Faculty of Economics and Business Administration
Department Management, Innovation and Entrepreneurship
Human resource training, organisational
strategy and firm performance in emerging
economies: The case of Vietnam
Nguyen Ngoc Thang
Promoter: Prof. Dr. Dirk Buyens
Submitted to the Faculty of Economics and Business Administration, Ghent University, in
Fulfillment of the Requirements for the Degree of Doctor in Applied Economics
2009
Faculty of Economics and Business Administration
Department of Management, Innovation and Entrepreneurship
Human resource training, organisational
strategy and firm performance in emerging
economies: the case of Vietnam
Nguyen Ngoc Thang
Promoter: Prof. Dr. Dirk Buyens
Submitted to the Faculty of Economics and Business Administration, Ghent University, in
Fulfillment of the Requirements for the Degree of Doctor in Applied Economics
PhD Series – Ghent University, December 2009
Faculty of Economics & Business Administration
© Nguyen Ngoc Thang
ISBN 978-90-5864-197-7
All rights are reserved. No part of this publication may be reproduced or transmitted
in any form or by any means electronic or mechanical, including photocopying,
recording, or by any information storage and retrieval system, without permission in
writing from the author.
I dedicate this work to my parents – Bố Châm Mẹ Thủy
“Only those who dare to fail greatly can ever achieve greatly”
(Robert Francis Kennedy)
Promoter
Prof. dr. Dirk Buyens, Ghent University & Vlerick Leuven Gent Management School
Guidance Committee
Prof. dr. Dirk Buyens, Ghent University & Vlerick Leuven Gent Management School
Prof. dr. Marc Buelens, Ghent University & Vlerick Leuven Gent Management
School
Prof. dr. Herman Van Den Broeck, Ghent University & Vlerick Leuven Gent
Management School
Reading Committee
Prof. dr. Dewettinck Koen, Vlerick Leuven Gent Management School
Prof. dr. Truong Quang, Maastricht School of Management
Prof. dr. Karel De Witte, Katholieke Universiteit Leuven
Prof. dr. Herman Van Den Broeck, Ghent University & Vlerick Leuven Gent
Management School
Examination Committee
Prof. dr. De Clercq Marc, Ghent University (Chair)
Prof. dr. Patrick Vankenhove, Ghent University (Secretary)
Prof. dr. Aime Heene, Ghent University
Prof. dr. Dirk Buyens, Ghent University & Vlerick Leuven Gent Management School
Prof. dr. Dewettinck Koen, Vlerick Leuven Gent Management School
Prof. dr. Truong Quang, Maastricht School of Management
Prof. dr. Karel De Witte, Katholieke Universiteit Leuven
Prof. dr. Herman Van Den Broeck, Ghent University & Vlerick Leuven Gent
Management School
Acknowledgments
Acknowledgements
Four years ago, I started my doctoral project at the department of
Management, Innovation and Entrepreneurship, Ghent University. I usually dreamed
about the day that I would be writing the acknowledgment section – the reward for 4
years of Ph.D. adventure. Now the time has come to do so. I would like to take this
opportunity to thank the people who have encouraged, supported, and helped me on
the path towards this dissertation.
First of all, I would like to thank my promoter Prof. Dr. Dirk Buyens for
giving me the opportunity to start the doctoral project, for the scientific freedom he
always gave me, for listening, reading, discussing and criticizing my ideas, and for
linguistically correcting my research papers. His feedback and suggestions were very
valuable and put me on the right track of my research work. During the doctoral
project, he has also supported me for several scientific conferences and workshops. I
really appreciated your empathy and support during the last four years and wish you
continue to support me about research career in the future.
Next, I would like to thank the members of my doctoral guidance committee
Prof. Dr. Marc Buelens and Prof. Dr. Herman Van Den Broeck for their time and
effort in reading my manuscript and attending some my presentations. Your useful
comments, suggestions and valuable advice for further research have undoubtedly
improved and enhanced the quality of my dissertation.
I would also like to thank other member of my examination committee. Prof.
Dr. Truong Quang, thank you very much for your time and suggestions to help me
improve my work. You were always enthusiastic to share your research experience
with me and I hope we can continue the fantastic exchange of ideas in the future. Prof.
Dr. Karel De Witte and Prof. Dr. Dewettinck Koen, thank you very much for your
time to read, valuable comments and energy in evaluating my work. Prof. Dr. Aime
Heene, Prof. Dr. De Clercq Marc and Prof. Dr. Patrick Vankenhove, I would like to
V
Acknowledgments
thank you for taking the time for being members of the examination committee. It is
an honour to have you in the committee. I hope you all enjoy reading my work and I
am already looking forward to your feedback.
This dissertation would not have been possible without the collaboration of Dr.
Ngo Van Thu from Hanoi National Economics University and Dr. Le Hong Hai from
Hanoi University of Technology in the actual process of collecting and analyzing the
data. Thank you very much for collected data and introducing me analysis with SPSS.
I would also like to thank my current and former colleagues at my department Annick Willem, Jan Lepoutre, Sebastian Desmidt, Nikolay Dentchev, Edgar
Izquierdo, Katrien Verleye, Freek Van Baelen, and Frederik Neus – for your help and
the pleasant time we spent together. It helped me to overcome frustrating times. I truly
appreciate the diverse, unique experiences I have had with each of you. Mia De
Meyer, Gust Devolder, Wendy Schelstraete and Anniek Devos, thank you very much
for all your support and help whenever I needed it.
I also am grateful to my parents who encouraged and supported me in word. It
is your drive and ambition that have brought me to the place I am at today. My
brother and sister can not be neglected. I would like to thank them for their support
and interest in my work. Finally, I would like to thank all my friends from outside
academia in Belgium and Vietnam for fun, relaxes, and travels during the last four
years.
Nguyen Ngoc Thang, December 2009
VI
Table of contents
Table of contents
Acknowledgements ...................................................................................................V
Table of contents .................................................................................................... VII
List of tables..............................................................................................................X
List of figures .......................................................................................................... XI
List of Abbreviations.............................................................................................. XII
Summary...............................................................................................................XIII
List of publications and conference presentations based on this dissertation...........XVI
Chapter 1: General introduction................................................................................. 1
1.1 Scope and objectives........................................................................................ 2
1. 2 Research questions.......................................................................................... 5
1. 3 Structure of the dissertation............................................................................. 7
1. 4 References .....................................................................................................11
Chapter 2: What do we know about relationship between training and firm
performance: A review of literature1 .........................................................................15
2.1 Introduction ....................................................................................................17
2.2 Theoretical framework....................................................................................18
2.2.1 General and specific training ....................................................................18
2.2.2 Theoretical models linking training to firm performance ..........................20
2.2.3 A framework for analysing training and firm performance issues .............24
2.3 Method ...........................................................................................................26
2.3.1 Sample .....................................................................................................26
2.3.2 Analysis ...................................................................................................27
2.4 Results............................................................................................................28
2.4.1 Results from the studies of large samples of firms....................................28
2.4.2 Results from the case studies....................................................................30
2.4.3 Training has effects on financial performance ..........................................32
2.4.4 Training has effects on non-financial performance ...................................33
2.5 Discussion and Conclusion .............................................................................34
2.6 References ......................................................................................................38
VII
Table of contents
2.7 Appendix ........................................................................................................47
Chapter 3: The impact of training on firm performance: the case of Vietnam1 ..........54
3.1 Introduction ....................................................................................................56
3.2 Literature Review ...........................................................................................57
3.3 The current training situation in Vietnam ........................................................59
3.4 Research Design .............................................................................................61
3.5 Data Collection...............................................................................................64
3.6 The Estimation Framework.............................................................................65
3.7 Results and discussion ....................................................................................67
3.8 Conclusions ....................................................................................................72
3.9 References ......................................................................................................75
3.10 Appendix ......................................................................................................80
Chapter 4: Human resource training, organisational strategy and firm performance1 .97
4.1 Introduction ....................................................................................................99
4.2 Theoretical background.................................................................................101
4.3 Hypotheses ...................................................................................................105
4.4 Method .........................................................................................................110
4.4.1 Sample and procedures...........................................................................110
4.4.2 Measures................................................................................................110
4.4.3 The Estimation Framework ....................................................................112
4.5 Results..........................................................................................................113
4.6 Discussion and Conclusion ...........................................................................116
4.6.1 Theoretical implications .........................................................................116
4.6.2 Managerial implications .........................................................................118
4.6.3 Limitations and suggestions for future research......................................120
4.7 Reference......................................................................................................123
4.8 Appendix ......................................................................................................132
Chapter 5: Exploring the training - firm performance link in emerging economies: an
international comparison between Vietnam and China1 ..........................................137
5.1 Introduction ..................................................................................................139
5.2 Method .........................................................................................................140
5.3 Country context and training.........................................................................141
VIII
Table of contents
5.3.1 Vietnam context .....................................................................................141
5.3.2 China context .........................................................................................144
5.4 The literature on the relationship between training and firm performance......146
5.5 Results and Discussion .................................................................................149
5.5.1 Differences ............................................................................................149
5.5.2 Similarities.............................................................................................152
5.5.3 Is there convergence in HR training between China and Vietnam? .........153
5.5.4 What might the future bring for training in these countries? ...................156
5.5.5 Implications and relevance of analysis ...................................................158
5.6 Conclusions ..................................................................................................160
5.7 References ....................................................................................................162
Chapter 6: Conclusions...........................................................................................169
6.1 Major findings ..............................................................................................170
6.2 Theoretical implications................................................................................174
6.3 Managerial implications................................................................................175
6.4 Limitations and suggestions for future research.............................................177
6.5 References ....................................................................................................180
IX
List of tables
List of tables
Table 2.1: The studies of the relationship between training and firm performance ....47
Table 3.1: Distribution of Sample by Industry ..........................................................80
Table 3.2: Summary Statistics of major companies' data of the survey......................81
Table 3.3: Summary Statistics of major companies' data of Principal Variables ........82
Table 3.4: Summary Statistics of Principal Variables................................................83
Table 3.5: Dependent variable: Log (Productivity 2006) (T-values in parentheses) ...84
Table 3.6: Dependent variable: Log (Sale 2006) (T-values in parentheses) ...............85
Table 3.7: Dependent variable: 2005-2006 Percent change in productivity (T-values in
parentheses)..............................................................................................................86
Table 3.8: Dependent variable: 2005-2006 Percent change in sales (T-values in
parentheses)..............................................................................................................87
Table 4.1: Summary Statistics of major companies' data of the survey....................132
Table 4.2: Summary Statistics of major companies' data of Principal Variables ......133
Table 4.3: Results of Regression Analysis for Training, Organizational Strategy, and
Firm Sales ..............................................................................................................134
Table 4.4: Results of Regression Analysis for Training, Organizational Strategy, and
Firm Productivity ...................................................................................................135
Table 5.1: A summary of empirical case studies on the relationships between training
and firm performance in China and Vietnam ..........................................................168
X
List of figures
List of figures
Figure 1.1 – Overview of the dissertation..............................................................14
Figure 2.1: A framework for analyzing training and firm performance issues........53
Figure 2.2: Training, organizational strategy, and firm performance .....................53
Figure 4.1: Training, organizational strategy, and firm performance ...................136
XI
List of Abbreviations
List of Abbreviations
CIEM
Central Institute of Economic Management
EOPP
Employment Opportunities Pilot Projects
EQW
Educational Quality of the Workforce
FDI
Foreign Direct Investment
FIE
Foreign Invested Enterprise
GDP
Gross Domestic Product
HR
Human Resource
HRM
Human Resource Management
JV
Joint Ventures
MOET
Ministry of Education and Training
MPI
Ministry of Planning and Investments
NFIB
National Federation of Independent Businesses
ROA
Return on Assets
ROE
Return on Equity
ROI
Return on Investment
ROS
Return on Sales
SOE
State-Owned Enterprises
TQM
Total Quality Management
VESI
Vietnam Employer Survey Instrument
WTO
World Trade Organisation
XII
Summary
Summary
The globalization and deregulation of markets, changing customer and investor's
demands, and ever-increasing product-market competition, has become the norm for
most organisations and alerted all of them to fact that all their resources must be
utilized more effectively than ever before. Organizations are turning to their people
as a means of creating and sustaining a competitive advantage. This trend is placing a
greater focus on the role of human resource training within organisations because
training will provide knowledge and skill for their employees. This knowledge and
skill have become increasingly important to its performance, competitiveness, and
innovation. However, training is often viewed as an expense that is criticized for
being too expensive, not transferring to the job, or a legal compliance other than
improving firm performance.
Though training is still debated between the need for training and doubts about its
benefit to organizations, scholars increasingly agree that there are two alternative
views - universal and contingency view - to approach the impact of training on firm
performance. In addition, the increasing internationalization of markets has meant
organizations are no longer operating within the confines of one national context.
Thus, it is necessary to examine how the different emerging economic contexts have
shaped organisational approaches to human resource (HR) training. In an attempt to
provide clarity of the research topic, we conducted a series of the four following
studies.
The first study aims to advance understanding of the effects of training on firm
performance by reviewing the results of previous studies that have estimated the
XIII
Summary
relationship between training and firm performance. In this study, we have also
described the various important theoretical approaches and proposed a framework for
analysing training and firm performance issues. We use data from 66 previous studies
published in many different journals across a number of disciplines from 1991 to 2007
that have investigated the relationship between training and firm performance. Major
psychological, managerial, and business journals (e.g., Personnel Psychology, Labor
Economics, Industrial Relations, International Journal of Human Resource
Management, and Journal of Operational Management) and book (American Society
for training and development) were scanned for articles containing related information
and data. The research results show that training has positive and significant impact
on firm performance. Finally, we identify the limitations of these previous studies and
directions for future research on this topic.
The second study uses data from the Vietnam Employer Survey Instrument (VESI
was designed by Nguyen Ngoc Thang, Ghent University in collaboration with Prof.
Dr. Dirk Buyens, Ghent University & Vlerick Leuven Gent Management School) to
measure the impact of training programmes on firm performance. With a standard
Cobb-Douglas production function, data from 196 companies were used to assess the
impact of training on firm performance. The major findings indicate that
manufacturing companies that increased training in 2006 will lead to significant
increases in sales and productivity. However, we found that training has no
statistically significant effect on sales and productivity of non-manufacturing
companies. In addition, manufacturing companies that implemented training
programmes after 2005 will see to an increase in both sales and productivity per year
between 2005 and 2006. We also found no statistically significant effect on 2005-
XIV
Summary
2006 percentage change in sales and productivity of non-manufacturing companies if
these companies provided training after 2005.
Although there has been growing studies of the effects of training on firm
performance, research attention has been limited to the contextual conditional that
moderate the training-firm performance relationship. In such the context, guided by
contingency theory, we believe that training may be more beneficial for organisations
if training consistent with other characteristics of the organisations. For instance,
strategic human resource management researchers suggest that the impact of training
on firm performance may gain better results if training activities are consistent with an
organisational strategy. Therefore, in third study, we used a contingency approach to
examine the relationship between training, organisational strategy and firm
performance. Results of the hierarchical regression from the VESI 2007 show that
quality strategy moderated the training-firm sales and productivity relationship.
However, we found no significance of the moderating effects of cost strategy and
flexibility strategy on the training- firm performance relationship.
The fourth study provides a comparative analysis of the role of training and its impact
on firm performance in different emerging economies – Vietnam and China. The
starting-point is an examination of the country contexts and training, and how these
have shaped organisational approaches to HR training. The paper also reviews the
results of previous studies that have investigated the relationship between training and
firm performance in Vietnam and China. The research results show that training has a
positive and significant impact on firm performance and reveal some convergences of
HR training that has occurred in both these countries. We are also making predictions
about what might happen for HR training in two these countries in the future.
XV
List of publications
List of publications and conference presentations based on
this dissertation
Refereed journals

