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Impact of Human Resource Management Essay

While these significant cultural differences should prima facie require different approaches towards financial incentivization, independent research reveals that organizational competitiveness is also closely related to organizational type rather than cultural background and is evinced by private sector companies being far more competitive than their public sector counterparts across a broad spectrum of countries with different cultures.

Another issue relevant to the preparation of performance schemes is organizational size. Small companies tend to be less hierarchical than larger organizations, with decision making being dependent upon the individual judgment of owner mangers. Staffing is influenced by individual likes rather than employee capability. Smaller organizations, on the other hand, tend to be less bureaucratic, more profit oriented and faster in decision making.

Preparing incentivization programs for manufacturing SMEs in China will need to take account of a number of specific variables that include country culture, organizational culture, the size of organizations, the profitability and performance of individual firms, the nature of the industry, existing remuneration mechanisms and performance appraisal systems, and the likely effect of various levels of performance incentives. 3. Planning of Performance Incentives for SMEs in China SMEs are playing an increasingly important role in the Chinese economy.

Various private and governmental figures state

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that their numbers, production figures, and employment capacity are growing at an astonishing pace. Chinese and foreign experts estimate that SMEs are now responsible for about 60% of China’s industrial output and employ about 75% of the workforce in China’s cities and towns. SMEs are responsible for creating most new urban jobs, and they are the main destination for workers laid-off from state-owned enterprises (SOEs) that re-enter the workforce.

(Zheng, 127) With studies conducted in Vietnam indicating the effectiveness of performance incentives in increasing production, (King-Kuanei, Ngoc, and Ashley-Cotleur, 81) it would be logical to expect that they should, because of broadly similar cultural influences, also be applicable in China. A recent HR study on Chinese industry reveals the effectiveness of four HRM practices, namely performance-based pay, participatory decision-making, free market selection, and performance evaluation in performance.

(Zheng, 129) Performance bases incentives in China’s SME sector can work, as elsewhere, through commissions, piece rate pay, and performance bonuses. While the worth of performance incentives is slowly becoming evident, as can be gauged by the substantial amount of discussion on the subject its incidence is still very low, in fact much lower than what exists in the neighboring countries of SE Asia. Many SMEs were previously state owned, where the concept of pay differentiation was virtually unthinkable.

While economic reforms have aimed to change the rigid provision of social welfare system and to replace it with an incentive performance-driven pay system, staff and workers, particularly in the state-owned or affiliated state-owned enterprises, are still entitled to obtain social welfare benefits bestowed by the state. Even as ownership has changed, much of the old traditions still remain and SMEs think of low labor cost to be their chief competitive strength.

The fact that Chinese SMEs, by and large, are facing increasing competition, have poor recording systems, inadequate data and inexperienced owner managers who work constantly on reducing production costs can also make the introduction of performance incentives a long drawn affair. Considering that the concept is still in its infancy HR consultants will need to convince Chinese SME managers of the effectiveness of performance incentives, using the results obtained in nearby countries, including Vietnam.

It would also be advisable to pay attention to three tenets while preparing performance incentives in different organisations. • Simplicity and transparency: People have to trust that managements are not using variable compensation plans to cheat them. Exclusions, exceptions, conditions and other tricky rules should be minimized. • Consistency and Stability: The schemes will need to build credibility and need to be consistent and applied for a specific period.

• Timeliness in Payments: Owners need to realize that payments must be made on time and in public if enthusiasm is to be maintained and other workers are to be motivated. 4. Conclusion The Chinese SME sector, while growing with enormous speed is beset with a host of problems, which hurt its efficiencies and retard the development of competitive advantage. These SMEs will gain enormously if they can imbibe and implement modern day management and HR practices, and the introduction of performance incentives would truly be a step in the right direction.

Considering the transitionary stage and dynamic condition of the SME sector, as well as its largely state owned antecedents, the introduction of performance incentives will involve not just the agreement of factory owners, but also the need to overcome traditional mindsets, remuneration practices and working habits. It is essential that the assignment be approached with caution, patience and a deep understanding of the environment.


Anbari, F, Khulnokova, E, Romanova, M and Umpleby, S, Cross Cultural differences and their implications for managing international projects, George Washington University, Vol. 46, Issue 2, Pg. 45 to 91, 2003 Becker, Brian and Huselid, Mark, Measuring HR? , HRMagazine. Alexandria, Vol. 48, Issue 12, Pg. 56 Dec 2003 Holmes, Tyrone A, How to Connect Diversity to Performance, Silver Spring, Vol. 44, Issue. 5, Pg. 13-18, May/June, 2005.

King-Kayanui, Sandra, Ngoc, Su Dong, Ashley, Cotleur, Impact of Human Resource Management: SME performance in Vietnam, Journal of Departmental Entrepreneurship, Norfolk, Vol. 11, Issue 1, Pg 79-96, 2006 Kotey, Bernice, Sheridan, Alison, Changing HRM practices with firm growth, Journal of Small Business and Enterprise Development, Bradford: Vol. 11, Issue. 4; pg. 474, 2004 Zheng, C, The Relationship between HRM and Chinese SME Performance, International Journal of Organizational Behavior, 4 (4), pp. 125-137, 2001

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