Sheehan, 2005). In order to collect data, all companies in the sampling frame were contacted. Data was collected through mail. This methodology has been used by other researchers in the area too e.g. Budhwar and Sparrow (1997), Takeuchi et al. (2003), Wood (1995). ANALYSIS Structural Equation Modeling (SEM) capabilities of LISREL 8.50 were deployed in order to test the scales. SEM offers many distinct advantages over traditional statistical techniques (Bagozzi, 1981) by taking to account measurement error (Ahire et al., 1996; Mentzer, 1999). Analysis was carried out according to the approach recommended by Anderson and Gerbing (1988) and

Feza Tabassum Azmi 144 Gerbing and Anderson (1988). A thorough measurement analysis on the research instruments, that is, the VFL and VFS scales was carried out to assess scale unidimensionality, reliability and validity before establishing the link with organizational performance. Separate measurement models were specified for each scale as suggested by Jöreskog and Sörbom (2002). The HRM effectiveness scale (EFF) used in the study has been developed and tested in previous research (Teo & Crawford, 2005). Moreover, it consisted of three single-item sub-scales which cannot be subjected to a measurement analysis as suggested by Jöreskog & Sörbom (2002) and Hennig-Thurau et al. (2002). The same applies to organizational performance scale (PERF) too. Response Rate and Non-response Bias The study received a 24% response rate, which is relatively high as compared to similar researches. The response rates in similar studies have generally been low (mean rate 17.4%) as reported by Becker and Huselid (1998). Harmon et al. (2002) report a 10.8% response rate from a mail methodology. Given the Indian context, postal surveys result in poor response rates (Budhwar & Sparrow, 1997). In addition to the survey response rate, item completion rate (which was 99% in the present case) can be used as another measure of survey effectiveness (Klassen & Jacobs. 2001). Table 1 presents a summary of the profile of responding organizations. TABLE 1: Profile of Responding Organizations Sector Percent Manufacturing 86.1 Service 13.9 Nationality Percent Indian 80.6 Foreign 19.4 Ownership Percent Public sector 25.9 Private sector 74.1 Size (Employees) Percent Small (<1000) 15.7 Medium (1000-5000) 54.6 Large (>5000) 29.6

HRM-Strategy Integration and Organizational Performance: Empirical Evidence from India 145 Testing for non-response bias helps identify any potential bias due to the failure of elements in the sample to respond. Non-respondents have been found to descriptively resemble late respondents (Armstrong & Overton 1977). Lambert and Harrington (1990: 21) suggest comparing early and late respondents and assuming that ‘non-response bias is non-existent if no differences exist on the survey variables’. Following this approach, respondents were categorized as responding to either the initial (55.5%) or the two follow-up requests (44.5%) sent subsequently. A comparison of the two groups was conducted for each construct using independent sample T-test. It was found that the two groups exhibited responses that did not have statistically significant differences. Thus, non-response bias has not negatively affected the data. Assessment of Common Method Bias When data is collected from single informants, common method bias may lead to inflated estimates (Podsakoff & Organ, 1986). As Podsakoff and Organ (1986) have recommended, Harman’s one-factor test was used to examine any bias. All variables were entered into a principal components factor analysis. Common method variance is signaled by the emergence of a single factor that explains a majority of the variance. Four principal components were extracted that accounted for 71.13% of the total variance. Thus, it can be said that study does not suffer from common method bias. Estimation of Measurement Model Measurement model helps describe how well the observed indicators serve as a measurement instrument for the latent variables (Garver & Mentzer, 1999). The first step is to test constructs in the measurement model for unidimensionality. Once each scale is established as unidimensional and reliable; the researcher can test for validity (Anderson & Gerbing, 1991; Steenkamp & Van Trijp, 1991). Measurement analysis was performed on both scales viz. HRM-Strategy Link (VFL) scale and Status of HRM (VFS) scale. Scale Refinement: Confirmatory Factor Analysis Confirmatory factor analysis (CFA) was performed on the scales with the objective of determining the fit of the one-factor model. Recent researches in the area have increasingly preferred this approach over the conventional EFA approach due to its conceptual strengths (e.g. Gowen III et al., 2006; Takeuchi et al., 2003; Whitener, 2001). The concept of unidimensionality checks the extent to which items on a scale estimate one construct. Lack of unidimensionality may warrant purifying the scale by removing those items that reduce unidimensionality. When using LISREL, a goodness of fit index (GFI) of 0.90 or higher for the model suggests that unidimensionality exists (Jöreskog & Sörbom, 2002). The fit can also be determined based on the following indices: Adjusted Goodness of Fit Index (AGFI) - greater than 0.9; Bentler’s Comparative Fit Index (CFI)- greater than 0.9; Bentler and Bonett’s Non-

Feza Tabassum Azmi 146 Normed Fit Index (NNFI)- greater than 0.9; Normed Fit Index (NFI)- greater than 0.9; standardized residuals- ideally less than 2.58 (Jöreskog & Sörbom, 2002), zero or few in number are acceptable; value of <0.08 for Root Mean Square Error of Approximation (RMSEA) or even <0.1 is acceptable (Schumacker & Lomax, 2004); and factor loadings should be statistically significant (Garver & Mentzer, 1999; Steenkamp & van Trijp, 1991). The chi-square/d.f. ratio value of 3 or 2 or less has been advocated as an acceptable level of fit (Carmines & McIver, 1981). Not all indices are important. Thus, as suggested by Garver and Mentzer, (1999), Jöreskog and Sörbom (2002) and Lindquist et al. (2001) the areas of greater focus were GFI, AGFI, CFI, NFI, NNFI, RMSEA, and standardized residuals. When the measurement model was estimated, based on standardized solution, for the original 12-item VFL scale and 11-item VFS scale, the fit indices were not satisfactory. In other words, the scales were not found to be unidimensional. Hence, it was decided to obtain purified scales with the help of item reduction. This is a well documented practice in business research (Bawa, 2004; Goodwin et al., 1985). Confirmatory factor analysis was performed repeatedly to get a unidimensional model. The method of standardized residuals was used to purify the scale and achieve unidimensionality as recommended by Anderson and Gerbing (1988); Mentzer et al. (1999) and Yelkur et al. (2006). During each iteration, one item was reduced based on highest standardized residuals till p value was greater than 0.05, that is, there was no statistically significant difference between items. When developing a scale, it is best to begin with a very large item pool. Upon completion, the final scale may contain even one-fourth or one-fifth of the original items (Mentzer et al., 1999). The purified VFL scale had 8 items while purified VFS scale had 5 items. The fit indices for the original and purified scales is given in Table 2. TABLE 2 CFA Model Fit Indicators for VFL and VFS Scales FIT INDICATORS Original VFL Scale (12 Items) Refined VFL Scale (8 Items) Original VFS Scale (11 Items) Refined VFS Scale (5 Items) Goodness of Fit Index (GFI) 0.826 0.933 0.751 0.973 Adjusted Goodness of Fit Index (AGFI) 0.748 0.879 0.627 0.919 Normed Fit Index (NFI) 0.931 0.965 0.854 0.967 Non-Normed Fit Index (NNFI) 0.946 0.979 0.852 0.979 Comparative Fit Index (CFI) 0.956 0.985 0.882 0.989 Chi-Square /Degrees of Freedom 2.51 1.54 4.42 1.47 Root Mean Square Error of Approximation (RMSEA) 0.119 0.0710 0.179 0.0669 Standardized Residuals > 2.58 Largest = 5.41 Largest = 2.48 Largest = 7.01 Largest = 2.47

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HRM-Strategy Integration and Organizational Performance: Empirical Evidence from India 149 TABLE 3 Standardized Residuals and p Values for Scales No. of Iterations S.R. & p Values VFL VFS I Iteration Largest S.R. 5.41 7.01 p value 0.00 0.00 II Iteration Largest S.R. 5.26 4.04 p value 0.00 0.00 III Iteration Largest S.R. 2.94 3.93 p value 0.00 0.00 IV Iteration Largest S.R. 2.58 3.37 p value 0.00 0.00 V Iteration Largest S.R. 2.48 3.19 p value 0.05 0.00 VI Iteration Largest S.R. - 2.91 p value - 0.00 VII Iteration Largest S.R. - 2.47 p value - 0.19 VIII Iteration Largest S.R. - - p value - - S.R=Standardized Residual Assessment of Reliability and Validity After unidimensionality was established, the VFL and VFS scales were subjected to tests of reliability and validity. Reliability assessment of the refined scales returned Cronbach alpha value that suggested high reliability. Apart from Cronbach’s coefficient alpha, Garver and Mentzer et al. (1999) and Wu (2005) recommend computing the SEM Construct-Reliability (CR) and Variance-Extracted measures to assess scale reliability. Fornell and Bookstein (1982) stated that CR value higher than 0.6 and VE at 0.5 or higher is generally considered acceptable. In the study, the CR and VE values exceeded or were close to the recommended values. The Cronbach alpha, CR and VE values are given in Table 4. TABLE 4 Scale Reliability Estimates Scale Cronbach alpha Construct Reliability Variance Extracted VFL 0.90 0.91 0.57 VFS 0.82 0.80 0.55