Thang, N. N., & Quang, T. 2007. Training and Development in Vietnam.
International Journal of Training and Development, 11(2): 139–149.

Thang, N. N., & Buyens, D. 2008. Training, organisational strategy, and
firm performance. The Business Review, 11(2): 176–183.
Working Papers

Thang, N. N, Thu, N. V., & Buyens, D. 2008. The impact of training on
firm performance: case of Vietnam. Working Paper Series, Faculty of
Economics and Business Administration, Ghent University 08/538: 1–26

Thang, N. N., & Buyens, D. 2008. Training, organisational strategy, and
firm performance. Working Paper Series, Faculty of Economics and
Business Administration, Ghent University 08/541: 1–31

Thang, N. N., & Buyens, D. 2009. What we know about relationship
between training and firm performance: A review of literature. Working
Paper Series, Vlerick Leuven Gent Management School, D/2009/6482/01:
1–34
Papers published in conference proceedings

Thang, N. N., & Buyens, D. 2008. What we know about relationship
between training and firm performance: A review of literature.
Proceedings of the 7th International Conference of the Academy of Human
XVI
List of publications
Resource Development (Asia Chapter), November 3–6, 2008, Bangkok,
Thailand.

Thang, N. N, Thu, N. V., & Buyens, D. 2008. The impact of training on
firm performance: case of Vietnam. Proceedings of the 7th International
Conference of the Academy of Human Resource Development (Asia
Chapter), November 3–6, 2008, Bangkok, Thailand.

Thang, N. N., & Buyens, D. 2008. Training, organizational strategy, and
firm performance. Proceedings of the 2008 Economics & International
Business Research Conference, December 10–13, 2008, Miami, U.S

Thang, N. N., & Buyens, D. 2008. Company-level training in emerging
markets: Tests of universalistic and contingency performance predictions.
Proceedings of the 29th Annual International Industrial Relations and
Human Resources Conference, October 9–11, 2008, Kentucky, U.S.

Thang, N. N., & Buyens, D. 2009. Exploring the training - firm
performance link in developing countries: an international comparison
between Vietnam and China. Proceedings of the An International
Symposium “China’s Rise and Its Impact on Asia: Democratization,
Development and Culture, March 20–22, 2009, Kentucky, U.S.
International conference and seminar presentations

Thang, N. N., & Buyens, D. 2008. What we know about relationship
between training and firm performance: A review of literature. Paper
presented the 1st Ph.D. day, May, 26, 2008, Faculty of Economics and
Business Administration, Ghent University, Belgium and accepted for
presentation at the 7th International Conference of the Academy of Human
XVII
List of publications
Resource Development (Asia Chapter), November 3–6, 2008, Bangkok,
Thailand.

Thang, N. N, Thu, N. V., & Buyens, D. 2008. The impact of training on
firm performance: case of Vietnam. Paper accepted for presentation at the
7th International Conference of the Academy of Human Resource
Development (Asia Chapter), November 3–6, 2008, Bangkok, Thailand
and the 1st Asian Management and Entrepreneurship Workshop,
December 1–2, 2008, INSEAD, Brussels, Belgium.

Thang, N. N., & Buyens, D. 2008. Training, organizational strategy and
firm performance. Paper presented at the 2008 Economics & International
Business Research Conference, December 10–13, 2008, Miami, U.S.

Thang, N. N., & Buyens, D. 2008. Company-level training in emerging
markets: Tests of universalistic and contingency performance predictions.
Paper accepted for presentation at the 29th Annual International Industrial
Relations and Human Resources Conference, October 9–11, 2008,
Kentucky, U.S.

