This is the authors’ final peered reviewed (post print ...dro.deakin.edu.au/eserv/DU:30080403/newman-determinantsof-post-2014.pdf · The resource-based view of the firm (Barney,

This is the authors’ final peered reviewed (post print) version of the item published as: Newman, Alexander and Sheikh, Abdullah Z. 2014, Determinants of best HR practices in Chinese SMEs, Journal of small business and enterprise development, vol. 21, no. 3, pp. 414-430.

Available from Deakin Research Online: http://hdl.handle.net/10536/DRO/DU:30080403 Reproduced with the kind permission of the copyright owner. Copyright : 2014, Emerald Insights

Determinants of best HR practices in Chinese SMEs Alexander Newman

Department of Management, Monash University, Caulfield East, Australia, and

Abdullah Z. Sheikh Faculty of Economics and Administration, King Abdulaziz University,

Jeddah, Saudi Arabia

Abstract Purpose - The purpose of this paper is to examine the factors which determine the adoption of best HR practices in Chinese small- and medium-sized enterprises (SMEs). Design/methodology/approach - Regression analysis was utilized to analyse survey data obtained from 345 enterprises operating across China in a wide range of industrial sectors. Findings - Enterprises with greater resources in terms of their size, their relationships with external organizations, their cooperation with foreign partners and the human capital of their CEO were found to be more likely to adopt best HR practices. Contrary to the findings of the existing literature no relationship was found of a relationship between family ownership and the use of best HR practices. Research limitations/implications - The cross-sectional design is an obvious limitation of the study. Other limitations relate to the generalizability of the study findings outside the context in which the research was undertaken, and the use of convenience sampling. Practical implications - Enterprises should consider building strategic relationships with external organizations and developing cooperation with foreign partners as a way of leveraging human resource expertise at a limited cost. Originality/value - This is the first study to examine how differences in the resource endowments of Chinese SMEs influence their adoption of best HR practices. Keywords China, Antecedents, Small and medium-sized enterprises. Human resource management Paper type Research paper Introduction Despite the recognized importance of small and medium-sized enterprises (SMEs) to the global economy there has been a relative dearth of research into their adoption of human resource management (HRM) practices (Wager, 1998; Nguyen and Bryant, 2004). HRM has been defined as "the strategic integration of HR practices into the management and development of employees" (Nguyen and Bryant, 2004, p. 600). It covers such aspects of the relationship between employer and employee as recruitment and selection, training and development, appraisal and compensation. Research into HRM in the SME sector is still at an explorative stage, with the majority of studies being descriptive in nature (Sels et al, 2006). In recent years empirical work in developed economies has increased but studies on Chinese SMEs are scarce. This is despite of the fact that SMEs have been the engines of economic growth in China for the past two decades, where transition to a market economy in China has caused significant unemployment uncertainty (Dougherty and Herd, 2005; Chen, 2006). SMEs have made a significant contribution in providing new employment opportunities for those laid off from state-owned enterprises. Recent empirical work estimates that the dynamic SME sector