Feza Tabassum Azmi 150 Validity of a scale may be defined as the extent to which differences in observed scale scores reflect true differences among objects of the characteristic being measured. For a convergent validity check, Bagozzi et al. (1991) and Garver and Mentzer (1999) suggested that all items should have positive and significant loadings (i.e., preferably greater than 0.50) on their hypothesized constructs. Most parameter estimates of the VFL and VFS scales had standardized loadings of more than 0.50 (Exhibits 1 & 2), indicating high convergent validity. Ahire et al. (1996) and Green et al. (2006) recommend assessing convergent validity using the Bentler-Bonett coefficient (Bentler & Bonett, 1980), with values greater than 0.9 indicating strong validity. In the present case, refined scales had Bentler-Bonett coefficient values (i.e. NFI and NNFI) of greater than 0.9 as can be seen from Table 2, thus indicative of strong convergent validity. Structural Model and Path Analysis The structural model was assessed using independent variables (VFL and VFS), dependent variable (PERF) and mediating variable (EFF). To assess the need to control for the moderating variables in the structural analysis, all the moderating variables were included in a correlation matrix along with the study constructs as suggested by Green et al. (2006). None of the moderating variables were found to be significantly correlated with the study variable. Thus, it was ascertained that the hypothesized moderating variables did not have a significant influence on the relationships and hence none of them were incorporated in the final structural model. The standardized path coefficients of the structural model depict the magnitude and direction of relationships. Path coefficients (Figure 3) are used for testing the research hypotheses. H1: HRM-strategy link had a significant direct and positive impact on the performance of the organization as indicated by the significant path from VFL to PERF (0.34). Thus hypothesis H1 was not rejected. H2: Strategic status of HRM function did not have any significant direct and positive impact on the performance of the organization as indicated by the non- significant path from VFS to PERF (-0.57). Thus hypothesis H2 was rejected. H3: HRM-strategy link did not have any significant direct and positive impact on the effectiveness of HRM function as indicated by the non-significant path from VFL to EFF (-0.45). Thus hypothesis H3 was rejected. H4: Strategic status of HRM function had a significant direct and positive impact on the effectiveness of HRM function as indicated by the significant path from VFS to EFF (0.34). Thus hypothesis H4 was not rejected. H5: Effectiveness of HRM function had a significant direct and positive impact on the performance of the organization as indicated by the significant path from EFF to PERF (0.42). Thus hypothesis H5 was not rejected.

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Feza Tabassum Azmi 152 previous studies in the area have been carried out in the Western context. The research model was thus generated based on these findings. It may be concluded that Indian dynamics and settings being different, the model was not fully supported. The study has implications for both academicians and practitioners. An outcome of the study is the development of a reliable and valid instrument for measuring the dimensions of HRM-strategy vertical fit. Since a majority of scales in the area have been produced in developed countries, the present research contributes by drawing its sample from India. HRM-strategy integration is an area which is often criticized for taking a ‘black box’ approach because it is difficult to demonstrate causality (Wright et al., 2005). The present study uncovers this hidden area in the Indian context. However, the instrument developed in the study has been tested in the Indian context only. Such scale modifications, which are empirically generated, must be cross-validated on other samples. Thus, it calls for more studies in different settings, cultures and countries to further test its unidimensionality, reliability and validity. The study suffers from the limitations associated with single cross-sectional research designs. In order to establish a better linkage between the study variables, future researchers may take up a longitudinal study design as it will more accurately capture and further confirm the causal relationships. REFERENCES Ahire, S., Golhar, D. & Waller, M. (1996). Development and validation of TQM implementation constructs. Decision Sciences, 27, (1), 23-56. Ahmad, S. & Schroeder, R.G. (2003). The impact of human resource management practices on operational performance: Recognizing country and industry differences. Journal of Operations Management, 21, 19–43. Amba-Rao, S. (1994). US HRM principles: Cross-country comparisons and two case applications in India. International Journal of Human Resource Management, 5, (3), 755–78. Anderson, J.C. & Gerbing, D.W. (1991). Predicting the performance of measures in a confirmatory factor analysis with a pretest assessment of their substantive validities. Journal of Applied Psychology, 76, (5), 732-740. Anderson, J.C., & Gerbing, D.W. (1988). Structural equation modeling in practice: A review and recommended two-step approach. Psychological Bulletin, 103, (3), 411-423. Armstrong, J.S. & Overton. T.S. (1977). Estimating nonresponse bias in mail surveys. Journal of Marketing Research, 14, (3), 396-402. Bae, J. & Lawler. J.J. (2000). Organizational and HRM strategies in Korea: Impact on firm performance in an emerging economy. Academy of Management Journal, 43, (3), 502-517. Bagozzi, R P (1981). An examination of the validity of two models of attitude. Multivariate Behavioral Research, 18, 133-145. Baird, L. & Meshoulam, I. (1988). Managing the two fits of strategic human resource management. Academy of Management Review, 13, 116-128. Baron, J.N. & Kreps, D.N. (1999). Strategic Human Resource Management: Framework for General Managers. New York: John Wiley & Sons. Bawa, M.A. (2004). Consumer ethnocentrism: CETSCALE validation and measurement of extent. Vikalpa, 29, (3), 43-57. Becker, B.E. & Gerhart, B. (1996). The impact of human resource management on organizational performance: progress and prospects. Academy of Management Journal, 39, (4), 779-801.

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Euro Asia Journal of Management Issue 39, Vol. 20, No.2, December 2010, pp.159-174    THIRD GENERATION FAMILY BUSINESSES: A COMPARISON OF SUCCESSION ISSUES IN TWO BRAZILIAN COMPANIES VIRGINIA TRIGO1 and NELSON ANTÓNIO2 ABSTRACT In Brazil there are approximately 4.1 million formally established enterprises. About 98% of them are micro and small firms mostly family businesses of which 75% are being operated by the first generation, 20% are in the hands of the founder's offspring (second generation) and only 5% are controlled by the third or subsequent generations. These percentages show that the chances of companies remaining in the control of the family are drastically reduced from generation to generation and thus the two main questions that guided our research: (1) what are the reasons for such high mortality? and (2) how is succession prepared in family enterprises? This paper is part of a broader research that explores management issues in family businesses in Portuguese speaking countries and examines the cases of two Brazilian firms both founded by German immigrants in two different and prosperous industries that experienced successful transfers from the first to the second generation but had different fates in the next handover. The in-depth interviews we have conducted with the main actors in the two companies unveil some of the factors that dictated these disparate outcomes. Keywords: Family business, Succession, Brazil                                                             1 ISCTE Business School, Lisbon, Portugal. Email: virginia.trigo@iscte.pt 2 ISCTE Business School, Lisbon, Portugal. Email: nelson.antonio@iscte.pt

Virginia Trigo and Nelson António 160   INTRODUCTION According to data from Instituto Brasileiro de Geografia e Estatística (IBGE, 2007) there are in Brazil 4.1 million formally established enterprises either in industry, commerce or services. From these, about 98% are micro and small firms, which contribute to 20% of GDP and generate 45% of jobs. They are mostly family businesses. In the case of Brazil, it is estimated that 75% of family businesses are being operated by the first generation, 20% are in the hands of the founders’ offspring (second generation) with only 5% being controlled by third or subsequent generations (IBGE, 2007). What are the reasons for such a high mortality? How is succession prepared in family enterprises? Theoretical discussion on this kind of firms is broad and received a particular thrust from Christensen (1953) who studied succession problems in small family enterprises undergoing a stage of growth. According to Chrisman et al. (2007), extensive research, both descriptive and prescriptive, has been undertaken since then with a focus on examining family relations. Little attention has been paid to enterprise performance although family internal affairs and relationships do influence performance and the study of both factors should not be separated. So far, some problems specific to family businesses have been identified in the literature, namely: (1) conflicts of interest between the family and the enterprise that often lead to capital depletion, to lack of discipline or to the hiring of ineffective managers; (2) inappropriate use of resources by family members who take the company as a kind of ‘mother’ whose main role is to provide nurturance and hold the family together (Lansberg, 1988); (3) lack of financial planning and neglect towards designing a cost structure; (4) nepotism in hiring or promoting family members without competences or qualifications for the job; (5) difficulty in accepting and introducing new management styles and new technologies. Above all, the lack of planned succession has been found to account for the death of many family enterprises or their failure to overpass the second or third generations. Aware of these problems and of the role that planned succession plays in the success of family businesses, this paper analyses and compares the history of two Brazilian family companies which both succeeded in passing from the first to the second generation but only one was able to transfer to the third generation. The questions are: what happened? and why did it happen? Our study found that in these specific cases two critical success factors contributed to the longer term survival: the building up of a strong, endogenous organizational culture and the early involvement of young family members in the management of the company. We believe that our research may contribute to the study of some of the factors that explain the survival of family enterprises across several generations and assist them in better preparing for their continued existence.