Thang, N. N., & Buyens, D. 2009. Exploring the training - firm
performance link in developing countries: an international comparison
between Vietnam and China. Paper accepted for presentation at the An
International Symposium “China’s Rise and Its Impact on Asia:
Democratization, Development and Culture, March 20–22, 2009,
Kentucky, U.S and the 24th Workshop on Strategic Human Resource
Management,
EIASM,
April
XVIII
6–7,
2009,
Brussels,
Belgium.
Chapter 1: General introduction
Chapter 1: General introduction
1
Chapter 1: General introduction
1.1 Scope and objectives
The complexity and dynamicity of the current business environment
increasingly requires modern organisations to take a closer look at their human capital
in general and training in particular (Thayer 1997; Howard 1995). In fact, now more
than ever, workplace learning and continuous improvement are considered essential if
an organisation is to remain competitive advantages (London & Moore 1999). In
addition, modern organisations must cope with training needs associated with the
changing and increasing internationalisation of markets, different national contexts
and a diverse workforce. In a recent year, budgeted training expenditures of
organisations across the globe were estimated to cost from $55.3 billion to $200
billion annually in revenue (Salas & Cannon-Bowers, 2001).
It is important to note that successful organisations usually invest more in
training than other organisations (Kraiger, 2003). This argument has not only
necessitated greater focus on the role of HR training within organisations but also in
learning technologies and performance-improvement processes (Tregaskis, Heraty, &
Morley, 2001). There are a number of studies that have found the positive significant
effects of training on firm performance - increased sales and productivity, enhanced
quality and market share, reduced turnover, absence and conflict, (Bishop 1991;
Bartel 1994; Tan & Batra 1995; Arthur, Bennett, Edens & Bell 2003; AragonSanchez, Barba-Aragon & Sanz-Valle 2003; Garcia 2005; and Zwick 2006). Training
is criticised, however, for being too expensive and not transferring to the job (Salas et
al., 1999; Wright & Geroy, 2001). In fact, some studies failed to find any impacts of
training on firm performance (Bishop & Kang, 1996; Loewenstein & Spletzer, 1999).
2
Chapter 1: General introduction
Despite of these above interesting findings and the increasing concern in
organisations that training investment must be justified to improve firm performance
(Salas & Cannon-Bowers, 2001), the specific form of the relationship between
training and firm performance is still open to debate and it is difficult to find strong
evidence of this in the human resource literature because most models and research
have focused on the individual level of analysis (Kozlowski et al., 2000).
In addition, some studies suggested that organisations are applying different
HR practices, including training and development in different national legislative and
cultural frameworks (Brewster & Bournois, 1991; Lane, 1991; Randlesome, 1993;
Shaw et al., 1993). However, there are few studies on the comparative relationship
between training and firm performance in the different countries in general and in the
different emerging economies in particular. Therefore, this dissertation attempts to
make a contribution to fill the missing research gaps in the HR literature.
With these issues in mind, we conducted this research project with three
overall objectives: (1) to advance understanding of the relationship between training
and firm performance as a contribution to the literature on human resource
management, strategy management, and science of training; (2) to clarify the impact
of training on firm performance based on the different perspectives and empirically
test hypotheses consistent with the logic of each perspective; and (3) to examine how
the different emerging economic contexts are shaped by organisational approaches to
HR training.
However, the conceptualisation and measurement of training have varied
across in previous studies (Thang & Buyens, 2008). In summary, we break down the
measurement of training into four groups: absolute measures (e.g., amount of training
3
Chapter 1: General introduction
employees receive), proportional measures (e.g., percentage of workers trained),
content measures (e.g., type of training), and emphasis measures (e.g., perceived
importance of training). More specifically, absolute measures of training have been
operationalised as total of training cost or total hours of training, whereas content
measures of training have been operationalised as technical training or managerial
training.
In addition to differences in the content of training measures, there is no theory
which indicates that one measure of training might be better suited to estimating firm
performance than another (Tannenbaum & Yukl, 1992; Salas & Cannon-Bowers,
2001; Thang & Buyens, 2008). Therefore, in our study, we measure training in terms
of the total expenditure on training in logarithmic form because this method allows an
estimate of the percentage change in organisation sales and productivity for a given
percentage change in training cost.
In order to test the findings generated on the basis of the literature review, an
empirical survey and a quantitative approach seemed to be most appropriate. The
empirical data of this dissertation were collected through the VESI in July and August
of 2007. The survey represents a unique source of information on firm characteristics,
use of education and training investments, and employment and work organisation.
Using the same empirical data, we explore the impact of training on firm performance
from different perspectives – universal and contingency perspectives. The results of
the empirical study can be used for a comparison of human resource training in
Vietnam and China.
4
Chapter 1: General introduction
1. 2 Research questions
The three following research questions are addressed in order to meet the
objectives of this dissertation.
1.
What do we know about the relationship between training and firm
performance?
2.
How are the impacts of training on firm performance based on the
different approaches?
3.
How do the different emerging economic contexts shape company
approaches to training?
The first question addresses the identification of the effects of training on
various kinds of firm performance and relates to objective 1. To answer this question,
we collected 66 published studies from many different journals across a number of
disciplines from 1991 to 2007 that have investigated the relationship between training
and firm performance (chapter 2). By reviewing these studies, we elaborated the
advantages and disadvantages of the sample and measure methods approaches of the
previous studies. Important for any research design in academia is logical consistency
in terms of the knowledge present in the relevant literature, the research questions, the
method used to collect data, and the suggestions for management (Creswell, 1994;
Huff, 1999). Then, we used these results to develop and design the next stage in the
dissertation.
The second question is concerned with objective 2 and deals with two
problems related to the management of HR training policies and its effects on firm
performance: (1) to determine the extent to which HR training policies directly
5
Chapter 1: General introduction
enhance firm performance (chapter 3), and (2) how organisational strategy moderates
the relationship between HR training and firm performance (chapter 4). In other
words, we approach the second question from these two perspectives. Thus, two
studies were conducted to answer the question. In order to obtain data for these two
studies, a survey was designed and implemented in July and August 2007 for a
nationally representative sample of Vietnamese companies. The focus of the
questionnaire was on firm characteristics (total value of revenues, sales, or receipts;
total value of capital or the cost of goods and materials used in production), use of
education and training investments (types of training programs, total cost of training
programs, reasons of establishment training, sources of trainers, government grants or
subsidies for training), employment and work organisation (the number of employees,
benchmarking programs, Total Quality Management (TQM) program, flex-time,
company strategies).
The third question focuses on the comparison of HR training in different
emerging economies and is concerned with objective 3 (chapter 5). By taking into
account the findings of our previous studies, we approach training and its effects on
firm performance from the international level of analysis. Two emerging economies Vietnam and China - are considered in this comparative study. Although these
countries have some similar characteristics in terms of economic reforms and political
systems, it remains uncertain whether organisations operating in different emerging
economies are approaching training in the same way or not. To answer this question,
we have addressed the existence of HR training and concentrated on comparing
detailed case studies that investigated the effects of training on firm performance in
these two countries.
6
Chapter 1: General introduction
In summary, in an attempt to solve the above research questions, we conducted
a series of studies that resulted in the four following four papers.
Paper 1: What do we know about the relationship between training and firm
performance: A review of literature.
Paper 2: The impact of training on firm performance: the case of Vietnam.
Paper 3: Human resource training, organisational strategy, and firm
performance
Paper 4: Exploring the training - firm performance link in emerging
economies: an international comparison between Vietnam and China.
1. 3 Structure of the dissertation
The dissertation consists of six chapters. Figure 1.1 summarises an overview
of how the six chapters are interrelated.
Insert Figure 1.1 About Here
In chapter 1, we introduce the research context and objectives, the research
questions, and provide an outline of the content of the dissertation.
Chapter 2 aims to advance understanding of the effects of training on firm
performance by reviewing the results of previous studies that have estimated the
relationship between training and firm performance. First, we summarised some
characteristics of general and specific training, describing theoretical models linking
training to firm performance, and then develop and propose a framework for
7
Chapter 1: General introduction
analysing training and firm performance issues. Second, we review the studies that
have estimated the effect of training on firm performance by using firm-level data of a
large sample of firms or detailed data from one specific company. We use data from
66 previous studies published in many different journals across a number of
disciplines from 1991 to 2007 that have investigated the relationship between training
and firm performance. Major psychological, managerial, business journals (e.g.,
Personnel Psychology, Labor Economics, Industrial Relations, International Journal
of Human Resource Management, and Journal of Operational Management) and book
(American Society for training and development) were scanned for articles containing
related information and data. Third, in explaining our results, we briefly indicate the
advantages and disadvantages of both approaches using data from a large sample of
firms and of one specific company, as well as measuring the effect of firm
performance. In this chapter, we also summarise how previous studies has measured
and estimated the impact of training on firm performance. Finally, we turn our
discussion and conclusion to theoretical and methodological issues, limitations of