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accounts for over 55 per cent of GDP and 75 per cent of employment in China (Farrell et al, 2006). In general, SMEs tend to make less use of best HR practices than larger organizations, which are more likely to adopt formal systems in the recruitment, selection, training, Chinese SMEs appraisal and retention of employees (De Kok and Uhlaner, 2001; Cardon and Stevens, 2004; Wu et at., 2014). Empirical work indicates that SMEs are characterized by informal HRM practices (De Grip and Sieben, 2009; De Kok and Uhlaner, 2001; Kotey and Slade, 2005). This leads to a whole host of HR related challenges, concerning the recruitment, motivation and retention of employees (Sels etoL, 2006). Such challenges faced in managing their human resources effectively is a major factor which impacts on the ability of SMEs to survive and grow (Carlson etal, 2006). In recent years increasing numbers of SMEs are beginning to recognize the benefits that the implementation of best HR practices can bring (Sheehan, 2014). As SMEs grow in size the use of informal HRM management practices becomes increasingly inadequate (Kotey and Slade, 2005; Zheng et al, 2006). In this situation SME managers have started to adopt best HR practices to develop their competitive advantage and the human capital of their employees (Bacon et al, 1996; Kotey and Slade, 2005). The aim of this study is to examine the extent to which a range of factors predict the adoption of best HR practices in Chinese SMEs. A number of recent studies have started to look at HRM issues in the Chinese SME context (Zheng et al, 2006, 2009; Cunningham and Rowley, 2007, 2010; Cunningham, 2010). However, there has been no examination of what determines the adoption of such practices. It is, therefore, very important to conduct further research on HRM practices in Chinese SMEs in order to understand whether the determinants of the adoption of best HR practices differ from those in developed economies. Our findings will provide a useful insight to academics as to the applicability of different theoretical perspectives in explaining the strategic behaviour of Chinese SMEs. They will also be of interest to managers of SMEs who are planning to implement best HR practices in their organizations. Best HR practices in the SME context There is considerable evidence that the adoption of certain HRM practices can have a positive impact on the organizational performance of SMEs (Huselid, 1995; Iclmiowski and Shaw, 1995; Wood, 1999; Appelbaum etal, 2000; Guest etal, 2003; Edwards etal, 2010; Messersmith and Guthrie, 2010; Ait-Razouk, 2011; Patel and Conklin, 2012; Allen etal, 2013; Sheehan, 2014). In the literature these practices have often been labelled as "best practices" (Pfeffer, 1994), "high performance work systems" (Appelbaum etal, 2000) or "high commitment management/practices" (De Kok etal, 2006; Walton, 1985). In this study we use the term "best HR practices" to denote a set of best practices, recognized by HRM practitioners that have been shown to contribute to the organizational performance of SMEs. These best practices are generally in line with the human relations movement's emphasis on designing jobs to optimize the contribution of employees. At the same time, however, criticisms have been raised concerning the methodological consistency of empirical evidence on the studies citing a strong link between a set of best practices and overall organizational performance (Guest 1997; Legge 2001). When it comes to SMEs, the literature generally confirms a strong relationship between the adoptions of these practices, either in isolation or bundled together with other practices, and SME performance (Wager, 1998; Chandler and McEvoy, 2000; Way, 2002; Hayton,

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2003; Nguyen and Bryant, 2004; Sels et al, 2006; Zheng et al, 2006). This may be due to the cognitive stimuli of the employees regarding SMEs' adoption of best HR practices as a step out of the ordinary, given that SMEs generally lack resources and the requisite mindset to implement best HR practices when compared with their larger counterparts. Recent empirical work provides support for a link between the use of best HR practices and firm performance in the Chinese context (Zheng et al, 2006, 2009). This work indicates that the adoption of best HR practices improve organizational outcomes, which in turn contributes positively to firm performance. The practices examined in this study relate to the recruitment and selection, training and development, appraisal and compensation of employees. Prior research indicates the informal nature of such practices within the SME sector. Recruitment and selection in SMEs is generally done on an informal, ad hoc basis through the use of practices which are convenient and inexpensive (Heneman and Berkely 1999; Hornsby and Kuratko, 2003). Employee recruitment is often conducted through the use of personal connections and word of mouth rather than formally, via an established application and selection process in both Western and Chinese SMEs (Carroll et al, 1999; Gilbert and Jones, 2000; Kotey and Sheridan, 2001; Cooke, 2005). In regard to training and development, employees in SMEs are less likely to have access to formal training provisions when compared with their counterparts in larger firms (Gilbert and Jones, 2000). Hill and Stewart (2000) find that the reluctance of SMEs to provide formal training results in training which is informal, unplanned and short-term oriented. Storey and Westhead (1997) find that smaller firms tend to provide less formal training than their larger counterparts due to limited awareness of the benefits it can bring and the high costs involved in its implementation. Zheng et al. (2009) provide further support for such findings in China, indicating that resource limitations lead to the limited adoption of formal training in SMEs. Performance evaluation is considered as another HR best practice. Although limited research has examined the performance appraisal practices of SMEs, they tend to be informal and used for the purposes of control and monitoring rather than staff development (Gilbert and Jones, 2000). It is often the owner/manager and not the line manager that carries out the performance appraisal (Neeson et al, 2006). In Chinese SMEs, especially those that are family-owned, there is limited use of formal performance appraisal systems. Seniority and loyalty tend to be the main criteria when determining promotion or increases in salary rather than objective criteria linked to performance appraisal (Sheh, 2001). Besides having sound training and performance appraisal provisions, SMEs need to offer attractive compensation packages, especially to attract, motivate and retain employees in the face of competition from larger firms (Mayson and Barrett, 2006). Performance-related pay is one way in which SMEs can link compensation to organizational performance. Despite this, informal approaches to compensation, not necessarily incentivised and standardized, remain common in small firms (Hornsby and Kuratko, 1990, 2003; Cardon and Stevens, 2004). This is especially the case in the Chinese context where non-monetary rewards are commonly used in employee retention, especially in family-owned SMEs (Gatfield and Youseff, 2001). Recent empirical work indicates the growing use of performance-based criteria in determining compensation in Chinese SMEs compared to the early years of reform where there was limited use of incentive-based reward systems (Bai and Bennington, 2005; Cooke, 2005).