Third Generation Family Businesses: A Comparison of Succession Issues in Two Brazilian Companies  161   THEORETICAL FRAMEWORK Theoretical discussion on family enterprises initiated in the 1950’s with a seminal work by Christensen (1953): Management Succession in Small and Growing Enterprises. In the fifty years that followed much of the discussion included a divergence among researchers on the very concept of what a family enterprise is. Nogueira (1984) considers that the family enterprise is a fusion of two main social institutions: the family and the enterprise. The enterprise is an instrument that man created to overcome the restrictions imposed by nature or rather a mechanism that helps to transform nature. Family however is, in essence, the opposite of this and such divergence accounts for the majority of the problems that family enterprises face. Donnelly (1976) believes that, to be considered as such, a family enterprise must be perfectly identified with a family for at least two generations and a reciprocal influence between the general policy of the company and the interests and objectives of the family must be recognized. Talking about family business research, Sharma et al. (1997) consider it to be largely descriptive rather than prescriptive. When taking this last approach it has mainly concentrated on how to improve family relationships rather than on how to improve business performance as a consequence of these family relationships. In perspective, a wide-ranging review of the literature on family business will conclude that: (a) succession of the owner has been the most commonly addressed issue, and (b) whether or not a firm remains in the hands of its founding family depends on its owner ability to manage the succession process. The literature considers that the decision-making process regarding the appointment of the next CEO should be rather strategic than personal and it is possibly the most important decision that has to be made in any generation, whatever the stage in which the life cycle of the firm is (Lambrecht, 2005). Management succession is a lifelong process but it is also an event. This occurs when, at a given time and place, the power is formally transferred from the former generation to its successor while the process refers to a series of identifiable steps that take place over time with the purpose to ensure that the successor will be ready when the moment comes. The major portion of the family business literature on succession has focused on the succession process with subtopics on succession planning, succession timing, interest of the next generation, and who should choose the successor. Researchers agree that managing the transition from one generation to another is a difficult process (Handler & Kram, 1988). Ayers (1990) and Lane (1989) consider it to be the most important issue in family business management, although if it only occurs once every few decades. In fact a formal management succession plan enhances the probability that the shift between the generations will be accomplished in the best interests of the family and the business. Lansberg (1988) even states that it significantly determines the very continuity of the family firm from one generation to the next. According to him, Max Weber was among the first to identify the importance of having the founder of an organization turn over power to a successor

Virginia Trigo and Nelson António 162  who could solidify the administrative structures required for the continued development of the enterprise. In spite of the evidence provided by this concentration of research, succession planning seldom occurs in family businesses (Lansberg, 1988; Rosenblatt et al., 1985; Bigliardi & Dormio, 2009). Owners may fear the impact on the family of discordant decisions, or they may not perceive a real relationship between succession planning and the survival of the firm (Levinson, 1971; Perrigo, 1975; Firnstahl, 1986; Bruce & Picard, 2006). In the few cases when succession is planned, families tend to concentrate on the event rather than on the process and family business leaders seem to be only predisposed to think about their own succession late in life or when they experience a life-threatening crisis. We concur with the literature that the process of planning for management succession should start, if not earlier, on the day of the event that is, when each new CEO takes over. Family businesses need to establish their own systems to guarantee that leadership talent is available to replace the leader when he or she will no longer be in charge. Foster (1995) claims that the ability to develop leadership in the successor generation is crucial to the survival and growth of family-owned and family-managed businesses. Successful transition from one generation to the next is about designing a process of grooming and developing the leaders of the successor generation. They will be those who will lead the firm through the inevitable changes, crises and the increasing competitiveness of the environment. In an early study, Malone (1989), himself a fifth generation leader in a family business, attempted to understand which factors – and to which degree – influenced the ‘continuity planning’ in family businesses, that is the planned management succession. He anticipated a positive correlation between the degree of continuity planning and: (1) the size of the business; (2) the amount of strategic planning; (3) the level of perceived family harmony; (4) the percentage of outsiders on the board of administration; (5) the age of owner-managers; and (6) the degree of internality of the owner-manager’s locus of control. Malone surveyed 58 leaders of family businesses in the timber industry in the United States and did not find any significant positive correlation between planned succession and the size of the business. However he did found that the more strategic planning there existed the higher the probability that succession was being planned. Succession planning was also positively correlated with family harmony but no positive correlation between the age of the owner-manager and continuity planning could be statistically confirmed. Although Malone’s sample is small, limited to one industry and to one country, his results are of interest and his work is often quoted. STAKEHOLDERS AND THE FAMILY BUSINESS While succession has a big impact in the life (or death) of a family firm not all the stakeholders have the same perspectives on the future of the business. Family members will tend to view the firm as part of the family. Other constituents like employees or existing professional managers

Third Generation Family Businesses: A Comparison of Succession Issues in Two Brazilian Companies163may hold different views depending on how long and how soon they are linked to the founder,whether or not they belong to their inner circle. Owners outside the family will also havedifferent perspectives depending on how intertwined the business is with other businesses theymay own. Such contrasting views and interests may also facilitate or hinder the succession plan.If we consider the family firm as existing within a system, the area of commonagreement may be larger or smaller depending on a number of variables (time in the company,intensity of crossed ownership, heir grooming, degree of perceived belongingness of familymembers towards the firm…). The larger it is, the easier it will be the facilitation of succession.The figure below (Lansberg, 1988) is a representation of these different constituents with theenvironment representing all those outside the firm but with a stake in it.FIGURE 1Stakeholders and the family businessSource: Lansberg (1988)Central to the family system is the role of the founder and that of his or her spouse. Successionmeans losing power and relevance within the family and inside the business and may restrain thefounder from letting go in a timely manner (Dyer, 1986). Successors may be at early stages oftheir lives; some may be married and with children and long for the founders’ withdrawal. These

Virginia Trigo and Nelson António 164  conflicting interests if not mediated by the founder’s spouse may generate strong disagreements and eventually lead to the abandoning of the company by the putative successor (Tagiuri & Davis, 1996). Post and Robins (1993) state that succession timing can be affected by the founder’s ‘inner circle’ in case those in that circle, either inside or outside the company, perceive the continuity of leadership to be in their best interest at least in the short term. Early inclusion of successors in the affairs of the company may not only enable them to be groomed but also more involved in order to develop a love for the business and decrease the chances of future abandoning. It may also contribute to get others used to the idea of a change in leadership. Who will choose the successor is another issue. Sensitivity to the recommendations and needs of the founder, patience, diplomacy, understanding of the organization and its culture and understanding of the role of the successor in the family and in the business are frequently mentioned concerns (Davis & Harveston, 1998). Another topic relates to who should be chosen and when. In a recent article, Royer et al. (2008) surveyed 860 family businesses and found that specific knowledge together with a favorable transaction environment will, given certain contexts, make a family member the most suitable successor. Difficulties with succession are not limited to the founder and the family. Many come from the environment in several forms. Customers and suppliers who are used to deal with the founder may find themselves also in succession processes and often influence family business leaders not to leave: social networks are not easily transferred. Globalization also plays a role in succession. If a family company is doing well it may become attractive to multinational companies that will take advantage of the difficulties of succession to make proposals that those involved may consider difficult to refuse. As we will see ahead this was precisely the case in one of the family businesses we studied. SELECTION OF CASES AND CONTEXT OF THE STUDY This paper is part of a broader study the researchers are conducting on management issues in family businesses in Portuguese speaking countries. In the context of our study we came across these two Brazilian companies who caught our attention because they have some basic commonalities: they were established at about the same time (turn of 19th to 20th centuries), in about the same region (South of Brasil); they were founded by immigrants of the same country background (Germany); and both founders went from ‘rags to riches’. Yet, while both could be now in the hands of the third generation, one of them has succeeded to do so while the other left the family ownership at the transfer from the second to the third generation. Something or a set of things have occurred in one case and not in the other and vice-versa that originated such different outcomes. Therefore, the questions that we try to answer in this paper: What has exactly happened? Why has it happened?

Third Generation Family Businesses: A Comparison of Succession Issues in Two Brazilian Companies  165  Our interest in comparing these two similar and yet dissimilar cases was facilitated since we had the opportunity to interview some of the main actors who took part in the transfer process as well as informants and we could also access documentation to confirm some of what was being said. These sources enabled us to construct a storyline aligned with our two main research questions and a narrative around it. It is however important to note that these two cases are particular and the conclusions of our analysis cannot, of course, be generalized as they depend on the context where events have taken place and on the people who participated in them. Still these two cases may shed some light on the issue of succession and on the factors that may assist it to succeed. RESEARCH STRATEGY AND METHOD Case study is used as a research method when there is the intention of studying in depth a certain object of analysis. It enables the detailed study of a certain environment, a certain subject, a certain situation. A case allows retaining the holistic and significant characteristics of the events studied such as individual life cycles, changes in patterns, maturation of economic sectors or organizational processes. In his much cited book, Yin (1984: 23) notes that case study research is a form of empirical research that examines contemporary phenomena in a real life context and in situations where the frontiers between phenomenon and context are not clearly established. It has been a preferred research strategy whenever the researcher is looking for answers to questions such as ‘how’ and ‘why’ certain phenomena occur; when there is little control over the events studied or when the focus is on current phenomena which can only be studied in the framework of a real life context. By adopting an exploratory and descriptive approach, a case study allows the researcher to be open to discovery. Even if his work is initiated from a given theoretical background he must be open to new elements or dimensions that may appear in the course of the research. A case study may use several sources of evidence but its most fundamental techniques are observation and interviews. Although the case study method continues to be viewed with circumspection in spite of its frequent use (Gerring, 2004), case studies enable a single-unit analysis (as opposed to cross-unit) and are considered appropriate to understand the dynamics present within single settings. Case study was selected as the research method in this research as problems such as succession require in-depth, repeated, and often difficult to obtain interviews with different participants in the context where the phenomenon occurs. It is not rare that such interviews take an emotional turn and the researcher is caught in the middle of an ongoing struggle. Other methods like questionnaires do not usually work in these contexts as those undergoing such a process are not in the mood to answer them. However we have found that some are often willing to talk, share and explain their views.