prior studies, and managerial implications for practitioners. After that we provide
suggestions and directions for future research on this topic.
Chapter 3 uses the universal approach to examine the relationship between
training and firm performance that has been based on the suggestions for future
research in chapter 2. This chapter focuses on the organisational level of analysis, the
inter-section between employers' practices and human capital in those companies.
Thus, our approach is facilitated by using data that contains information on the value
of sales, receipts or shipments, the book values of capital stock, the cost of materials
used in production during the calendar year, the number of employees, labor training
8
Chapter 1: General introduction
costs, and other related information. Data from the VESI 2007 of 196 companies in
Vietnam were collected for this research purpose. After that, we used a Cobb-Douglas
production function to estimate the impact of training programmes on firm
performance. Finally, we discuss the regression results and present some directions
for future research.
Chapter 4 builds further on the suggestions of chapter 2 and 3 by using a
contingency approach to analyse the moderating effects of organisational strategy on
the relationship between training and firm performance because if it is guided by
contingency theory, we believe that training may be more beneficial for organisations
when consistent with other characteristics of the organisations. The data from the
VESI 2007 were used for this study. We first discuss the theoretical advancements
linking training, organisational strategy and firm performance as well as how to
identify and classify the strategies a firm adopts. In this chapter, several hypotheses
are offered. After that we run a number of hierarchical regression analyses in order to
test the hypotheses. In the last section of this chapter, we turn our discussion to
theoretical and managerial implications. Limitations and directions for future research
are interpreted and proposed in this section.
Chapter 5 further explores an insight that suggested for future research in
chapter 2 and 3. This chapter provides a comparative analysis of the role of training
and its impact on firm performance in different emerging economies – Vietnam and
China. The research results of chapter 3 and 4 are also used for this study. The
chapter focuses on how the different country contexts have shaped organisational
approaches to HR training. The starting-point is an examination of the country
contexts and training. The chapter also reviews the results of recent studies that have
9
Chapter 1: General introduction
investigated the relationship between training and firm performance in Vietnam and
China. The review results show that training has a positive impact on firm
performance and reveal some convergence of HR training in both these countries.
Then, we draw some propositions that might happen for HR training in two these
countries in the future. Chapter 5 ends with some theoretical and management
implications.
Finally, chapter 6 presents a general discussion and conclusion of this
dissertation based on the major findings in previous chapters. This chapter also
summarises the contribution of this dissertation to theoretical and managerial
implications. Subsequently, we discuss the limitations of the study as well as address
directions for future research.
10
Chapter 1: General introduction
1. 4 References
Aragón-Sánchez, A., Barba-Aragon, I., & Sanz-Valle, R. 2003. Effects of training on
business results. International Journal of Human Resource Management, 14:
956−980.
Arthur, W. A., Jr.,Bennett, W., Jr., Edens, P. S., & Bell, S. T. 2003. Effectiveness of
training in organizations: A Meta-Analysis of Design and Evaluation Features.
Journal of Applied Psychology, 88: 234−245.
Bartel, A. P. 1994. Productivity gains from the implementation of employee training
programs. Industrial Relations, 33: 411–425.
Bishop, J. 1991. On-the-job Training of New Hires, in Market Failure in Training?
ed. David Stern and Jozef M. M. Ritzen, New York: Springer-Verlag, pp. 61–98.
Bishop, J.H., & Kang, S. 1996. Do Some Employers share the Costs and Benefits of
General Training? Working Paper 96–16, Center for Advanced Human Resource
Studies, Cornell University.
Brewster, C., & Bournois, E. 1991. Human resource management: a European
perspective". Personnel Review, 20(6): 4–14.
Creswell, J. W. 1994. Research design: Qualitative and quantitative approaches.
London: Sage.
García, M. 2005. Training and business performance: The Spanish case. International
Journal of Human Resource Management, 16: 1691−1710.
Hoffman, A. J. 1999. Institutional evolution and change: Environmentalism and the
U.S. chemical industry. Academy of Management Journal, 42(4): 351–371.
Howard A, ed. 1995. The Changing Nature of Work. San Francisco: Jossey-Bass
11
Chapter 1: General introduction
Kozlowski, S., Brown, K., Weissbein, D., Cannon-Bowers, J., & Salas, E. (2000). A
multilevel approach to training effectiveness. In K. Klein, & S.Kozlowski (Eds.),
Multi level theory, research, and methods in organizations (pp. 157−210). San
Francisco, CA: Jossey-Bass.
Kraiger, K. 2003. Perspectives on training and development. In W. C. Borman, D. R.
Ilgen, & R. J. Klimoski (Eds.), Handbook of psychology: Industrial and
organizational psychology (pp. 171−192). Hoboken, NJ: John Wiley & Sons Inc.
Lane, C. 1991. Management of the Total Enterprise, Prentice-Hall, Englewood Cliffs,
NJ.
Loewenstein, M.A., & Spletzer, J.R. 1999. General and Specific Training: Evidence
and Implications, Journal of Human Resources, 34(4): 710–33.
London, M., & Moore, E. M. 1999. Continuous learning. In The Changing Nature of
Performance, ed. Ilgen, D. R., & Pulakos, E. D. pp. 119–53. San Francisco:
Jossey-Bass
Randlesome, C. 1993. The Business cultures in Germany: Part I Western Germany, in
Randlesome, C, Brierley, W., Bruton, K., Gordon, C. and King, P. (Eds), Business
Cultures in Europe, 2nd ed., Butterworth-Heinemann, Oxford.
Salas, E., & Cannon-Bowers, J. A. 2001. The science of training: A decade of
progress. Annual Review of Psychology, 52: 471−499.
Salas, E., Cannon-Bowers, J. A., Rhodenizer, L., & Bowers, C. A. 1999. Training in
organizations. Research in Personnel and Human Resources Management, 17:
123−161.
Shaw, J.B., Tang, S.E.Y., Fisher, C.D., & Kirkbride, P.S. 1993. Organisational and
environmental factors related to HRM practices in Hong Kong: a cross-cultural
12
Chapter 1: General introduction
expanded replication. International Journal of Human Resource Management,
4(4): 785–816.
Tan, H.W., & Batra, G. 1995. Enterprise Training in Developing Countries:
Incidence, Productivity Effects and Policy Implication. Unpublished paper, The
World Bank.
Tannenbaum, S. I., & Yukl, G. 1992. Training and development in work
organizations. Annual Review of Psychology. 43: 399–441
Thang, N. N., & Buyens, D. 2008. What do we know about relationship between
training and firm performance: A review of literature. Proceedings of the 7th
International Conference of the Academy of Human Resource Development (Asia
Chapter), November 3–6, 2008, Bangkok, Thailand
Thayer, P. W. 1997. A rapidly changing world: some implications for training
systems in the year 2001 and beyond. See Quinones & Ehrenstein 1997, pp. 15–30
Tregaskis, O., Heraty, N., & Morley, M. 2001. HRD in multinationals: the
global/local mix. Human Resource Management Journal 11(2): 34–56.
Wright, P. C., & Geroy, G. D. 2001. Changing the mindset. International Journal of
Human Resource Management, 12: 586−600.
Zwick, T. 2006. The impact of training intensity on establishments productivity.
Labour Economics, 11(6): 715–40.
13
Chapter 1: General introduction
Figure 1.1 – Overview of the dissertation
Chapter 1: General introduction
Chapter 2: What we know about
relationship between training and
firm performance: A review of
literature
Chapter 3: The impact of
training on firm performance case of Vietnam
Chapter 4: Human resource
training, organizational strategy
and firm performance
Paper 5: Exploring the training
- firm performance link in
emerging
economies:
an
international
comparison
between Vietnam and China
Chapter 6: Conclusions and
directions for future research
14
Chapter 2: Training and firm performance: A review of literature
Chapter 2: What do we know about relationship between
training and firm performance: A review of literature1
Nguyen Ngoc Thang 2
Faculty of Economics and Business Administration, Ghent University
Dirk Buyens
Faculty of Economics and Business Administration, Ghent University & Vlerick
Leuven Gent Management School
1
This paper is the product of a collaborative effort of Nguyen Ngoc Thang and Prof. Dr. Buyens. It was
presented at the 1st Ph.D. day 26 May, 2008, Faculty of Economics and Business Administration, Ghent
University and accepted for presentation at the 7th International Conference of the Academy of Human
Resource Development (Asia Chapter), Bangkok, Thailand, November 3-6, 2008. An earlier version of
this paper was published in Working Paper Series, Vlerick Leuven Gent Management School,
D/2009/6482/01: 1-34.
2
Corresponding author. E-mail: [email protected]
15
Chapter 2: Training and firm performance: A review of literature
Abstract
This chapter reviews theory and empirical findings on the relationship between
training and firm performance. The chapter describes the various important theoretical
approaches and propose a framework for analysing training and firm performance
issues. Data from previous studies is used to assess the effects of training on firm
performance. Most of these studies show that training has positive and significant
impact on firm performance. Finally, we discuss and identify the limitations of these
previous studies and directions for future research on this topic.
Keywords: Training; Human resource outcomes; Firm performance
16
Chapter 2: Training and firm performance: A review of literature
2.1 Introduction
Training is designed to provide learners with the knowledge and skills needed
for their present job (Fitzgerald, 1992) because few people come to the job with the
complete knowledge and experience necessary to perform the job. Becker (1962)
provides a systematic explanation of investment in human capital and associated
productivity, wages, and mobility of workers. Such investment not only creates
competitive advantages for an organisation (Salas & Cannon-Bowers, 2001), but also
provides innovations and opportunities to learn new technologies and improve
employee skills, knowledge and firm performance. In fact, there is an increasing
awareness in organisations that the investment in training could improve
organisational performance in terms of increased sales and productivity, enhanced
quality and market share, reduced turnover, absence and conflict, (e.g. Huselid 1995;
Martocchio & Baldwin 1997; Salas et al 2000).
Although there are many advocates of training and its important role in
improving firm performance, it has been criticised as faddish, or too expensive
(Kraiger et al., 2004; Salas, E & Cannon-Bowers, J.A., 2000), and there is an
increasing scepticism about the practice and theoretical underpinning of linking
training with firm performance (Alliger et al., 1997; Wright & Geroy, 2001).
Therefore, the major purpose of this paper is to review the emergence and attributes of
the relationship between training and firm performance. After that we analyse the
relation in both the theory and practice of the management of organisations in order to
understand why it has been readily supported as well as criticised by so many
researchers and organisations.
17
Chapter 2: Training and firm performance: A review of literature
In this study, we focus on research published from 1991 to 2007. Our review is