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Theoretical background to the study and hypothesis development In understanding the determinants of the adoption of best HR practices, the resource-based-view of the firm may be used as a meaningful starting point. The resource-based view of the firm (Barney, 1991) contributes to our understanding of why some firms tend to make greater use of best HR practices compared to other firms. The resource based view encourages a shift in emphasis towards the inherent characteristics of employee skills and their contribution to value addition (Lepak and Snell, 1999). According to the resource-based view differences in the physical, organizational and human resources of firms impact fundamentally on their competitive ability (Barney, 1991). The adoption of best HR practices may contribute to the establishment of a sustained competitive advantage, especially when those practices are valuable, rare and difficult to imitate by other firms in the industry (Wright et al. 1994, 2001; Barney and Wright, 1998). In theory, therefore, large employers or firms operating in highly competitive labour markets are likely to offer higher benefits and invest in best HR practices. Compared to larger firms, SMEs, however, tend to be constrained by resource limitations which result from their comparatively smaller size, reduced complexity and limited experience (Cardon and Stevens, 2004). Limited use of sophisticated HRM practices may also result from a lack of experienced professionals with the requisite managerial knowledge (Boxall and Purcell, 2003). Financial constraints also impact on the ability of SMEs to recruit and retain skilled employees in the face of competition from larger firms with greater resources. As a result small firms with limited resources tend to avoid the costly adoption of best HR practices. In the following sections we develop hypotheses using insights from the resource-based view of the firm to propose how several variables might influence the adoption of best HR practices in the SME context. Firm size Several authors point out that smaller companies generally have fewer resources than larger firms (Bacon et al, 1996). The implementation of best HR practices might be associated with considerable development costs (Urbano and Yordanova, 2008). Smaller firms might not have the resources to invest in developing such practices and therefore might be less likely to adopt best HR. Empirical research supports such assertions confirming that size is positively related to the adoption of best HR practices in SMEs (Wager, 1998; Bayo-Moriones and Merino-Diaz de Cerio, 2001; De Kok and Uhlaner, 2001; Cassell et al, 2002; Nguyen and Bryant, 2004; De Kok et al, 2006; Kotey and Folker, 2007; De Grip and Sieben, 2009; Wu et al, 2014). However, there is another smaller stream of research which suggests that the use of best HR practices does not differ significantly between large and smaller firms (Bacon etal, 1996; Golhar and Deshpande, 1997; Sels etal, 2006; Urbano and Yordanova, 2008). Golhar and Deshpande (1997) find no evidence of major differences in the use of best HR practices between large and small Canadian manufacturing firms. Bacon et al (1996) even suggest that the implementation of best HR practices might actually be easier in smaller enterprises due to their flat hierarchical structures, greater flexibility and more direct impact of employees on organizational performance. Despite these contradictory findings from Western studies, previous empirical work in the Chinese context (Cooke, 2005) suggests that larger enterprises may make greater use of best HR practices, leading us to the following hypothesis:

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HI. Firm size will be positively related to the use of best HR practices in Chinese SMEs.