Virginia Trigo and Nelson António 166  Our study was conducted in four phases: Persons in charge and informants in both companies were enquired through face-to-face interviews conducted along two months in 2008. In the case of company A the founder, son and daughter, one grandchild and two executives were interviewed. For company B the current owner-manager and three executives were interviewed. Interviews lasted around one hour and in some cases (case A) were repeated. Whenever necessary interviewees were requested to clarify some issues by phone to which they complied. Researchers kept a field diary where particular circumstances of the interviews were noted. In both cases the interviewees requested anonymity; therefore they will be designated by Company A and Company B. PHASE 2 – Collect data Conduct interviews with main participants Enquire informants Keep field diary; consult available documentation PHASE 3 – Critical events and coding Critical events were identified and coded in four themes: foundation of the company; main strategic moves; involvement of successors; PHASE 4 – Storyline, narrative and conclusions Storyline constructed; narrative created; comparisons established PHASE 1 – Review literature and design interview  Review literature Design semi‐structured – open interviews around the life of the company since establishment 

Third Generation Family Businesses: A Comparison of Succession Issues in Two Brazilian Companies  167   DESCRIPTION OF CASE STUDIES Brazil gained its independence in 1822 from the hands of the Portuguese in a bloodless movement led by the son of the Portuguese king who would become Brazil’s first emperor. Along the 19th and 20th centuries the country welcomed several waves of immigrants from Europe, Middle East and Japan, most of them fleeing from wars and other catastrophes. After World War II, Brazil initiated a domestic based policy of economic growth which stimulated the appearance and growth of many and diverse enterprises, most of them family firms. The two companies studied in this paper were founded by first generation German immigrants and both would be now in the third generation of ownership. However one of them managed to stay in the family while the other was sold by the second generation. The questions we want to explore are ‘what happened’ and ‘why it happened’. We believe that if these questions can be answered we may be able to unveil problems associated to succession and thus contribute to current knowledge on family businesses. The cases will be presented following the general themes generated after coding the interviews. Results will be confronted with existing theories and conclusions drawn. Company A Company foundation The son of German immigrants who arrived in Brazil in the beginning of the 20th century in the pursuit of new opportunities, Nigel was born in Rio Grande do Sul. When he was 14 years old he started to work with his father in the family bakery. His job was to sell bread door-to-door carrying it in two wicker baskets balancing on his shoulders. With hard work and much sacrifice the business prospered and in less than one year Nigel would be selling the bread no longer on foot but on a horse carriage. When he was 23 years old, Nigel got married to Hilda, like him the daughter of German immigrants. While continuing to help the father in his business Nigel also worked for three years as representative in his region of several companies in the food industry. This would enable him to establish his own network within the industry, which would be an important factor for his prosperity in the future. When Alex, his first son, was born, Nigel felt he should begin his own business; he started looking around and methodically reading local newspapers. ‘That morning I saw in Correio do Povo an advertisement about a bakery that was for sale in the town of Novo Hamburgo. It looked the right thing for me but the town was 500 km away and the amount of money requested was quite high’. Nigel did not give up and soon the family was ready to move. With his own savings and family loans he was able to gather the amount required and to start a new life in Novo Hamburgo. This was a town founded and populated by German immigrants and Nigel would offer exactly the type of bread they loved and missed.

Virginia Trigo and Nelson António 168  Strategic moves By 1951 Nigel had expanded his business to Porto Alegre, a much larger city. His son and daughter were helping in the bakery – later to become a landmark in the city – while studying at the same time. Economically they were prospering. Gradually, Alex, the eldest, got more involved in the firm and in the early 1970’s the family acquired land with the purpose to build a factory. ‘At the time many thought it was crazy of me. The land was a rice field and much had to be done, but it was near the freeway and I really saw an opportunity’. Nigel was right. In 1972 he opened what would become the seed of a large food industry under the slogan ‘we love what we do’. In 1973 equity was open to outsiders but the family continued to be at the heart of the company, holding the majority of the capital and working together. They continued to prosper along the 1980’s. Another successful strategy was the association with large distribution networks such as Sonae, Zaffari, Bourbon, Carrefour and Pão de Açucar. At the beginning of 1990s Alex became chairman of the company and initiated a gradual process of administrative professionalization. Alex had studied economics and had been working in the company since he was 12 years old. His plan was to take over all strategic issues and to liberate himself from operations. He would leave this to professional executives. The Accounting Director explains: ‘Before, all salaries were paid by Ms. Hilda herself. All administrative tasks were executed by Mr. Nigel and a few other members of the family. Outsiders were left to production and sales, but with Mr. Alex most executive functions passed to the hands of professionals hired in the market. That is how I came to work here’. The Factory Director adds: ‘Our machines were obsolete and they were in need of constant repair. One day I mentioned this to Mr. Alex since he was always travelling to see new technologies and he bought those new machines from the States. That’s how we could increase our production and reduce maintenance costs. We became very competitive in this sector’. Alex notes that one essential condition for growth and for the current position company A holds in the market was the professionalization of most of the company functions. ‘In a family business this is a very sensitive issue. Before, people used to be paid according to their seniority but when we hire professionals we need to use other criteria. Some of the old employees had to be replaced by new ones. At the time we could not attract highly paid professionals so we decided to hire young talents and train them. It was a slow process but talents are essential to help you to grow and that is what we have done.’ By employing a mix of professionals and family members Company A was able to consolidate expansion in the south of Brazil and was ready to expand the market. They became well known for the quality of their products and for emphasizing health conscious food well before this became fashion. They were one of the first in Brazil to offer specialties like soya bread, ‘light’ bread, wholly bread, high fiber, and bread for diabetics or for cardiovascular patients. Alex’s son, Carl, the Marketing Director spoke enthusiastically: ‘Soya is a functional foodstuff; it supplies nutrients and improves health. Soya bread is very special and can be sold at almost double price of normal bread. The same happens with most of our other breads. It makes business sense in a very mature and little innovative market’. In January 2001 a partnership was formed with a local bank that invested enough to build a new factory in the state of São Paulo to be inaugurated one and a half years later. After

Third Generation Family Businesses: A Comparison of Succession Issues in Two Brazilian Companies  169  30 years of its implementation in the market, company A was one of the largest companies in Brazil in the bakery industry holding 10.6% of market share. In 2000 its turnover was 19 million USD and in 2004 it was already 58 million USD in a market that was growing at a 15% annual rate. In 2007 revenues were 77.5 million USD with a net profit of 2.9 million USD; the company possessed a fleet of 140 trucks plus 60 outsourced; and it employed 1,600 persons. The company not only served large distribution channels but also retail: salesmen would daily visit small shops in their motorbikes and take orders for next day delivery. So successful was company A that it became the target of several multinationals. Finally, on 7th May 2008, a large multinational group announced the acquisition of 75% of the shares. ‘It was too good an offer to refuse’ Alex said. At 94 years old Nigel was still alive and witnessed the transfer with discomfort and pain. Involvement of successors in the company life Alex started to work in the family business when he was 12 years old. ‘I was in this company every day. I went to school and came here whenever possible. The family discussed the company everywhere, lunch and dinner. I was the eldest and I always knew my father counted on me to succeed him. For example, he insisted I should work in all departments of the company: production, sales, administration…’ Alex admits he might have done some things differently but his father had his own style and this style proved to be right at the time. ‘In the 1990s it was different; we had to do things differently’. Neither Alex nor his sister has been able to involve their children in the family business as their father had done. Alex’s son worked in the company for a while but left it in conflict with the father. An older employee says: ‘Mr. Alex’s management style was too centralizing and domineering. He wanted professionals, but he could hardly delegate. It was like you are driving a truck but someone is behind you shouting: turn left, go ahead, now right…’ Alex’s nephew was uninterested in the business from the beginning. He went to study in the United States and did not return. Succession itself Succession was smooth and successful from the first to the second generation but did not overcome the next transfer. If we take figure 1 (Lansberg, 1988) we may conclude that, at a certain point in time, the four systems depicted – family, ownership, management and environment - intertwined in such a way to create the most favorable conditions for a takeover: a. Family issues – the first generation deeply involved the successors in the life of the company from a very early age. The company was central to the family life and the subject of daily conversations. However Alex and his sister took a much loose approach towards their children that eventually would lead to a lack of interest and disconnection from the business. Alex always saw himself as the successor and did not look for opportunities elsewhere but both his son and nephew could easily find jobs outside the company and did not resent the takeover because their heart was not there. Early involvement and grooming of successors are often quoted in literature as essential to achieve a smooth succession.

Virginia Trigo and Nelson António 170  b. Ownership issues – Nigel, the founder, had complete and single control over the company although at a point in time he had admitted some minority shareholders. When he handed over to his son, Alex, although being the president, had to share ownership with his sister. Subsequently, ownership would have to be further split with each element of the family having a lower share generation after generation. These and other issues concerning the management of succession should be institutionalized within the family and across generations if the firm is to remain in the family. c. Management issues – Alex did modernize the company and hired professional managers who helped it to grow, but according to some interviewees, his style was too centralizing and he was reluctant to delegate. This pushed his son out of the company and may have discouraged his nephew as well. d. Environmental issues - Were it not for the company becoming the target of multinationals willing to make ‘irresistible offers’ perhaps Alex would have tried a little harder to convince his son to stay. Globalization and the mobility of information and the capital it entails make family firms more vulnerable to takeovers. When of the succession from the first to the second generation the business environment was much more stable and it was more difficult for foreign firms to buy companies elsewhere. The effect of environmental forces such as globalization on the fate of family firms is a subject that deserves further research. Company B Company foundation In 1901, Adrian, a German immigrant who had arrived in Brazil in 1869, bought a small nail factory in the south of the country thus initiating the history of Company B. He was 20 years old when he arrived in Brazil and, like most of his countrymen he established in the south where the climate was cooler and more similar to his homeland. He started by opening a store where crops could be negotiated and exchanged for a variety of goods including fabrics, cooking oil, salt, tools and nails. Adrian had two sons, Felix and Edmund, who helped him in the business and for whose future he would found a practical solution: he bought two companies in different businesses that he gave to each one of the sons. To Felix he bought a nail factory; Edmund got a furniture business. Both were promising businesses at the time as Brazil was undergoing an industrialization process and population was growing as a result of an afflux in immigration that supplied specialized workmanship. The history of the nail factory will be studied in this case. Felix was 25 years old when he took possession of Company B. The firm produced nails using raw materials imported from Europe, carefully inspecting them for defects and rejecting the defective ones. ‘That’s when we began quality control’ our interviewee says. Nails were cleaned and wrapped in brown paper proudly exhibiting the company name.