organised as follows. First, we summarise some characteristics of general and specific
training, describe theoretical models linking training to firm performance, and
develop and propose a framework for analysing training and firm performance issues.
Second, the paper reviews the studies that have estimated the effect of training on firm
performance by using firm-level data of a large sample of firms or detailed data from
one specific company. Third, in explaining our results, we briefly review advantages
and disadvantages of both the approaches using data from a large sample of firms and
of one specific company, as well as measure the effect on firm performance. In this
part, we also summarise how previous studies have measured and estimated the
impact of training on firm performance. Finally, we discuss theoretical and
methodological issues, limitations of prior studies, and managerial implications for
practitioners. After that we provide suggestions and directions for future research on
this topic.
2.2 Theoretical framework
2.2.1 General and specific training
The importance of general and specific training is recognised by everyone.
Paul Chapman (1993) has pointed out that a major development in the theory of
training is the distinction between training relevant to a wide variety of tasks and
training which is more specific to the job and firm - general training and specific
training. General training raises a worker's future productivity not only in the firm
providing it, but also in other firms in the labor market. Becker (1962) argued that
workers rather than firms should pay the cost of general training because the
18
Chapter 2: Training and firm performance: A review of literature
employers would not be able to capture any future return on their investment.
Therefore, general training may be arranged in a formal education group because it is
valuable to a wide range of employers and can be obtained in other ways than training
in the firms. The firm should only pay for the firm-specific component of training
which does not help the worker receive higher wages elsewhere. In contrast, specific
training raises the worker's productivity only in the firm providing it either because
they have special methods or because they use equipment with which workers must
become familiar. The returns on specific training might be lost when the relationship
between employer and worker dissolves. Thus, specific training is clearly associated
with turnover. When employers expect workers to be with the firm for a long time,
they will offer training for workers since there is a longer period in which they can
receive returns from their investment.
Bishop (1994) has questioned Becker’s human capital theory whereby the
worker pays the full costs of and receives all the benefits of general training that is
useful at another firm. His research shows that there are some reasons for the
employer to share the costs of general training with the worker. The most important
reason why firms share general training costs is government regulation. Workers can
pay for general training by receiving reduced wages during the training period.
However, wage reduction during the general training would probably be forbidden by
wage and hours regulations because of minimum wage constraints. When undergoing
technological change and pressured by competitors, a firm must decide whether to
provide general training under minimum wage constraints and predetermined wage
structure. Besides the existence of a liquidity constraint, employers may voluntarily
pay for general training because of the unwillingness of most workers to pay large
19
Chapter 2: Training and firm performance: A review of literature
amounts of general training. Therefore, firms will offer an optimal to induce workers
to undertake general training by sharing the costs of training.
Firm training depends on job characteristics, firm characteristics and worker
characteristics. Black & Lynch (1996) summarised the differences between workers
who receive formal training and those who do not. Workers are more likely to receive
training if their jobs have the following characteristics: high value added jobs where
the individual has great responsibility, cognitively complex jobs (e.g. professional,
technical and managerial jobs), sales jobs for complicated, changing and customised
products, use expensive machinery on their job, regular, non-temporary jobs, full-time
jobs, and jobs where the skills learned are not useful at many other firms in the
community. Holding other worker characteristics constant, the likelihood and the
amount of formal training in a given year for workers depend on the characteristics of
the jobs they hold, the firms for whom they work, as well as the characteristics of the
workers themselves. Therefore, firms usually analyse the training needs to determine
where training is needed and who needs to be trained.
2.2.2 Theoretical models linking training to firm performance
The knowledge and skills of workers acquired through training have become
important in the face of the increasingly rapid changes in technology, products, and
systems. Most organisations invest in training because they believe that higher
performance will result (Alliger et al., 1997; Kozlowski et al., 2000). However, the
theoretical framework for the relationship between training and firm performance has
been subject to considerable debates. Devanna and colleagues (1984) proposed a
model which emphasises the interrelatedness and coherence of human resource
20
Chapter 2: Training and firm performance: A review of literature
management (HRM) policies and performance. According to their model, training and
other HRM activities aim to increase individual performance. Thus, the result leads to
higher firm performance.
Guest (1987) has developed a theoretical framework to show how HRM
policies have effects on human resources and organisational outcomes. The strength
of Guest’s model is that it is a valuable analytical framework for studying the
relationship between HRM policies and organisational performance because it is
expresses more careful, clear and easy for empirically testing. He saw commitment as
a vital outcome, concerned with the goals linking employees with firm performance.
The goal of quality is important to ensure the high quality of products and services.
Therefore, training and development policy play an importance role in HRM and
contribute to improved strategic integration, employee commitment, flexibility and
quality. HRM outcomes then lead to high job performance, high problem-solving,
high cost-effectiveness, and low turnover, reduced absence, and fewer grievances.
Another theoretical model which emphasises the interrelatedness and the coherence of
HR practices, firm strategy and firm-level outcomes is one presented by Wright and
McMahan (1992). They present six theoretical models altogether from the fields of
organisational theory, finance, and economics. Three of them (resource-based view of
the firm, cybernetic systems, and behavioral perspective) consider the relationship
between training and firm performance.
First, in the resource-based view, firm resources include physical capital,
human capital and organisational capital that enable the firm to improve its efficiency
and effectiveness. Its resources determine the strength of a firm in the long term. In
order for a firm’s resources to provide sustained competitive advantages, however, it
21
Chapter 2: Training and firm performance: A review of literature
must have four attributes: valuable, rare, imperfectly imitable, and cannot be replaced
with another resource by competing companies (Barney 1991). Therefore, human
capital is a primary source of sustained competitive advantage to a firm because apart
from the criteria mentioned above it cannot be duplicated or bought in the market by
competitors. Applying the resource-based view to training suggests that training can
provide knowledge and skills for employees and in turn this may lead to high firm
performance.
Second, in the behavioural perspective models, employee behaviour plays an
important role as a mediator between strategy and firm performance (Schuler &
Jackson, 1987; Schuler, 1991). The models do not focus on knowledge, skills or
abilities of employees, but focus only on employee role behaviors because the
employee’s attitudes, behaviours, and commitments could affect the firm
performance. Thus, the employee role behaviour can be instrumental in the creation of
a competitive advantage. HRM practices can be considered as an option to promote
the role behaviour more efficiently and effectively, especially HR training policy.
Third, a popular theoretical model applied to HRM literature is a cybernetic
model of HR systems. It is based on the general systems models and includes input
from the environment (i.e., inputs of HR knowledge, skills, and abilities), throughput
(HR behaviours) and output systems (productivity, sale, job satisfaction, turnover,
etc.). When the model is applied to strategic HRM, Wright and Snell (1991) focus on
two major responsibilities: competence management (deals with individual skills
required to implement a given organisational strategy) and behaviour management
(activities that seek to agree and coordinate attitude and behavior of individuals for
organisational strategy and goals).
Therefore, training will improve knowledge,
22
Chapter 2: Training and firm performance: A review of literature
skills, abilities and behaviour of employees. This in turn leads to positive
organisational outcomes.
Recently, an excellent analytical framework which uses a multilevel approach
to training has been offered by Kozlowski and colleagues (2000). The multi-level
model bridges the gap between theoretical models of training needs assessment,
design, and evaluation, and the higher levels at which training must have an impact if
it is to contribute to organisational effectiveness (Kozlowski & Salas, 1997). It is
focused on training transfer and embedded in two distinct transfer types: horizontal
and vertical transfer. Horizontal transfer concentrates on traditional models of training
effectiveness. Kozlowski and Klein (2000) proposed “top-down contextual effects”
which they described as a group and organisational factors that have direct and
moderating effects on learning and transfer. These effects have been the source of
recent theory and research addressing the influence of organisational factors on
motivation to learn, transfer, and training effectiveness at the individual level of
analysis. Vertical transfer examines the link between individual training outcomes and
organisational outcomes. There are two distinctive forms of vertical transfer processes
- composition and compilation. Composition concentrates on individual contribution
at the same content, while compilation focuses on individual contribution at the
different or diverse content.
To summarize, first, it is obvious that similarities exist between the normative
models of HRM, whether it is the US (Devanna et al.) or the British (Guest model).
They have put training on a set of HRM policies and consider training as an important
and vital policy for improving knowledge, skills, attitude and motivation of
employees. Second, the HR system is a complex set of policies designed to manage
23
Chapter 2: Training and firm performance: A review of literature
labor in the organisation and integrate into organisational strategy in order to create
high performance for organisation. Third, this review of theoretical models linking
training to firm performance also suggests that it is explicitly recognized that no
organisations can attain its goals or organisational strategy without labor that has the
right knowledge, skills, abilities, behaviour, and attitudes. Therefore, training plays an