Relationships with external organizations The resource-based view of the firm has also been used to explain why despite resource constraints which result from their comparatively limited size SMEs have been able to compete effectively with larger organizations. There is growing evidence to suggest that SMEs compensate for limited resources by investing in building and maintaining network ties with other economic actors. The network ties a firm possesses with other organizations and individuals, has been shown to have a demonstrable impact on firm performance in developing economies, especially in China (Peng and Luo, 2000; Park and Luo, 2001; Zhang and Fung, 2006). Previous empirical work on Chinese SMEs has confirmed a relationship between network ties and firm performance (Wu and Leung, 2005). Cooperation with external organizations is an important source of knowledge for SMEs (Kinnie et al, 1999). Firms are able to leverage their network ties to enable them to learn and implement HRM practices that have proven to be successful in other organizations (Erickson and Jacoby, 2003). Empirical work reveals that SMEs are more likely to adopt formal HRM practices if they have good relationships with other organizations (De Kok and Uhlaner, 2001; Bacon and Hoque, 2005; Urbano and Yordanova, 2008; Wu et al, 2014). De Kok and Uhlaner (2001) point out that smaller firms cooperating with a larger partner might benefit from its resources in the implementation of HRM practices. They find that the presence of a large firm associate has a leads to a greater use of formal training in small firms. Wu et al. (2014) finds greater use of best HR practices amongst firms that have access to external sources of HR advice via their network. Good relationships with government officials may also assist in the adoption of best HR practices. Government agencies in China are an important source of information for small business owners and provide forums at which business executives can network with one another. We believe that such forums may assist in the diffusion of best practices amongst the business community. Based on the literature the following hypotheses are developed:

H2. SMEs with stronger relationships with other firms will be more likely to adopt best HR practices than those with weaker relationships. H3. SMEs with stronger relationships with government officials will be more likely to adopt best HR practices than those with weaker relationships.

Ownership participation by a foreign investor Ownership participation by a foreign investor might also be expected to lead to the greater adoption of best HR practices by Chinese SMEs, especially if that investor is a larger corporate entity. SME are able to benefit from the reduction in transaction and development costs associated with the adoption of best HR if they are able to access the resources and know-how of a foreign partner. Prior research highlights the influence of Sino-foreign joint ventures as a main route for the transfer of Western HRM practices into Chinese firms (Lu and Bjorkman, 1997; Bjorkman, 2002). Based on the literature the following hypothesis is developed: H4. Foreign participation in ownership will be positively related to the adoption of best HR practices in Chinese SMEs.

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CEO characteristics In addition to firm-level resources the human capital vested in the knowledge and experience of the CEO may provide the SME with the capabilities for survival and success (Hannon and Atherton, 1998; Mayson and Barrett, 2006). Existing research highlights the strategic role played by the CEO in the development of HRM within the SME (Mayson and Barrett, 2006). The human capital of the SME owner/manager in terms of their managerial experience should also play a role in the adoption of best HR. Previous work indicates that experienced managers are more likely to implement best HR practices when starting their own business than CEOs with no prior business experience (Bacon etal, 1996). The educational background of the CEO may also impact greatly on their knowledge of, and willingness to adopt, best HR practices in their firms (Hannon and Atherton, 1998). Based on the literature the following hypotheses are developed:

H5. The longer the tenure of the CEO, the more likely the SME will be to adopt best HR practices. H6. The higher educated the CEO, the more likely the SME will be to adopt best HR practices. H7. If the CEO has engaged in executive training or an MBA programme, the SME will be more likely to adopt best HR practices.

Family ownership There are reasons why best HR practices are not used widely in SMEs, especially those which are family-owned (De Kok etal, 2006). There is limited need for best HR practices to align the interests of owners and managers in family-owned enterprises due to the common employment of relatives and close associates as managers. Compared to outside managers, family members and close associates exhibit greater loyalty towards the owners of the firm and are less likely to engage in opportunistic behaviour at the expense of the firm (Bacon and Hoque, 2005). As a result, family-owned enterprises should have less of a need for best HR practices than nonfamily-owned enterprises. Previous empirical work confirms a negative relationship between family ownership and the use of best HR practices (Reid and Adams, 2001; De Kok et al, 2006). Based on the literature the following hypothesis is developed:

H8. Family-ownership will be negatively related to the adoption of best HR practices in Chinese SMEs.