Third Generation Family Businesses: A Comparison of Succession Issues in Two Brazilian Companies  171  Strategic moves In 1914 Felix initiated a development strategy and started to sell in Rio de Janeiro. Progress was slow but steady. In the 1920s Felix started to diversify by assembling cars and trucks imported from the United States. By then, like in the case of Company A, Felix marries Maria, again the daughter of German immigrants. He passed away in 1939 leaving the management of the company to two of his most loyal employees, whom he had included in the partnership and who led the business until 1946 when his son in law, Franz, also of German origin, took care of the firm. Franz had worked in a bank and was knowledgeable about finance, accounting and human resources. He was disciplined, accountable, and approachable and stories still abound on how he treated employees, without distinction of titles or parenthood. He valued the creation of a sound organizational culture based on: administrative rationality, financial planning, accounting control and respect for people. To this he added business acumen and entrepreneurial spirit that led him to continuously reinvest profit in company growth. Shortly after Franz taking the leadership, in 1947, the nail factory went public and started to trade shares in the stock exchange. In 1948 Franz bought a large foundry to vertically integrate the business. The family had not enough money for the transaction but Franz preferred to sell other assets and to gather enough capital so that they could produce their own raw material and cease to depend from imports and from already existing local production. In 1950 they changed the production system to the use of mini-mills which basically consists in transforming scrap into the wire rod they needed for nail production. The system allowed a lower initial investment, local procurement of raw material and therefore a closer relationship with customers, suppliers and local authorities. Today Company B, a business group with over 150 industrial units operating in several countries and more than 30,000 employees, is one of the largest scrap recyclers in the world. Internationalization began in 1980 with the acquisition of a foundry in Uruguay, later expanding to Canada, United States and to other countries. Franz died a few years later leaving the company in the hands of his four children and, behind him, a legend centered in two core values: ethics in business and respect for people (Johannpeter, 2007) . One of the sons remembers: ‘My father’s concern for people was real. In 1960 he established a Foundation to improve the livelihood of our employees in issues like health, education, food and housing. He never ceased to support it’. Involvement of successors in company life Company B is now in the hands of the third generation of the family business. Succession from the first to the second generation might not have succeeded as Felix died relatively young from unrecovered illness leaving behind four daughters, three of them of young age. Unable to find a timely successor – his only family member, Franz the son in law who would have been interested in the business was living in Argentina - Felix changes the ownership of the company to incorporate two new partners, loyal, technically good employees who would take care of the company till Franz’s arrival.

Virginia Trigo and Nelson António 172  Franz always involved his four sons in the business, investing in their education. He travelled with them and these travels were also educational. As early as 1960, the sons were already in the Board of Directors making decisions. When internationalization took place the sons deeply participated and two of them went abroad to manage the group there. All of them are working in the company and so are their children, the fourth generation. Succession itself The handing over of Company B across generations has been smooth largely due to the attention paid to planning. The example goes to the very starting of the company: in order to avoid dispute between his two sons, Adrian bought two businesses, one for each of the children. He participated in both till his death but ownership was very clear when he passed away. Unable to transfer to his children during his lifetime, Felix passes management to trustworthy employees who will keep the business till a family member is ready to take over. This family member, Franz, early involves his children in the business and in spite of the huge size of the company – among the largest in the world in its industry – the family retains control and current succession is again guaranteed. CONCLUSION We find these cases particularly interesting because while sharing a number of commonalities – the same German origin of their founders, the same tendency to marry within the German community, the same preference to establish in the Southern part of Brazil where conditions are more similar to the German environment, the same entrepreneurial drive that explains their fast growth within established industries both growing first at local level and only after at national (and international) levels -, they suffer different fates after the second generation. In both cases the founders were careful to involve their offspring in the business from an early stage – succession was dealt with as a process, not as an event – but the fate of the companies starts to diverge after the second generation. For company B, Nigel was so keen in keeping the firm within the family that, in lack of timely successors and in the turbulent times of World War II, transferred it momentarily to loyal employees in the waiting of Franz’s arrival, the next family owner. Such decision was certainly key in keeping company B in the family. Failure to keep Company A in the family after the second generation was mainly due to three factors that contrast with what happened in company B: (1) the personality of the second owner, entrepreneurial but centralizing and domineering put his next relatives off; (2) lack of early involvement of the offspring in the business and therefore of succession planning; (3) weakened by family disputes company A was not able – or was not willing – to resist the forces of globalization and succumbed to its own success by accepting an ‘irresistible’ offer by a multinational company.

Third Generation Family Businesses: A Comparison of Succession Issues in Two Brazilian Companies  173  The table below summarizes the main findings concerning the critical events that emerged through the interviews. Although they highlight similarities but also some differences, far from trying to generalize we stress that although differences may explain the outcomes these are embedded on a certain context and dependant on the people who participated in them. TABLE 1 Summary of Critical Events Company A Company B Foundation German immigrants German immigrants Succession: 1st to 2nd generation Involvement of successors Involvement of successors Succession: 2nd to 3rd generation No successful involvement of successors Successful involvement of successors Strategic moves Market and product development Early internationalization Professionalization Middle management Middle and upper management Outcomes (2008) Company sold to a multinational Company is public but still in the family Results concur with the literature in that the lack of planned succession has been found to account for the death of many family enterprises or their failure to overpass the second or third generations. Early and at all levels professionalization is another difference between company A and B and findings also agree with many authors who have studied family businesses. The narratives show as well, as Foster (1995) claimed, that, opposite to company B, company A failed to groom and develop the leaders of the successor generation and thus the need (or the preference) to sell out. Family businesses are receiving an increasing interest from the part of researchers and rightly so since they represent the majority of businesses in the world. Most of these businesses were established after World War II and our times are ripe for second or third generation transfers. It is therefore our belief that in studying the many different aspects of family businesses we will not only be helping them to survive and grow but the economy as well. Such are the main purposes of our paper.

Virginia Trigo and Nelson António 174   REFERENCES Ayers, G.A. (1990). Rough family justice: equity in family business succession planning. Family Business Review, 3, (1), 3-22. Bigliardi, B. & Dormio, A.I. (2009). Successful generational change in family business. Measuring Business Excellence, 13, (2), 44-50. Bruce, D. & Picard, D. (2006). Making succession a success: Perspectives from Canadian Small and Medium-Sized Enterprises. Journal of Small Business Management, 44, (2), 306-309. Chrisman, J., Sharma, P. & Taggar, S. (2007). Family influences on firms: An introduction. Journal of Business Research, 60, (10), 1005-1011. Christensen, C.R. (1953). Management Succession in Small and Growing Enterprises. Cambridge, MA: Harvard University. Davis, P.S. & Harveston, P.D. (1998). The Influence of family on the family business succession process: A multi-generational perspective. Entrepreneurship Theory and Practice, 22, (3), 31. Donnelly, R.G. (1976). A Empresa Familiar. São Paulo: Abril-Tec. Dyer, W.G.J. (1986). Cultural Change in Family Firms: Anticipating and Managing Business and Family Transitions. San Francisco, CA: Jossey-Bass. Firnstahl, T.W. (1986). Letting go. Harvard Business Review, 64, (5), 14-18. Foster, A.T. (1995). Developing leadership in the successor generation. Family Business Review. 8, (3), 201-209. Gerring, J. (2004). What is a case study and what is it good for? American Political Science Review, 98, (2), 341-354. Handler, W.C. & Kram, K.E. (1988). Succession in family firms: The problem of resistance. Family Business Review, 1, (4), 361-381. IBGE (2007). Instituto Brasileiro de Geografia e Estatística homepage. Available at: http://www.igbe.gov.br Johannpeter, G.G. (2007). Memórias de Aço: Fatos, Negócios, Empresas e Pessoas que Conheci. São Paulo: Ed. Artemeios. Lambrecht, J. (2005). Multigenerational transition in family businesses: A new explanatory model. Family Business Review, 18, (4), 267-282. Lane, S.H. (1989). An organizational development / team building approach to consultation with family businesses. Family Business Review, 2, (1), 5-16. Lansberg, I. (1988). The succession conspiracy. Family Business Review, 1, (2), 119-143. Levinson, H. (1971). Conflicts that plague family businesses. Harvard Business Review, 49, (2), 90-98. Malone, S.C. (1989). Selected correlates of business continuity planning in the family business. Family Business Review, 2, (4), 341-353. Nogueira, R.M. (1984). Empresas Familiares: Analisis Organizacional y Social. Buenos Aires : Ediciones Macchi. Perrigo, A.E.B. (1975). Delegation and succession in the small firms. Personnel Management, May, 35-37. Post, J.M. & Robins, R.S. (1993). The captive king and his captive court: The psycho-political dynamics of the disabled leader and his inner circle. Family Business Review, 6, (2), 203-221. Rosenblatt, P.C., de Mik, L., Anderson, R.M. & Johnson, P.A. (1985). The Family in Business: Understanding and Dealing with the Challenges Entrepreneurial Families Face. San Francisco, CA: Jossey-Bass. Royer, S., R. Simons, Boyd, B. & Rafferty, A. (2008). Promoting family: A contingency model of family business succession. Family Business Review, 21, (1), 15-30. Sharma, P., Chrisman, J. & Chua, J.H. (1997). Strategic management of the family business: Past research and future challenges. Family Business Review, 10, (1), 1 - 35. Tagiuri, R. & Davis, J. (1996). Bivalent attributes of the family firm. Family Business Review, 9, (2), 199-208. Yin, R. (1984). Case Study Research, Beverley Hills, CA: Sage Publications.