important role in improving the quality of employees directly and effecting on firm
performance through HR outcomes. Finally, organisational researchers studying
training and firm performance need to consider the impact of various dimensions of
employee training programmes, the type of training methods and design, the type of
employees trained, and time spent by employees in training on firm performance.
2.2.3 A framework for analysing training and firm performance issues
Kozlowski et al. (2000) suggests an approach to organization improvement
and development based on enhancing the knowledge, skills, and attitudes or abilities
of the workforce. This may be accomplished through training activities. From this
perspective, training is effective to the extent that it directly contributes to the
strategy, objectives, or outcomes central to organisational effectiveness (Jackson &
Schuler, 1990). The theoretical frameworks are not however adequately addressed in
current models. Thus, a theoretical model is proposed in the hope that it will assist in
understanding the relationship between training and firm performance.
To contribute to the theoretical literature, we develop and proposed a
theoretical framework for analysing training and firm performance issues, shown in
figure 2.1 and 2.2. In figure 2.1, it is based on the fundamental premises of training
processes, HR outcomes and firm performance. Training is predicated on contributing
24
Chapter 2: Training and firm performance: A review of literature
to higher-level group and organisation objectives, results, and performance. A number
of HR outcomes and firm performance which are important in analysing the relation
are enumerated in the second and third box. Attention is drawn to some of the critical
variables. The figure shows that training affects the overall knowledge, skills,
abilities, attitudes, behaviours, and motivation of employees. HR outcomes have a
direct impact on firm performance after. In figure 2.2, we have adopted a contingency
theory. It is more complex than that in figure 2.1 because it implies interactions
between training and organisational strategies and how these strategies relate to
training and firm performance relationships.
Insert Figure 2.2 About Here
Insert Figure 2.2 About Here
In the long run, striving to enhance HR outcomes will lead to favourable
consequences for firm performance (i.e., financial and non-financial performance).
Therefore, to determine whether training enhances the performance of the
organisation, financial performance, or non-financial performance, a process of HR
outcomes and firm performance assessment must be considered together in real
situations in order to reach a consensus on its meaning. With respect to the
performance being used in this model, we can make a distinction between financial
and non financial performance. Financial performance in this context is linked to
indicators like return on investment (ROI), return on assets (ROA), return on equity
(ROE), return on sales (ROS), Tobin’s q, sales, market share, productivity, etc. Non-
25
Chapter 2: Training and firm performance: A review of literature
financial performance includes labor turnover, absence of employees, conflict, quality
of product and/ or service, innovation, etc.
2.3 Method
2.3.1 Sample
In this review, we focus on research published in many different journals
across a number of disciplines from 1991 to 2007 that assess the relationship between
training and firm performance. Major psychological, managerial, or business journals
(e.g., Personnel Psychology, Labor Economics, Industrial Relations, International
Journal of Human Resource Management, and Journal of Operational Management)
and book (American Society for training and development) were scanned for articles
containing related information and data. In total, 66 studies were found that could be
used for this purpose. All the studies are presented in table 2.1.
The research sample, measurement of training and firm performance varied
across the studies. Some studies use a single item to measure training or performance,
whereas others use multiple training and firm performance measures. For example,
Zwick (2006) used data on 2079 establishments from the Germany Institute for
Employment Research to analyse of the impact of training intensity on establishment
productivity, whereas Krueger & Rouse (1998) used data on two companies, a
manufacturing company and a service company, to estimate the effect of reading,
writing, and maths training on ROI, turnover, absenteeism, and job performance.
Therefore, there are a number of challenges in reviewing the results of these studies
because there is a lack of consistency in their calculation and measurements.
26
Chapter 2: Training and firm performance: A review of literature
2.3.2 Analysis
To develop an integrated view on empirical evidence for the effects of training
on firm performance, we used selective and descriptive analysis. This allowed us to
re-analyse the data from the studies. For comparative reasons, we divided articles into
two groups: articles using data from a large sample of heterogeneous firms and
articles using data from a specific company survey. In the first group, there are 52
studies that have collected for the review. The studies of this group have estimated the
impact of training on firm performance by using firm-level data collected through
mail, phone surveys, or archival data. In the second group, fourteen studies were
found to assess the relationship between training and firm performance. All these
studies collected direct data from the company’s personnel files or human resource
departments. Some of these studies held face-to-face interviews with managers to
understand what type of training the companies conducted, and how the companies
are measured, analysed, or evaluated training results.
With respect to firm performance, we aimed to extract clear empirical
evidence and discussions on the unique effects of training on firm performance.
Therefore, we broke down firm performance in the studies into two categories:
financial firm performance (ROI, sales, productivity, profit, market share, etc.) and
non-financial firm performance (turnover, absenteeism, job satisfaction, motivation,
etc). However, some studies measured both financial and non-financial indicators at
the same time. From each category, we clarify our understanding of the relationship
between training and financial performance (or non-financial performance) from
current literature and propose directions for future research on this topic.
27
Chapter 2: Training and firm performance: A review of literature
2.4 Results
2.4.1 Results from the studies of large samples of firms
In this section, we have collected 52 studies that have estimated the impact of
training on firm performance by using firm level data from a large sample of firms.
The advantage of the studies is that they can be generalised to other companies,
whereas a case study could not express the problem in general. The statistics in part A
of table 2.1 show that most studies frequently estimated the effects of training on
financial performance (47 studies or 90% of the total studies used a large sample of
firms), followed by both financial performance and non-financial performance
(twenty-five studies or 48% of the total studies used a large sample of firms), and non
financial performance (five studies or 10% of the total studies used a large sample of
firms).
With respect to performance measurement methods, some researchers (Bassi
& Van Buren, 1998; Bishop, 1991; Fey et al, 2000; etc.) who estimated the effects of
training on firm performance have used a subjective measure of performance. The
disadvantage of a subjective measure is that research results are not comparable
across companies over time and depend a lot on assumptions. For example, Bishop
(1991) used data on 2594 employers for his study. He generated tentative estimates of
both the opportunity costs and the productivity effects of training. Thus, the reliability
of these estimates depends on the accuracy of his assumption regarding the cost of
training, as well as the accuracy of the subjective estimates of firm performance
(Bartel, 2000).
28
Chapter 2: Training and firm performance: A review of literature
In order to overcome the limitations of subjective measures of performance,
other researchers (Black & Lynch, 1996; Boon & van der Eijken, 1998; Faems et al.,
2005, Zwick, 2006; etc.) have used a firm-level dataset in a regression standard CobbDouglas production function to estimate the impact of training on firm performance.
They have measured firm performance by net sales or value added. More specifically,
Black & Lynch (1996), used data from the National Center on the Educational Quality
of the Workforce (EQW) National Employers' Survey and measured productivity by
net sales, estimating a production function in which the dependent variable was sales,
receipts, or shipments, whereas Faems and colleagues (2005) studied the effect of
individual HR domains on financial performance by using survey data on 416 small
and medium companies and measured productivity by value added.
The kinds of training used for estimation differ throughout the studies. For
instance, Barrett & O’Connell (2001) estimated the productivity effects of general
training, specific training, and all types of training combined. Ichniowski et al. (1996)
estimated training in production skills, communication and problem-solving skills,
and a set of other activities in order to improve workers’ understanding of production
issues on firm performance, whereas Fey et al (2000) concentrates on the influence of
technical and non-technical training on overall firm performance.
As regards the kinds of establishment assessed in the above studies, Black &
Lynch (1996) divided companies into two groups: manufacturing companies and nonmanufacturing companies. Ng & Siu (2004) collected data on 800 state-owned
manufacturing enterprises and non-state-owned manufacturing enterprises from a
survey in Shanghai to assess the effects of training on firm performance. Faems and
colleagues (2005) estimated the impacts of training on firm performance of small and
29
Chapter 2: Training and firm performance: A review of literature
medium companies. Other authors used data from companies in a specific industry
for their estimation. For instance, Ichniowski et al. (1996) collected data from 41 steel
production lines in Japan and the U.S., whereas Paul & Anantharaman (2003)
collected data from 34 companies in the Indian software industry.
To summarise, the review of studies of large samples of firms provides an
interesting picture of the relationship between training and firm performance. The
authors tried to capture the effect of training on firm performance by distinguishing
kinds of training, companies, firm performance, using firm-level data from one or
several sectors and different ways to measure performance. They might not, however,
accurately control for data, complex production processes, and other factors (e.g., new
technology, a change in products, or labor market conditions) besides training.
2.4.2 Results from the case studies
Fourteen case studies that estimated the influence of training on firm
performance were collected for review purposes. The types of training differ across
the studies. For example, Krueger & Rouse (1998) examine the effects of reading,
writing, and maths training on ROI, turnover, absenteeism, and job performance,
whereas Phillips (1994), in the case of the Coca-Cola bottling company of San
Antonio estimated the impact of motivation, performance, and appraisal training on
ROI, sales, reduced waste and absenteeism. ROI is one of the firm financial indicators
and appears in 100% of the case studies in this section. It could also mean that