Growth orientation Growth-oriented SMEs may be more likely to use best HR practices than non-growth oriented SMEs due to the increased complexity that results from the growth in employee numbers (Barrett and Mayson, 2007). The specialization of knowledge and increased autonomy given to managers leads to greater asymmetric information between them and the owners. The ability of owners to monitor the performance of managers becomes increasingly difficult and the agency problem is compounded. In order to reduce such agency costs, best HR practices may be adopted to align the interests of the owners and managers. Empirical research in the Western context confirms that growth-oriented SMEs tend to use best HR practices to a greater extent than non-growing ones (De Kok and Uhlaner, 2001; Kotey and Slade, 2005; Barrett and Mayson, 2007). De Kok and Uhlaner

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(2001) find that firms who pursue growth strategies are more likely to use formal performance appraisal and training practices. Barrett and Mayson (2007) find that growth-oriented SMEs are more likely to use best HR practices than non-growing ones. Based on the literature the following hypothesisis developed:

H9. Growth-oriented SMEs are more likely to adopt best HR practices than non growth-oriented SMEs.

Research methodology Survey questionnaires were distributed to the CEOs of SMEs located in 9 large cities across China during a three-month period from March to May 2009. All firms to which the questionnaires were distributed met the Chinese government definition of SMEs by employee numbers, annual revenue and total assets (see Table I). Table 1. Criteria for defining SMEs.

The sampling strategy adopted was influenced by the difficulties inherent in conducting research on SMEs in China. Previous research highlights the challenges faced in using representative sampling techniques in China, where a general distrust of outsiders results in low response rates to mail-based surveys (Zheng et al, 2006, 2009). In order to overcome these challenges, survey questionnaires were distributed through the use of intermediaries who were either representatives of private entrepreneur associations or local government officials. Intermediaries were used to provide introductions to the research team and assure the respondents that replies would be voluntary and kept confidential. Before deciding whether to participate in the research potential respondents were provided with a statement about the research, promised confidentiality and informed the results of the survey were only to be used for academic purposes. Although the use of intermediaries resulted in the use of non-probability sampling, the difficulties associated with using probability sampling when conducting research on Chinese SMEs meant that the chosen sampling method would be more representative of the population than through the use of a probability-based approach (Tabachnick and Fidell, 2000). In total 380 questionnaires were returned to the research team. A significant number of questionnaires were discarded from the final analysis due to missing responses. 345 completed responses were included in the final analysis. For a breakdown of the questionnaires as to city and industry distribution (see Tables II and III).

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Table II. City distribution of sample

Table III. Industry distribution of sample

The dependent variables (use of best HR practices) were operationalized through the use of interval variables on a Likert scale of 1-3. Respondents were asked to indicate the extent to which a number of HRM practices were used in their organization. No use of the HRM practice was coded 1, some but limited use was coded 2, and widespread use was coded 3. The questionnaire contained six items to measure the use of best HR practices. Two items were used to measure development practices: the adoption formal management training and formal induction programmes for new employees. One item was used to measure the adoption of formal performance appraisal systems. One item was used to measure compensation: the adoption of performance-related pay systems. One item was used to measure recruitment and selection: the use of written job application forms. One general item was also included to measure the extent to which HR policies are formally documented. Table IV provides a description of the items, and statistics on their adoption by SMEs in our sample. SOF (firm size) Firm size was measured by the number of people employed by the firm.

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Table IV. Description of dependent variables

NET (relationships with other firms) Respondents were asked whether they had close relationships with other firms. They were asked to respond by circling a number on a scale of 1-5, where 1H strongly disagree and 5 k strongly agree. GOV (relationships with government officials) Respondents were asked whether they had good relationships with local government officials. They were asked to respond by circling a number on a scale of 1-5, where 1 ¼ strongly disagree and 5 ¼ strongly agree. FOR (foreign ownership) Foreign ownership was measured using a dummy variable to indicate whether or not a foreign organization or individual owned shares in the firm. Firms in which foreign shareholders participated in ownership were coded 1 and firms in which there was no foreign participation in ownership were coded 0. TEN (CEO tenure) CEO tenure was measured using a continuous variable to indicate the number of years they had been in their position as CEO. EDU (CEO education) Education of CEO was measured using a dummy variable to indicate whether the owner/manager was a university graduate. Firms whose CEO had a university education were coded 1 and those with whose CEO were not university educated were coded 0. EMBA (executive or MBA training) Respondents were asked whether they had participated in executive training or an MBA programme. CEOs who had participated were coded 1, those who had not were coded 0. FAM (family ownership) Family ownership was measured by a dummy variable indicating whether a single family owned more than 50 per cent of the shares of the firm. Family-owned firms were coded 1 and nonfamily-owned firms were coded 0.