Euro Asia Journal of Management Issue 39, Vol. 20, No.2, December 2010, pp.175-191 AN INVESTIGATION OF DETERMINANTS OF JOB SATISFACTION FOR MACAU CIVIL SERVANTS CARRY K.Y. MAK1 and JACKY F.L. HONG2 ABSTRACT This quantitative study aims to examine the determinants of job satisfaction for Macau civil servants. A survey was conducted with a sample of 189 government employees in Macau for testing three categories of antecedents, namely extrinsic, intrinsic and personal factors, and the related impact on overall job satisfaction. Our study results indicated that departmental pride was the most significant determinant of job satisfaction, while pay satisfaction, training opportunities, autonomy, skill variety, job security and satisfaction with clients were found to be non-significant. Compared with earlier studies in private sectors and other countries, differences in results imply that job satisfaction is a dynamic concept, and different political, cultural and economic conditions create different impacts onto civil servants’ job satisfaction. Keywords: Motivation, Job satisfaction, Public sector, Macau 1 Faculty of Business Administration, University of Macau, Taipa, Macau. Email: CarryMak@umac.mo 2 Faculty of Business Administration, University of Macau, Taipa, Macau. Email: fbaflh@umac.mo

Carry K.Y. Mak and Jacky F.L. Hong 176 INTRODUCTION Job satisfaction has been an ongoing interest for both researchers and managers (Bajpai & Srivastava, 2004; Cranny et al., 1992; Locke, 1976; Oshagbemi, 1999). Previous studies suggested that better job satisfaction would lead to higher performance, improved processes, increased productivity and enhanced commitment (Brayfield & Crockett, 1955; Laschinger, 2001; Petty et al., 1984), whereas low level of job satisfaction would create counterproductive behaviors, such as withdrawal, burnout or absenteeism, turnover (Muchinsky & Tuttle, 1979; Porter & Steers, 1973; Spector, 1997). Despite its importance, the issue of job satisfaction and its implications for the public sector has received far less research attention (Ellickson, 2002; Pollock et al., 2000; Ibarra & Andrews, 1993). Most researches concerning the subject of job satisfaction have examined the workforce as a whole (e.g. Clark, 1996), or just focused on a private organization or specific sector, such as hotel (Sarker et al., 2003) or bank (Bajpai & Srivastava, 2004). In order to fulfill the research gap, this study aims to investigate the determinants of job satisfaction for the civil servants in Macau. Government workers are working in a unique environment, which is very different from those working in the private organizations, as government employees often found themselves working in a large, bureaucratic organization in which service-delivery standards tend to be prescribed by rigid rules and oriented towards standardized service and prevention of employee fraud. Employees often expect to spend their entire working lives in the organization. Salary increases and promotions are based on seniority or measured by absence of mistakes instead of high productivity or outstanding customer service. Training is often focused on learning the rules and the technical aspects of the job (Gage, 2000). As a result, public sector’s jobs tend to be boring and repetitive. What makes it worse is that most positions provide adequate pay, good benefits and high job security. Thus, employees are reluctant to leave because they may not be able to find job elsewhere with comparable salary level. As a result, problem arises as government employees may develop the inertia to leave and are somehow forced to stay in the organization (Lovelock et al., 2005). Given that there is a great difference between private and public organizations, we would expect that the motivators for public workers would be very different from private sector workers. As a result, it is worthwhile to conduct an independent research to find out the motivators for public employees, which becomes the main objective study for this study. Even among the hierarchical and rigidly structured organizations, such as government departments, they have the responsibility to improve the work environment and make their organization as effective and efficient as possible. Job satisfaction has an important implication for the government administrators because improvements in employee‘s job satisfaction will contribute to the economic development (Metle, 2002), and enhance the quality of service provided (Michael & Jihong, 1999), which will lead to greater public satisfaction. This paper contributes to the growing literature on job satisfaction in two ways. First, this research enriches the current nascent understanding about the behavior of public sector employees

An Investigation of Determinants of Job Satisfaction for Macau Civil Servants 177 by identifying the underlying job motivators. The second contribution of this study is that we introduce a new intrinsic factor, departmental pride, as well as a new social factor, satisfaction with clients, for assessing job satisfaction in public sector, which has been rarely examined in previous research. Exploration of these two issues would assist government administrators in undertaking relevant measures and developing human resource management policies to eliminate the poor factors leading to job dissatisfaction. This would also enhance the morale and improve their images in the public’s eye. CONCEPTUAL BACKGROUND AND HYPOTHESES Job satisfaction and its antecedents Job satisfaction is commonly defined as the extent to which employees like their work (Agho et al., 1993; Price & Mueller, 1986). It is an attitude or feeling employees have towards their job (Stamps, 1997). Besides, the job itself seldom serves as a unitary attitude object (Adonisi, 2003). Numerous researchers state that job satisfaction is a collection of attitudes, not only towards the general/overall job, but towards different facets/dimensions of the job (e.g. Hackman & Oldham, 1980; Knoop, 2001; Locke, 1976; McCormick & Ilgen, 1985; Robbins, 2001). For instance, an employee can be satisfied with some elements of the job (e.g. salary, company policy) while being simultaneously dissatisfied with others parts of their job (e.g. co-worker, supervisors). Even though most researchers agree that job satisfaction consists of workers’ attitude towards different facets of work, different studies tend to include different determinants/facets of job satisfaction in their model. Past researchers appear to have little consensus on the composition of factors that contribute to the model of job satisfaction (Cowin, 2002; Newby, 1999; O’Conner et al., 1978). The most often cited factors by researchers of job satisfaction include salary, promotion opportunities, working conditions, work characteristics, company policy and supervisors, etc (e.g., Spector, 1997; Ung, 1994). Dominant theories of job satisfaction such as Herzberg’s two factor theory, Maslow’s hierarchy of needs theory propose that job satisfaction contains multiple dimensions (Herzberg et al., 1959; Maslow, 1954: 91). Most studies often define job satisfaction in terms of extrinsic and intrinsic types of rewards (Prothero et al., 1999). But some other studies have classified job satisfaction into two general sources of variables, environmental factors and demographic characteristics of the individual employee. For example, in Michael & Jihong’s (1999) study, environmental factors are referred to conditions associated with the work itself or the work environment, while demographic characteristics consist of individual attributes and characteristics. Many recent researches tend to indicate that the demographic attributes of individual employees are strong predictor of job satisfaction in the workplace (e.g. Brunetto & Wharton, 2002; Ellickson, 2002; Michael & Jihong, 1999).

Carry K.Y. Mak and Jacky F.L. Hong 178 Extrinsic factors Our current study divides the causes of satisfaction into three sub-categories, namely extrinsic factors, intrinsic factors and social factors. Extrinsic factors contain external reward (McCormick & Illgen, 1985), which includes ‘the payoff, such as money, that a person receives from others for performing a particular task…the payoff comes from pleasing others’ (Kinicki & Williams, 2003: 379). It is also considered as ‘investments’ that organizations use to help strengthen the ties between their employees and the organizations (Behn, 1995). According to Romzek (1990), these investments include salary, performance bonuses, opportunities for career development and other fringe benefits as vacation, sick leave, medical plan and retirement benefits. H1: There is a positive relationship between pay satisfaction and overall job satisfaction for civil servants H2: There is a positive relationship between benefit satisfaction and overall job satisfaction for civil servants H3: There is a positive relationship between promotion opportunities and overall job satisfaction for civil servants H4: There is a positive relationship between training opportunities and overall job satisfaction for civil servants According to Bajpai & Srivastava (2004), job security is one of the most important ingredients of job satisfaction as secure job environment enhances the degree of job satisfaction. Prior research from the UK shows that job security is one major factor that increases the job migration from the private to public sector (Goodwin, 2004). H5: There is a positive relationship between job security and overall job satisfaction for civil servants Intrinsic factors Intrinsic factors are about the satisfaction and subsequent reward in performing the task itself. Intrinsic reward can be described as the experience of a sense of competence (McCormick & Illgen, 1985). It is ‘the satisfaction, such as feeling of accomplishment, a person receives from performing the particular task itself…the payoff comes from pleasing yourself’ (Kinicki & Williams, 2003: 379). In Herzberg’s (1968) study, he contemplated that intrinsic rewards or job satisfiers in his own term, were those aspects of work that were intrinsic to the employee and tended to promote feelings of happiness in the worker. Intrinsic factors include work itself, recognition, achievement, responsibilities, growth and advancement (Herzberg et al., 1959). In some other studies, intrinsic values include status, a sense of achievement, the ability to interact with others, self-worth, self-esteem, accumulation of knowledge/skills and the ability to utilize, express creativity, etc. (Herzberg et al., 1959; Prothero et al., 1999; Spector, 1997).