training decisions depend a lot on a return to this form of human capital investment. A
summary of training types and firm performance indicators of the fourteen case
studies and major findings are presented in part B of table 2.1.
30
Chapter 2: Training and firm performance: A review of literature
All these case studies collected direct data from company records. The
estimation methods of the impact of training on firm performance vary, however,
among these case studies. Bartel (1995) and Krueger & Rouse (1998) estimated the
influence of training on firm performance by applying an econometric framework to
data from these companies. Phillips (1994), in the International Oil case, and Pine &
Judith (1993) used the experimental design method to measured actual firm
performance (productivity). Experimental design is an intelligent method and suitable
for these cases because it could be used to successfully quantify the outcomes of
training programmes from company’s files. Another ten studies used a subjective
method to measure trainees’ performance.
To summarise, the firm case study approach overcomes the problems of the
large sample and lack of insufficient data for estimation. In addition, the approach
considers training and measures firm performance in more details as well as to
accurately controls other factors besides training (e.g., firm characteristics, new
technology) that influence firm performance. Another advantage of the approach
(except the case studies of Bartel, 1995 and Krueger & Rouse, 1998) is that it tracks
the performance measures over a sufficient time period to reach an exact and reliable
assessment. However, these case studies could not avoid some problems such as
companies not wanting weak results publicised, use of subjective evaluation of
trainees’ performance, sample selection of trainees for measurement and estimation
and design assumptions.
31
Chapter 2: Training and firm performance: A review of literature
2.4.3 Training has effects on financial performance
Based on the framework for analysing training and firm performance issues in
figures 2.1 and 2.2, there are sixty-one studies in table 2.1 estimated the effects of
training on financial performance (or 94% of the total of sixty-five studies). A number
of researchers (Ballot et al,. 2001; Barrett & O’Connell, 2001; Black & Lynch 1996;
Boon & van der Eijken, 1998; Faems et al (2005), Zwick, 2006; etc.) have tried to
estimate the impact of training on productivity, whereas other researchers study the
effect of training on sales (Ahmad & Schroeder, 2003; Bassi & Van Buren, 1998;
Garcia, 2005; Rodriguez & Ventura, 2003; etc.). For instance, whereas Ballot and
colleagues (2001) found that training has positive effects on productivity (value added
per worker), Bassi & Van Buren (1998) demonstrated that training led to an increase
in sales, quality, and customer satisfaction.
Other studies have examined the influence of training on financial
performance indicators such as ROI, ROA, ROE, or market shares (Batel, 1995;
Bernthal & Wellins, 2006; Bishop, 1994; Delery & Doty, 1996; Huang, 2000; Paul &
Anantharaman, 2003; etc.). For example, Bartel (1995) found that training has
positive and significant effects on ROI, whereas Bernthal & Wellins (2006) and
Delery & Doty (1996) estimated impact of training on both ROA and ROE indicators.
Most of these studies estimated the effects of training not only on financial
performance but also on non-financial performance at the same time. This may mean
that the estimation results of each study depend on the research purpose of the authors
or research projects, performance measure method, and data collected.
To summarise, the results indicated that there was a significant difference
between types of training, types of financial performance indicators, and impacts of
32
Chapter 2: Training and firm performance: A review of literature
training on financial performance indicators in these studies. In sixty-one studies
(94% of the total studies) related to financial performance indicators, these authors
seem to concentrate on measuring firm performance by financial indicators and most
of them demonstrate that training has a positive and significant influence on financial
indicators.
2.4.4 Training has effects on non-financial performance
According to the framework in figure 2.1, thirty-six studies examined the
impact of training on non-financial performance (or 55% of the total of sixty-five
studies) such as turnover, quality, absenteeism, customer satisfaction, etc.
With
respect to turnover, Bishop (1991), in his study on newly hires showed that formal
training led to lower labour turnover, whereas Krueger & Rouse (1998) reported that
reading, writing, and maths training had a positive effect on turnover. A majority of
other studies also found that training had positive effect on labour turnover. It
suggests that turnover has a powerful effect on employer decisions to provide training
to employees. High turnover implies that investment in training for their employees is
not efficient because many of those trained moved to other companies. Thus,
companies may pay quite a high price for this turnover in terms of lower sales.
Other studies have estimated the impact of training on quality, absenteeism,
and customer satisfaction. One possible explanation why these non-financial
performance indicators were more popular in the above studies is that when
considering the competitive advantages that a firm is thought to possess, we usually
think about high quality or justifying the customer’s needs. Thus, many studies have
tried to measure firm performance by these indicators. For instance, Ghebregiorgis &
33
Chapter 2: Training and firm performance: A review of literature
Karsten (2007) and Krueger & Rouse (1998) demonstrated that training has a strong
effect on absenteeism rate reduction. Aragon-Sanchez et al. (2003) and Katou &
Budhwar (2007) found that training has a positive effect on quality, whereas Ely
(2004) and Lawler et al. (1998) reported that training has a significant and positive
effect on customer satisfaction.
To summarise, it is not surprising that firms invest in training in order to
improve non-financial performance. It may mean that some non-financial
performance indicators also play an important role in organisational strategy.
Therefore, some studies have estimated and measured the influence of training on
non-financial performance. However, when these studies measure the impact of
training on non-financial performance by a subjective method (e.g., workers’
reactions to the training, impact of training on workers’ behaviour, etc.), the results of
these studies may not be totally accurate.
2.5 Discussion and Conclusion
As expected, training has a variety of positive effects on the financial and nonfinancial firm performance. These effects might be much broader than the results of
many previous studies suggest. We believe that these effects are of considerable
importance in terms of both theory and managerial implications. Therefore, we
identify and develop potential ideas for discussion and provide suggestions and
directions for future research on this topic.
We see a first opportunity for future research in the theoretical explanation of
why training might help to increase firm performance. As presented in the theoretical
framework for analysing training and firm performance issues in figure 2.1, training
34
Chapter 2: Training and firm performance: A review of literature
has directly improved HR outcomes (e.g., knowledge, skills, abilities, attitudes,
behaviors, and motivation of employees). By directly linking training with firm
performance, however, almost studies have ignored the potential mediating role of
these HR outcomes on the relationship. Thus, an important question is whether
training indeed unequivocally affects HR outcomes, which in turn impacts on firm
performance level. We suggest that future research should test the mediating effects of
HR outcomes, which could be useful in unravelling the relationship between training
and firm performance. In addition, although training activities are acknowledged to
play an important role in linking employees with firm performance, the specific form
- universal perspective or contingency perspective - of the relationship between
training and firm performance is still open to debate.
Second, although the review shows that training has positive and significant
effects on firm performance in specific sectors (the steel and software industries),
there are only two studies which follow by this approach - Ichniowski et al. (1996)
and Paul & Anantharaman (2003). Corresponding research results in other sectors
(e.g., food and tobacco, textiles and clothing, chemicals and petroleum, banking and
finance, etc.) will probably have different effects or views on the relationship between
training and firm performance. Therefore, future research needs to estimate the impact
of training on firm performance in other specific sectors in order to provide another
potentially interesting result on the relationship and contribute to the current literature
within the field.
Third, these previous studies have estimated the effects of training on firm
performance in many specific jobs and countries and its effects will continue to be
studied in the future. However, most of these studies have been implemented in
35
Chapter 2: Training and firm performance: A review of literature
developed countries (e.g., Aragon-Sanchez et al. 2003, Barrett & O’Connell, 2001;
Bishop, 1991; Faems at al., 2005; etc.), whereas the relationship between training and
organisational performance is not adequately addressed and studied in developing
countries. In addition, the impact of training for different types of employees (e.g.,
worker, supervisor, office staff, manager, etc.) and their performance might vary
according to job characteristics and locations. Therefore, there is an opportunity for
future research to examine the influence of training on firm performance follows job
characteristics, as well as the specific country.
Fourth, a number of researchers (e.g., Bishop, 1991; Fey et al, 2000) have used
a subjective method for their studies, whereas other studies (e.g. Aragon-Sanchez et
al. 2003, Bassi & Van Buren, 1998; Rodriguez & Ventura, 2003) have a low response
rate in terms of questionnaires or lack reliable data for estimation. As review in
previous sections, however, the results of the estimate depend on the accuracy of the
assumptions, and low response rate and lack of data may lead to incorrect results of
the studies. Thus, the methodological limitations of these studies open up
opportunities for future research. This direction is the more difficult and changelings
for future research. It requires a carefully designed questionnaire, well-chosen sample
size, suitable data-collection technique and measurement of variables, and wellchosen estimation framework.
Finally, this research may be important for practitioners dealing with training
and firm performance in the workplace because it clearly demonstrates that training
has a positive and significant impact on firm performance. Thus, training is a valuable
path to follow when an organisation would like to improve its performance. In
addition, in the light of our review and framework for analysing training and firm
36
Chapter 2: Training and firm performance: A review of literature
performance issues, managers could find some interesting clues to the advantages of
training, and its usefulness in their organisation. For instance, a company could
measure types of training for their employees (workers, supervisors, managers) in
order to gain a better understanding of how different types of training influence
financial and non-financial performance indicators. Managers could then decide when