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GRO (growth orientation) Growth orientation was measured using a dummy variable to indicate whether or not the firm's employee numbers had increased over the last financial year. Growth oriented firms were coded 1 and non-growth oriented firms were coded 0. Control variables Two independent variables are included as control variables. AGE is the age of the firms included in our sample. IND is a dummy variable for industry. Manufacturing enterprises were coded 0 and non-manufacturing enterprises were coded 1. OLS multiple regression was chosen as the appropriate statistical technique for model estimation in the paper. Before proceeding with the regression analysis we dealt with the potential problem of multicollinearity between independent variables. A Spearman rank correlation analysis was undertaken on all independent variables to test for potential multicollinearity. The results of this analysis are presented in Table V. As a general rule of thumb a correlation coefficient of more than 0.6 suggests potential multicollinearity. As shown in Table V the correlation coefficients between each pair of independent variables are o 0.6 suggesting no issue of potential multicollinearity in the data. Therefore all the independent variables are included in the subsequent regression analysis. Table V. Spearman rank correlation matrix

Results and discussion In this section, we present the empirical results and discuss the main findings from quantitative analysis. Table VI reports the results of regressions on the six dependent variables. The results provide some support for a link between firm size and adoption of best HR practices. The regression coefficient for size was significant for three practices, indicating larger SMEs were more likely to make use of performance-related pay, have formal induction programmes for new employees and formally document their HR policies. However, size did not influence the adoption of formal management training, formal performance appraisal systems and the use of written application forms in recruitment. The lack of a relationship between firm size and provision of formal management training seems to contradict the findings of previous work in the Western context (Kotey and Folker, 2007). The findings strongly suggest that relationships with external organizations are a significant determinant of the adoption of best HR practices. SMEs with strong inter-firm relationships were more likely to make use of performance-related pay, have formal management

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training and induction programmes and formally document their HR policies. This supports the findings of several previous studies (De Kok and Uhlaner, 2001; Bacon and Hoque, 2005; Urbano and Yordanova, 2008). De Kok and Uhlaner (2001) find a significant relationship between inter-firm cooperation and the use of formal training in SMEs. Bacon and Hoque (2005) and Urbano and Yordanova (2008) find a positive relationship between the use of best HR practices and the strength of SME relationships with other firms. Surprisingly, a negative relationship was found between the strength of relationships with other firms and the use of written job application forms. This suggests that SMEs with better inter-firm relationships may use more informal recruitment practices. Table VI. Results of OLS regressions

The regression coefficient for government relationships was positively significant for five practices. This suggests that SMEs with strong relationships with government officials are more likely to make use of performance-related pay and written application forms in recruitment, have formal induction programmes and performance appraisal systems and formally document their HR policies. These findings suggest that government agencies have a significant role to play in the diffusion of best practices in HRM amongst the business community. Foreign participation in ownership was positively related to the adoption of three HRM practices: performance-related pay, formal management training and formal documentation of HR policies. This suggests that firms who cooperate with a foreign partner are more likely to formalize some of their training and compensation practices than those who do not. For all other HRM practices, foreign participation in ownership had no significant impact on their adoption. The findings indicate that the human capital of the CEO in terms of their managerial experience and educational background has some influence over the adoption of best HR practices in SMEs. This confirms the findings of previous studies (Bacon et al, 1996; Hannon and Atherton, 1998). SMEs run by CEOs with longer tenure and higher education were more likely to adopt performance-related pay systems. A positive relationship was also found between the adoption of formal management training and the CEOs prior experience of