An Investigation of Determinants of Job Satisfaction for Macau Civil Servants 179 H6: There is a positive relationship between autonomy and overall job satisfaction for civil servants H7: There is a positive relationship between skill variety and overall job satisfaction for civil servants H8: There is a positive relationship between social service and overall job satisfaction for civil servants Departmental pride refers to the extent to which members take pride in their work group (Jones & James, 1979). In other words, it is measured by the degree that the employees are willing to inform others about their work affiliation. According to Ellickson (2002)’s survey, this variable was a relatively new variable related to job satisfaction. His result showed that departmental pride was a strongly significant determinant of job satisfaction for municipal employees in the United States. So, we believe that the same relationship can be applicable to Macau as well. H9: There is a positive relationship between departmental pride and overall job satisfaction for civil servants Social factors Extant management literature had emphasized the importance of achieving harmony between the organization and its members in order to enhance productivity and develop human capital (Maslow, 1954; Likert, 1967; Herzberg, 1966, 1968; Argyris, 1957). Several researchers argue that individuals are motivated not only by their extrinsic needs, but also other social factors, such as social interactions (Hackman & Lawler, 1971; Hackman & Oldham, 1975, 1976; Ting, 1997). Previous studies had also demonstrated that relationships with coworkers and supervisors affected job satisfaction (Brass, 1981; Daley, 1986; Emmert & Taher, 1992). Since workers are human being, they need to have social interactions. Therefore, we believe that having friendly and supportive supervisors, co-workers and external clients can lead to increased job satisfaction. We argue that social factor is even more important for the public than the private sector. This is because some distinctive characteristics of public sector, including the stable jobs and secured employment, will make the public sector employees to have a longer job tenure (most probably until retirement). Since their co-workers are quite permanent, we believe that satisfaction with co-workers, supervisors and external clients appear to be important in the case of government organizations. H10: There is a positive relationship between satisfaction with supervisor and overall job satisfaction for civil servants H11: There is a positive relationship between satisfaction with co-worker and overall job satisfaction for civil servants H12: There is a positive relationship between external clients and overall job satisfaction for civil servants

Carry K.Y. Mak and Jacky F.L. Hong 180 METHODS Sampling procedures Several sampling techniques were employed in the current study. At the very first beginning, a total of 50 sealed questionnaires were mailed to various government departments in Macau in the first phase, including (1) a stamped preaddressed return envelope; (2) and a cover letter stating the purpose of the survey and the confidentiality of the data obtained. All respondents were asked to return the competed questionnaire to the researchers. Finally, seven completed and usable questionnaires were received. Due to the high cost, low response rate and time consuming of mailed questionnaire, therefore, snowball sampling method has been adopted subsequently to locate members of civil servants mainly by referrals. Questionnaires were given to friends or people known by the researchers who were then asked to distribute them to their colleagues in their own departments. After completion of the questionnaire, they were then asked to contact the researcher for personal collection. Consequently, a total of 280 questionnaires were distributed through this method, and 198 questionnaires had been returned, with a final of 160 usable questionnaires. At the same time, questionnaires were also sent through e-mail to other civil servants to help forward to their colleagues, hoping that immediate responses could be obtained. However, measuring the response rate was not possible since the total number of e-mail addresses that were sent could not be clearly counted. Finally, a total of 22 usable questionnaires were obtained through e-mails, resulting in a final sample of 189 civil servants working in various government departments in Macau. In the sample, 53% of respondents were female. Most respondents had a bachelor degree (59.3%) or master degree (19.0%). It was observed that the majority of respondents were aged between 18-27 (34.4%) and 28-37 (42.9%). Also, the majority of respondents were technicians (32.8%) and as expected, only about 1.7% respondents were directors/heads. In comparing our respondent profiles with the statistics published by the Macau Statistical Department (DSEC) of Macau Government, the characteristics of our respondents shared similar distribution of the population in terms of gender, age, education level, job status, and salary level. As a result, different subgroups of the sample are representative. Measures Measures of all constructs were developed based on a review of the literature. Multi-item scales and a five-point response format were used to operationalize all variables. Pay satisfaction. The pay satisfaction measurement scale adopted from Spector (1997) consisted of four items, measuring three dimensions of pay satisfaction, namely level of pay, pay raises, and attitude of organization. Benefit satisfaction was measured by four items and classified into two dimensions (Spector, 1997), namely level of benefits and perceived fairness. Promotion opportunities. There were four items measuring

An Investigation of Determinants of Job Satisfaction for Macau Civil Servants 181 two dimensions about fairness of promotion and chance for promotion (Comer et al., 1989). Training opportunities. Following Herzberg et al. (1959), four items were used to measure attitudes of supervisor and opportunities for training. Autonomy. Based on the study of Beehr et al. (1976), the four items were measured as the degree to which the job provides substantial freedom, independence, and discretion to the employee in scheduling his or her work and in determining the procedures in carrying it out (Vigoda-Godat et al., 2003). Skill variety. Three items were developed to measure work variety and opportunity of job variety of employees by Hackman and Oldham (1975). Departmental pride was measured by the 3-item scale developed by Kand and Rekor (2005) to gauge employee’s willingness to tell others about the job and the self-confidence on their job of employees. Social service was measured by a single item of the popular short-version of Minnesota satisfaction Questionnaire (Weiss, et al., 1967). Satisfaction with supervisors. Leader satisfaction assessed the degree to which employees perceived their supervisors as motivating, providing clear work expectations, willing to listen, and willing to share authority and responsibility (Ellickson, 2002). Satisfaction with co-workers. The section on fellow workers satisfaction included original statements from the Comer et al. (1989) study. A 4-item scale was used to measure selfish, kindness, and cooperation of co-workers’ behaviors. Overall job satisfaction. For this dependent variable, the measure being employed in this study was the three-item scale developed by Camman et al. (1983), which has been adopted in previous studies of job satisfaction (Hochwarter et al., 1999; Sanchez & Brock, 1996). In order to verify reliability, consistency, readability of each individual item, and clarity of instructions of the original English as well as the Chinese translated version, a pretest has been conducted. Around 20 government staffs from different departments and levels have been asked to take part in the pilot study. The respondents of this study were asked to give their comments and suggestions to improve the questionnaire. The qualitative comments obtained were mostly regarding the Chinese translations, the wording and the length of the questionnaire. For example, in light of the suggestions received from the pilot respondents, the researcher replaced the word ‘supervisor’ with ‘immediate boss’ and ‘company’ with ‘institution’. Apart from this, there was no large modification of items in any other way.

TABLE 1 Means, standard deviations, intercorrelations among all the 13 study variables Mean S.D. 1 2 3 4 5 6 7 8 9 10 11 12 13 1. Pay satisfaction 2.65 0.69 1 2. Benefits satisfaction 3.05 0.63 .596(**) 1 3. Promotion opportunities 2.64 0.72 .574(**) .451(**) 1 4. Training opportunities 2.98 0.73 .428(**) .264(**) .639(**) 1 5. Job security 2.91 0.89 -.030 .012 -.019 -.059 1 6. Autonomy 2.89 0.64 .360(**) .399(**) .460(**) .310(**) .205(**) 1 7. Skill variety 3.21 0.69 .172(*) .127 .337(**) .439(**) -.002 .486(**) 1 8. Departmental Pride 2.98 0.72 .392(**) .350(**) .521(**) .459(**) -.051 .613(**) .568(**) 1 9. Social Services 3.57 0.81 .072 .165(*) .094 .159(*) .094 .219(**) .238(**) .182(*) 1 10. Satisfaction with supervisor 3.20 0.65 .295(**) .271(**) .391(**) .511(**) -.004 .319(**) .357(**) .401(**) .141 1 11. Satisfaction with co-worker 3.51 0.63 .161(*) .258(**) .132 .226(**) .100 .319(**) .321(**) .299(**) .328(**) .281(**) 1 12. Satisfaction with clients 2.92 0.55 .291(**) .275(**) .261(**) .282(**) .162(*) .315(**) .211(**) .241(**) .209(**) .367(**) .263(**) 1 13. Overall job satisfaction 3.35 0.70 .433(**) .500(**) .548(**) .463(**) -.065 .452(**) .371(**) .624(**) .314(**) .476(**) .398(**) .307(**) 1 ** Correlation is significant at the 0.01 level (2-tailed).* Correlation is significant at the 0.05 level (2-tailed).(N=189)

An Investigation of Determinants of Job Satisfaction for Macau Civil Servants 183 RESULTS Preliminary analysis Table 1 presented a summary of the means, standard deviations and a detail correlation matrix for all the 13 variables in the present study. Since all the variables were measured by a five-point Likert-type scale with possible responses ranging from (1) strongly disagree to (5) strongly agree, the mean represented the averaged responses from the respondents begin surveyed. The results showed that, on average, Macau civil servants appeared to be generally fairly ‘satisfied’ with their jobs (mean = 3.35). Among all the factors that led to job satisfaction of civil servants in Macau, the top three were social services (mean = 3.57), satisfaction with co-worker (mean = 3.51) and skill variety (mean = 3.21). On the other hand, Macau civil servants were least satisfied with their promotional opportunities (mean = 2.64) and the pay they got for the amount of work they do (mean = 2.65). Table 1 also shows the correlation coefficients for all the 13 variables in the study. As shown in the last column, 11 out of total 12 independent variables were found to be significantly (p < 0.01) and positively correlated with job satisfaction, which meant that it was reasonable and justifiable to use these variables as predictors of job satisfaction of civil servants. Correlations among the independent variables themselves were small to moderate in most cases, with the highest correlation being 0.613 between ‘departmental pride’ and ‘job autonomy’ and then followed by 0.596 between ‘benefits satisfaction’ and ‘pay satisfaction’. In summary, except for job security and in some cases, for skill variety, most of the variables are significantly and positively correlated with each other. Since some significant correlations between the factors were found, in order to avoid multi-collinearity, some preliminary analysis was performed before multiple regressions were carried out. According to Gujarati (2004), a VIF larger than 10 indicates that there is a problem of multi-collinearity. But in this study, the VIF ranged from 1.02 to 2.59. Since the VIF values were all far below 10, this indicated that multi-collinearity was not a problem in the current study. Main tests Hierarchical multiple regression analysis was employed in order to test the hypothesis. First, variances of demographic variables were controlled and each set of predictors was entered in a specified order into the regression equation and were analyzed. Then, the dependent variable (overall job satisfaction) was first regressed with the control variables: age, status and salary. The results were shown in the first column ‘Model 1’ in table 2. Model 1 explained 7.1% of the variance in overall job satisfaction of civil servants. The regression model 1 was significant with an R2 of 0.071, which meant that the predictors could only explain 7.1% of the variance in model 1.

