Institutional Compatibility and the Diffusion of “Best Practices”: Human Resource Management in Foreign-Invested Enterprises in China

Abstract

We advance the literature on global diffusion, currently dominated by the world polity theory, by examining how the local institutional environment shapes the diffusion of global best practices. We argue that global best practices that are more compatible with the local institutional environment are more likely to be adopted by local actors, and that they also exert a greater positive impact on the adopters. In contrast to existing research that typically focuses on a single policy or structure, we collected original data on the diffusion of twenty-five human resource management best practices in foreign-invested enterprises in China. Our analysis shows considerable variation in the adoption level across practices, much of which is attributable to their different levels of compatibility with China's local institutional environment. Furthermore, we find that adopting more compatible practices indeed makes greater contribution to organizational performance.

Acknowledgements

We thank Charles Brody, Jianhua Ge, Qingli Meng, John Meyer, Xueguang Zhou, and two anonymous reviewers for their comments and suggestions.

About the Authors

Wei Zhao received his PhD in sociology from Duke University in 2004. He is associate professor in Sociology and Organizational Science at UNC Charlotte. He conducted research on the California and French wine markets, and his current research focuses on institutions, organizations, social inequality, and happiness in contemporary China. His work has appeared in leading journals in sociology and management.

Yang Cao received his PhD in sociology from Cornell University in 2000. He had taught at Louisiana State University and UNC Charlotte before joining the sociology faculty at Zhejiang University, China, in 2013. His research focuses on social inequality, job mobility, work and employment, and organizations in contemporary China. His work has appeared in leading sociology, economics, and management journals.

Notes

Although scholars have begun to consider local characteristics, such as a nation state's political culture and history (e.g., Cole 2005; Paxton, Hughes, and Green 2006; Zelner, Henisz, and Holburn 2009; Lim and Tsutsui 2012), these factors are incorporated primarily as determinants of the nation state's linkages with the world society and/or its susceptibility to international pressures.

In keeping a dialogue with the world polity theory, we use “local” and “domestic” interchangeably to delimit entities within national boundaries.

We limit the search to 1980–2007 because China's market reform took off in the early 1980s and 2007 was year when we collected our data. The numbers of English publications on HR management in China is obtained from Business Source Premiere, which is a database that covers major English-language journals in business and management for both scholars and practitioners. The number of Chinese articles on HR management and that of Chinese articles on HR best practices are obtained based on searches of core journals from China National Knowledge Infrastructure (http://www.cnki.net), a widely used database in China. The former is based on a search for articles containing “human resource management” in their abstract. For the latter, our search focuses on “best practice,” “high-performance”, “high-commitment,” and “high-involvement” in HR management in the text.

The authors conducted this survey, which included ∼400 FIEs in China’s northeast coastal region. More details about this survey are provided in the “Research Design” section.

By conventional definition this region includes Liaoning, Shandong, Hebei, the northern part of Jiangsu, and two centrally administered municipalities—Beijing and Tianjin. Our original sample size was 442 FIEs. Nine cases were dropped due to either dubious organizational identity or serious data quality issues. Another twenty-seven cases were located in other geographic areas, such as Shanghai, Shenzhen, and Xinjiang. These cases are excluded from our analysis. Including them yields stronger results than those reported in this paper.

We experimented with a number of alternative classification schemes and the results are qualitatively the same.

We thank John Meyer for raising this possibility and his suggestion of comparing our data with those from a different country.

Another alternative explanation is that respondents to the expert survey might give higher ratings to practices that were more widely adopted. In other words, they might have a tendency to rate more familiar practices as more compatible. While we are unable to rule out this possibility conclusively, additional analysis shows that, at least among the seventy-nine experts that we surveyed, those whose jobs were more specifically tied to human resource management in FIEs did not rate the twenty-five practices much differently than the other experts. Between the two groups of experts, the average compatibility ratings were significantly different for only two of the twenty-five practices (in opposing directions). This result does not support the idea that familiarity leads to higher compatibility ratings.

The coefficient presented here is the original regression coefficient for the average adoption score divided by 25. All coefficients for average adoption scores in Table 5 are adjusted in the same fashion, that is, divided by the number of practices, to ensure that they reflect the average effect of a 1-unit increase in adoption score for a typical practice in the group.