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executive training. SMEs run by CEOs with long tenure and prior experience of executive training were also more likely to adopt formal induction programmes for new employees. The findings also suggest that the education level of the CEO has a significant effect on the adoption of formal performance appraisal systems. The results provide no support for the hypothesized relationship between family ownership and adoption of best HR practices. None of the dependent variables in our study were found to be significantly related to family-ownership. Our findings contradict the results of previous studies which suggest that family-owned (Reid and Adams, 2001; De Kok et al, 2006) are less likely to adopt formal HRM practices than nonfamily-owned firms. Growth-orientation was positively related to the adoption of two HRM practices: the HR practices in use of formal performance appraisal systems and the use of written job application Chinese SMEs forms. A positive link between the use of formal performance appraisal and growth orientation confirms the results of previous research (De Kok and Uhlaner, 2001). For all other HRM practices no significant relationship was found, contradicting the findings of previous studies (Barrett and Mayson, 2007). This suggests that practices than nongrowth-oriented SMEs but are no more likely to make use of formal training and compensation practices. As for the control variables included in this study firm age was negatively related to the adoption of performance-related pay and formal induction programmes for new employees. For all other HRM practices firm age had no significant impact on their adoption. In contrast to previous empirical findings we found limited differences in the adoption of best HR practices between manufacturing and non-manufacturing SMEs in our sample (Urbano and Yordanova, 2008). Only written job application forms in employee recruitment were more widely used in manufacturing than non-manufacturing enterprises. The findings provide a useful insight to academics as to the applicability of the resource-based view to explain the strategic behaviour of Chinese SMEs. The findings should also be of interests to managers of SMEs who are planning to implement best HR practices in their organizations. In particular our results suggest that firms should consider building strategic relationships with external organizations, and developing cooperation with foreign partners, as a way of leveraging human resource expertise at a limited cost. Conclusion and suggestions for future research The aim of this paper was to examine what factors determine the adoption of best HR practices in Chinese SMEs using the resource-based view of the firm as a framework. Significant relationships were found between a number of variables and the use of best HR practices. Relationships with external organizations were found to be the most significant predictor of the adoption of best HR practices. In addition, firm size, age, growth orientation and CEO characteristics all influenced their adoption. Only family-ownership was found consistently to have no relationship with the adoption of best HR in the firms in our sample. The findings of this study indicate that the resource-based view of the firm provides a useful explanation for the adoption of best HR practices in Chinese SMEs. The decision as to whether certain HRM practices will be adopted depends on the availability of resources within the firm. Moreover, some of the best practices, when adopted together, can be difficult to imitate by others, and thus are likely to provide competitive leverage. This enables firms to remain viable in the market. Previous studies on Chinese SMEs (Zheng, 2001; Cunningham and Rowley, 2010) also demonstrated a positive link between enterprise

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performance and the use of best HR practices in SMEs in China, thus tacitly endorsing the resource-based perspective. Our findings are, to a considerable degree, in line .with those from previous studies investigating the extent to which Chinese SMEs are effectively embracing HRM (Cunningham, 2010; Cunningham and Rowley, 2010). Zheng (2001), for instance, found that performance management and reward management were increasingly being adopted by SMEs in search of positive organizational outcomes. The findings of our study alongside those of previous studies have important implications for managers in Chinese SMEs looking to develop a competitive advantage through the adoption of HR best practices. Our research could be replicated on samples of SMEs in other regions of China and in other countries to establish whether our findings can be generalized outside of the existing research context. Recent research demonstrates the institutional context is an important factor which influences the HR practices adopted by SMEs (Oilman and Raby, 2012). For example, compared to China and other emerging economies we might expect government relationships to be less influential to the adoption of best HR practices in more developed countries, given less interference by government in the market. Despite the contribution made by the study it suffers from a number of limitations. First, the fact that it is cross-sectional in nature makes it difficult to draw casual inferences between the independent and dependent variables. Future research may utilize longitudinal data collection to deal with this concern. Moreover, a more comprehensive analysis of HRM in SMEs is needed with the involvement of enterprises from different industries, including the dynamic service sector which accounts for a growing proportion of economic activity in China and other economies. The final limitation is the use of non-probability sampling. The difficulty of gaining firm access in the Chinese SME context, without the use of intermediaries, means it is extremely difficult to use fully representative sampling techniques when doing empirical research in China. Future research should try and address this issue by use of representative sampling techniques on a wider population of firms. References Ait-Razouk, A. (2011), "High-performance work systems and performance of French small and medium-sized enterprises: examining causal order", International Journal of Human Resource Management, Vol. 22 No. 2, pp. 311-330. Allen, M.R., Ericksen, J. and Collins, CJ. (2013), "Human resource management, employee exchange relationships, and performance in small businesses". Human Resource. Management, Vol. 52 No. 2, pp. 153-173. Appelbaum, E., Bailey, T, Berg, P. and Kalleberg, A. (2000), Manufacturing Advantage: Why High-Performance Work Systems Pay Off, Cornell University/ILR Press, Ithaca, NY. Bacon, N. and Hoque, K. (2005), "HRM in the SME sector: valuable employees and coercive networks", International Journal of Human Resource Management, Vol. 16 No. 11, pp. 1772-1803. Bacon, N, Ackers, P., Storey, J. and Coates, D. (1996), "Its a small world: managing human resources in small businesses". International Journal of Human Resource Management, Vol. 7 No. 1, pp. 83-100. Bai, X. and Bennington, L. (2005), "Performance appraisal in the Chinese state-owned coal industry". International Journal of Business Performance Management, Vol. 7 No. 3, pp. 275-295. Barney, J. (1991), "Firm resources and sustained competitive advantage". Journal of Management, Vol. 17 No. 1, pp. 99-120.