Carry K.Y. Mak and Jacky F.L. Hong 184 TABLE 2 Multiple regression analysis: effects of extrinsic factors, intrinsic factors and social factors on overall job satisfaction of Macau civil servants Model 1 Model 2 B value B value (Constants) 4.127*** 0.195 Age 0.014 0.016** Status -0.165** -0.078 Salary -0.141 -0.074 Extrinsic Factors Pay satisfaction -0.033 Benefits satisfaction 0.176* Promotion opportunities 0.244** Training opportunities -0.020 Job security -0.080 Intrinsic Factors Autonomy 0.013 Skill variety -0.035 Departmental Pride 0.329*** Social Services 0.128** Social Factors Satisfaction with supervisors 0.162* Satisfaction with co-workers 0.194** Satisfaction with clients -0.045 R2 0.071 0.633 Adjusted R2 0.054 0.597 R2 change 0.71 0.562 F 4.18** 17.566*** Note: *p<0.05; **p<0.01; ***p<0.001 Next, overall job satisfaction was regressed with the control variables and all the twelve independent variables (pay satisfaction, benefits satisfaction, promotion opportunities, training opportunities, job security, autonomy, skill variety, departmental pride, social services, satisfaction with supervisors, co-worker and clients). The results were presented in the second column ‘Model 2’ in Table 2. As shown in Model 2, after independent variables were added, the R square reached 63.3% (from 7.1% in model 1), showing that over 63.3% of the variance in satisfaction with job was

An Investigation of Determinants of Job Satisfaction for Macau Civil Servants185accounted by the 12 variables in the model, and its R-square change was very significant (p < 0.001).This indicated that the independent variables had a significant impact on job satisfaction of civilservants.FIGURE 1Final conceptual model for civil servants job satisfactionIf we take a closer look at each independent variable, we could see that in model 2, the

Carry K.Y. Mak and Jacky F.L. Hong 186 If we take a closer look at each independent variable, we could see that in model 2, the significant positive predictors included benefits satisfaction, promotion opportunities, departmental pride, social services, satisfaction with supervisor and satisfaction with co-worker and thus H2, H3, H8, H9, H10 and H11 were supported. On the other hand, the B value for pay satisfaction, training opportunities, job security, autonomy, skill variety and satisfaction with clients were not significant, which implied that respondents perceived that the influence of these factors on their overall job satisfaction were relatively small and thus, H1, H4, H5, H6, H7 and H12 were rejected. Therefore, based on the above findings, the final conceptual model presented the corresponding relationships between the dependent and independent variables were shown in Figure 1. DISCUSSIONS The multiple regression analysis results indicated that only benefits satisfaction and promotion opportunities were significant predictors of job satisfaction of civil servants (H2 and H3). This shows that the more civil servants are satisfied with the bureau’s benefits and promotion policy, including frequency of promotions and the desirability of promotions, the more they will satisfy with their job (H3). Another extrinsic factor, benefits satisfaction, was found to be another important predictor of satisfaction with job (B value = 0.176). Therefore, it is important and worthwhile for government officials to spend time and effort in establishing policies/systems providing opportunities for promotions as well as attractive fringe benefits packages. The rejection of H1 is an interesting finding since earlier study in United States has suggested that pay satisfaction has significant effects on increasing job satisfaction of government employees (Ting, 1997). However, the result of this study indicated otherwise. It may due to the following reasons. First, as Cowin (2002) stated that job satisfaction and its determinants are dynamic as well as culturally and historically embedded, factors leading to job satisfaction might vary among different cultures. Second, previous studies suggest that pay satisfaction may be more important for private than public organization (Crewson, 1997; Karl & Sutton, 1998; Lewis & Frank, 2002). One reason is that both economists and public administration scholars expect that those workers who place the highest priority on pay would be driven toward those sectors with good salary packages (Karl & Sutton, 1998). Training opportunities is found to be another extrinsic factor which significantly affects civil servants job satisfaction (H4). This means that public officials who are satisfied with the trainings being offered by the department/unit may not necessarily generate a higher level of job satisfaction. This indicates that more training opportunities provided to the civil servants may not lead to increase in the level of their satisfaction with the job. Since most government jobs are rather routine, prescribed by rigid rules with a higher degree of job specialization (Lovelock et al., 2005), the employees tend to encounter no new challenges, thus decreasing their job satisfaction. Autonomy, skill variety, departmental pride and social services are the four intrinsic factors

An Investigation of Determinants of Job Satisfaction for Macau Civil Servants 187 employed in this study. Rather surprisingly, autonomy and skill variety, two traditional common predictors of job satisfaction found by previous researchers (e.g. Hackman & Oldham, 1975, 1980; Evans et al., 2002), were not significant predictors in the case of the public organizations in Macau. Among those significant factors, departmental pride had a significant positive effect on civil servants job satisfaction (H9). This means that enhancing trust and openness within members of departments could help members to perceive their work unit to be of higher quality than other groups in the organization. Besides, being able to perceive as helping others was an important contributor to their satisfaction (H8). One can speculate that the reason for the importance of social services is that government is an organization which offers many opportunities to perform meaningful public service (Lewis & Frank, 2002; Perry, 1996). Civil servants, who have the chance to help others and serve the public, would derive satisfaction from it. On the other hand, our findings indicate that only satisfaction with supervisor and satisfaction with co-workers are significant predictors of civil servant job satisfaction (H10 and H11). Many previous studies also identified that good relationships and friendly working environment were related to positive work attitudes, thus leading to job satisfaction (e.g. Kim, 2002). However, our newly proposed variable in this study, satisfaction with clients, were not significant in influencing the Macau civil servants’ job satisfaction (H12). The underlying reason might be due to the fact that they had just limited encounter with their clients. Unlike other service industries, such as banking, where some long-term customers tend to develop good friendship with the front-line staff, it is difficult for the civil servants to derive strong job satisfaction from the daily contacts with the clients with high frequency turnover. CONCLUSIONS This study broadens our understanding about the roles played by intrinsic, extrinsic and social factors in determining the job satisfaction of civil servants in Macau. Overall speaking, the results of the study did not support previous research findings derived from the private sector that common extrinsic factors including autonomy, skill variety, training opportunity, job security and pay satisfaction impact job satisfaction. The current results demonstrate that quite surprisingly, a new intrinsic factor, departmental pride, appears to be the most important determinant of satisfaction of civil servants. On the other hand, another new intrinsic factor, satisfaction with clients, was not fruitful in this study as it was not found to have significant impact on job satisfaction. In addition, the results remind government officials about how much civil servants value both the support of management and having a good relationship with their fellow workers. This demonstrates that social factors do play a dominant role in explaining job satisfaction of government workers. Therefore, government department heads or policy makers should take into account co-worker and supervisory relationships in order to find out how they value their jobs. Previous studies have also indicated that employees, who were dissatisfied with their co-workers and supervisors, were more likely to be distracted from the attractiveness of their job tasks and developed negative

Carry K.Y. Mak and Jacky F.L. Hong 188 attitudes toward their jobs (Brass, 1981; Katz, 1978; Ting, 1997). In general, the findings show that job satisfaction of public employees cannot be explained by any isolated set of variables. In this study, all three categories of independent variables: extrinsic factors, intrinsic factors and social factors are found to be all important in predicting job satisfaction of civil servants. As a result, a theoretical framework that combine multiple sets of variables must be developed to understand the interrelated determinants of civil servants’ job satisfaction. Previous studies suggested that organizations are likely to suffer from higher turnover, lower productivity if their workers have low level of job satisfaction. Since job dissatisfaction has so much negative consequences, government officials should consider effective ways of increasing satisfaction as well as preventing job dissatisfaction. Citizens of modern societies often criticize government departments for not doing enough in order to provide reliable and quality services to the people. For government officials, satisfactions with their job have strong implication for upgrading the quality of government services and have a direct impact on the quality of services given to the citizen. Therefore, management of public sector needs to find out the factors that determine employee job satisfaction so that suitable personnel policy decisions can be created in an effort to retain and attract quality workers. As a result, based on the above findings, the following recommendations were made. First, since departmental pride is a very important factor leading to job satisfaction, one way to enhance departmental pride of civil servants is to create a positive image of various government departments in the eyes of the public. Thus, in public organization, image may have an even greater importance than in other private organizations. Enhancing the reputation of the department can increase the quality of the organization’s outputs and outcomes as seen by the public and also increase the willingness of various stakeholders (e.g. customers, general public) to become cooperative with the actions of the department and its members (Dutton et al., 1994). Moreover, good packages of benefit and promotion should also be implemented to ensure employees’ job satisfaction. Opportunities for advancements are also important to increase civil servants’ job satisfaction. Also, the criteria for promotion opportunities should be communicated clearly to all employees and should be implemented fairly. For enhancing satisfaction with co-workers and supervisors, supervisors can introduce more recreational activities for co-workers to participate in order to improve their relationships. Assigning job as a team may also allow co-workers to have more opportunities to work together. Previous studies also suggested that as organizations become more complex and specialized, a teamwork environment must be created and maintained in order to foster a more cooperative and supportive relationships among employees (Al Gore, 1994). And this can be achieved by teaching managers how to communicate effectively with subordinates and educating employees the importance of communication. For instances, supervisors should be encouraged to give feedbacks to subordinates about their performance, so that they know how to improve. And when someone did a good job, positive reinforcement should be given, such as praising the employee during the staff meeting. And when someone makes mistakes, they should try to criticize him or her in private. Besides, policy makers may also provide more opportunities for formal and informal interactions among employees, such as sponsoring department birthday party, staff tennis game, employee development seminar and social activity during local holiday as possible ways to stimulate

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