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Tabachnick, B.G. and Fidell, L.S. (2000), Using Multivariate Statistics, Allyn & Bacon, New York, NY. Urbano, D. and Yordanova, D. (2008), "Determinants of the adoption of HRM practices in tourism SMEs in Spain: an exploratory study", Services Business, Vol. 2 No. 3, pp. 167-185. Wager, T. (1998), "Determinants of human resource management practices in small firms: some evidence from Atlantic Canada", Journal of Small Business Management, Vol. 36 No. 2, pp. 13-23. Walton, R. (1985), "From control to commitment in the workplace". Harvard Business Review, No. March-April, pp. 77-84. Way, S.A (2002), "High performance work systems and intermediate indicators of firm performance within the US small business sector". Journal of Management, Vol. 28 No. 6, pp. 765-785. Wood, S. (1999), "Human resource management and performance". International Journal of Management Reviews, Vol. 1 No. 4, pp. 367-413. Wright, P., McMahan, G. and McWilliams, A. (1994), "Human resources and sustained competitive advantage: a resource-based perspective", International Journal of Human Resource Management, Vol. 5 No. 2, pp. 301-327. Wright, P., Dunford, B. and Snell, S. (2001), "Human resources and the resource based view of the firm", Journal of Management, Vol. 27 No. 6, pp. 701-721. Wu, W.P and Leung, A. (2005), "Does a micro-macro link exist between managerial value of reciprocity, social capital and firm performance", Asia-Pacific Journal of Management, Vol. 22 No. 4, pp. 445-463. Wu, N, Bacon, N. and Hoque, K. (2014), "The adoption of high performance work practices in small businesses: the influence of markets, business characteristics and HR expertise", International Journal of Human Resource Management, Vol. 25 No. 8, pp. 1149-1169. Zhang, Q. and Fung, H.G. (2006), "China's social capital and financial performance of private enterprises". Journal of Small Business and Enterprise Development, Vol. 13 No. 2, pp. 198-207. Zheng, C. (2001), "The relationship between HRM and Chinese SME performance". International Journal of Organizational Behaviour, Vol. 4 No. 4, pp. 125-137. Zheng, C., Morrison, M. and O'Neill, G. (2006), "An empirical study of high performance HRM practices in Chinese SMEs", International Journal of Human Resource Management, Vol. 17 No. 10, pp. 1772-1803. ^Zheng, C, Morrison, M. and O'Neill, G. (2009), "Enhancing Chinese SME performance through innovative HR practices", Personnel Review, Vol. 38 No. 2, pp. 175-194. Further reading Boxall, P. (1996), "The strategic HRM debate and the resource based view of the firm". Human Resource Management Journal, Vol. 6 No. 3, pp. 59-75. About the authors Dr Alexander Newman is presently working as a Senior Lecturer at the Monash University in Australia. His current research interests are in the areas of Chinese management, organizational psychology and small business development. He has published widely in journals such as Entrepreneur ship, Theory & Practice, the Leadership Quarterly and the Journal of Organizational Behavior. Dr Alexander Newman is the corresponding author and can be contacted at: [email protected]

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Dr Abdullah Z. Sheikh is presently working as a Senior Lecturer at the King Abdulaziz University. He received his PhD from the Nottingham University Business School in the UK and has 15 years of professional working experience in the USA, the UK, the United Arab Emirates, China and Pakistan. His current research interests are in the areas of human resource management and employment relations.

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