and how to provide training programmes for their employees in order to obtain their
best performance.
In conclusion, the paper was a review of the literature on human resource
training and its effect on firm performance, and it developed and proposed a
framework for analysing training and firm performance issues in order to assess the
advantages and disadvantages of many previous studies (e.g., research design,
measurement of variables and firm performance, or estimation method, etc.), to
suggest directions for future research, and improve the accuracy of the research results
in the future on this topic. In addition, the review not only provides guidance for
future research but can also help practitioners and managers to decide on their human
capital investment plans as well as policy makers making macroeconomic decisions
regarding public funds for training.
37
Chapter 2: Training and firm performance: A review of literature
2.6 References
Ahmad, S., & Schroeder, R. G. 2003. The impact of human resource management
practices on operational performance. Journal of Operational Management, 21:
19−43.
Alliger, G. M., Tannenbaum, S. I., Bennett, W., Traver, H., & Shortland, A. 1997. A
meta-analysis on the relations among training criteria. Personnel Psychology,
50: 341−358.
Aragón-Sánchez, A., Barba-Aragon, I., & Sanz-Valle, R. 2003. Effects of training on
business results. International Journal of Human Resource Management, 14:
956−980.
Ballot, G., Fakhfakh, F., & Taymaz, E. 2001. Firms' human capital, R&D and
performance: A study on French and Swedish firms. Labour Economics, 8:
443−462.
Ballot, G., Fakhfakh, F., & Taymaz, E. 2006. Who benefits from training and R&D,
the firm or the workers. British Journal of Industrial Relations, 44: 473−495.
Barling, J., Weber, T., & Kelloway, E. 1996. Effects of transformational leadership
training on attitudinal and financial outcomes. Journal of Applied Psychology,
81: 827−832.
Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of
Management, 17: 99–120.
Barrett, A., & O'Connell, P. J. 2001. Does training generally work? The returns to incompany training. Industrial and Labor Relations Review, 54: 647−662.
38
Chapter 2: Training and firm performance: A review of literature
Bartel, A. P. 1994. Productivity gains from the implementation of employee training
programs. Industrial Relations, 33: 411–425.
Bartel, A. P. 1995. Training, wage growth and job performance: Evidence from a
company data-base. Journal of Labor Economics, 13: 401−425.
Bartel, A. P. 2000. Measuring the employer's return on investments in training:
Evidence from the literature. Industrial Relations, 39: 502−524.
Bassi, L. J., & Van Buren, M. E. 1998. State of the industry report. Training and
Development, 52(1): 21−43.
Becker, G.S. 1962. Investment in Human Capital: A theoretical analysis. Journal of
Political Economy 70: 9–49.
Bernthal, P., & Wellins, R. 2006. Trends in leader development and succession.
Human Resource Planning, 29(2): 31−40.
Birley, S., & Westhead, P. 1990. Growth and performance contrast between ‘types’ of
small firms. Strategic Management Journal, 11: 535−557.
Bishop, J. 1991. On the job training of new hires. In Market Failure in Training?
Edited by David Stern & Jozef M. M. Ritzen, (pp. 61–94). New York: SpringerVerlag.
Bishop, J. 1994. The Impact of Previous Training in Schools and on Jobs on
Productivity, Required OJT, and Turnover of New Hires, Private Sector and
Skill Formation: International Comparisons, edited by Lisa Lynch, National
Bureau of Economic Research, Chicago: Univ. of Chicago Press, 161–200.
Black, S. E., & Lynch, L. M. 1996. Human-capital investments and productivity. The
American Economic Review, 86: 263−267.
39
Chapter 2: Training and firm performance: A review of literature
Boon, M., & van der Eijken, B. 1998. Employee training and productivity in Dutch
manufacturing firms. Netherlands Official Statistics, 13: 19−24.
Bracker, J., & Cohen, D. J. 1992. Impact of training and development activities on
technology oriented entrepreneurial performance. Journal of Small Business
Strategy, 3: 1−14.
Cappelli, P., & Neumark, D. 2001. Do “high-performance” work practices improve
establishment-level outcomes? Industrial and Labor Relations Review, 54:
737−775.
Chapman, P.G. 1993. The economics of training, first edition. Exeter: BPCC
Whearons Ltd.
Cho, S., Woods, R., Jang, S., & Erdem, M. 2006. Measuring the impact of human
resource management practices on hospitality firms' performances. International
Journal of Hospitality Management, 25: 262−277.
Delaney, J. T., & Huselid, M. A. 1996. The impact of human resource management
practices on perceptions of organizational performance. Academy of
Management Journal, 39: 949−969.
Deng, J., Menguc, B., & Benson, J. 2003. The impact of human resource management
on export performance of Chinese manufacturing enterprises. Thunderbird
International Business Review, 45: 409−429.
Devanna, M.A., Fombrun, C.J., & Tichy, N.M. 1984. A framework for strategic
human resource management. In C.J. Fombrun, N.M. Tichy & M. A. Devanna
(Eds), Strategic human resource management, NY: Wiley, 33–55.
Ely, R. 2004. A field study of group diversity, participation in diversity education
programs, and performance. Journal of Organizational Behavior, 25: 755−780.
40
Chapter 2: Training and firm performance: A review of literature
Faems, D., Sels, L., DeWinne, S., & Maes, J. 2005. The effect of individual HR
domains on financial performance. International Journal of Human Resource
Management, 16: 676−700.
Fey, C., Bjórkman, I., & Pavlovskaya, A. 2000. The effect of HRM practices on firm
performance in Russia. International Journal of Human Resource Management,
11: 1−18.
Fey, C., & Bjórkman, I. 2001. Effect of human resource management practices on
MNC subsidiary performance in Russia. Journal of International Business
Studies, 32: 59−75.
Fitzgerald, W. 1992. Training versus Development. Training & Development 46
(May): 81.
García, M. 2005. Training and business performance: The Spanish case. International
Journal of Human Resource Management, 16: 1691−1710.
Ghebregiorgis, F., & Karsten, L. 2007. Human resource management and
performance in a developing country. International Journal of Human Resource
Management, 18: 321−332.
Guest, D.E. 1987. Human resource management and industrial relations. Journal of
Management Studies, 24(5): 503–521.
Huang, T. 2000. Are HR practices of effective firms distinctly different from those of
poorly
performing
ones.
International
Journal
of
Human
Resource
Management, 11: 436−451.
Huselid, M.A. 1995. The impact of human resource management practices on
turnover, productivity, and corporate financial performance. Academy of
Management Journal, 38: 35–72
41
Chapter 2: Training and firm performance: A review of literature
Ichniowski, C., Shaw, K., & Prennushi, G. 1997. The effects of human resource
management practices on productivity. American Economic Review, 87:
291−313.
Kalleberg, A. L.,& Moody, J.W. 1994. Human resource management and
organizational performance. American Behavioral Scientist, 37: 948−962.
Katou, A., & Budhwar, P. 2007. The effect of HRM policies on organizational
performance in Greek manufacturing firms. Thunderbird International Business
Review, 49(1): 1−35.
Khatri, N. 2000. Managing human resources for competitive advantage. International
Journal of Human Resource Management, 11: 336−365.
Kintana, M. L., Alonso, A. U., & Olaverri, C. 2006. High performance work systems
and firms' operational performance. International Journal of Human Resource
Management, 17: 70−85.
Koch, M. J., & McGrath, R. G. 1996. Improving labor productivity: Human resource
management policies do matter. Strategic Management Journal, 17: 335−354.
Kozlowski, S. W. J., & Klein, K. J. 2000. A multilevel approach to theory and
research in organizations: Contextual, temporal, and emergent processes. In K.
J. Klein & S. W. J. Kozlowski (Eds.), Multi-level theory, research, and methods
in organizations: Foundations, extensions, and new directions (pp. 3−90). San
Francisco, CA: Jossey-Bass.
Kozlowski, S. W. J., & Salas, E. 1997. An organizational systems approach for the
implementation and transfer of training. In J. K. Ford, S. W. J. Kozlowski,K.
Kraiger, E. Salas,&M. Teachout (Eds.), Improving training effectiveness in work
organizations (pp. 247−287).Mahwah,NJ: Erlbaum.
42
Chapter 2: Training and firm performance: A review of literature
Kozlowski, S., Brown, K., Weissbein, D., Cannon-Bowers, J., & Salas, E. 2000. A
multilevel approach to training effectiveness. In K. Klein, & S.Kozlowski
(Eds.), Multi level theory, research, and methods in organizations (pp.
157−210). San Francisco, CA: Jossey-Bass.
Kraiger, K., McLinden, D., & Casper, W. J. 2004. Collaborative planning for training
impact. Human Resource Management, 43: 337−351.
Krueger, A., & C, Rouse. 1998. The impact of workplace education on earnings,
turnover and job performance. Journal of Labor Economics, 16: 61−94.
Lawler, E. E., Mohrman, S. A., & Ledford, G. E. 1998. Strategies for high
performance organizations—The CEO report. San Francisco: Jossey-Bass
Publishers.
Lyau, N. M., & Pucel, D. J. 1995. Economic return on training investment at the
organization level. Performance Improvement Quarterly, 8(3): 68−79.
Mabey, C., & Ramirez, M. 2005. Does management development improve
organizational productivity? International Journal of Human Resource
Management, 16: 1067−1082.
Martell, K., & Carroll, S. J. 1995. Which executive human resource management
practices for the top management team are associated with higher firm
performance? Human Resource Management, 34: 497−512.
Martocchio, J.J., & Baldwin, T.T. 1997. The evolution of strategic organizational
training. In Research in Personnel and Human Resource Management, ed. RG
Ferris, 15:1–46. Greenwich, CT: JAI
Meschi, P. X., & Metais, E. 1998. A socio-economic study of companies through their
training policies. Management International Review, 38(1): 25−48.
43
Chapter 2: Training and firm performance: A review of literature
Newkirk-Moore, S., & Bracker, J. S. 1998. Strategic management training and
commitment to planning. International Journal of Training and Development, 9:
82−90.
Ng, Y.C., & Siu, Y.M. 2004. Training and enterprise performance in transition:
evidence from China. International Journal of Human Resource Management,
15: 878–894.
Ngo, H. Y., Turban, D., Lau, C. M., & Lui, S. 1998. Human resource practices of firm
performance of multinational corporations: Influences of country of origin.
International Journal of Human Resource Management, 9: 632−652.
Paul, A., & Anantharaman, R. 2003. Impact of people management practices on
organizational performance. International Journal of Human Resource
Management, 14: 1246−1266.
Phillips, J.J. ed. 1994. Measuring return on investment, Vol 1. Alexandria, VA:
American Society for training and development.
Pine, J., & Judith, C.T. 1993. ROI of soft-skills training. Training, 2: 55–60.
Rodríguez J.M., & Ventura J. 2003. Human resource management systems and
organizational performance: an analysis of the Spanish manufacturing industry.
International Journal of Human Resource Management, 14: 1206–1226.
Salas, E., & Cannon-Bowers, J.A. 2000. The anatomy of team training. In Training
and Retraining: A Handbook for Business, Industry, Government and the
Military, ed. S Tobias, D Fletcher. Farmington Hills, MI: Macmillan. In press
Salas, E., & Cannon-Bowers, J.A. 2001. The science of training: A decade of
progress. Annual Review of Psychology, 52: 417–499.
44
Chapter 2: Training and firm performance: A review of literature
Shaw, J. D., Delery, J. E., Jenkins, G. D., & Gupta, N. 1998. An organizational-level
analysis of voluntary and involuntary turnover. Academy of Management
Journal, 41: 511−525.
Schuler, R. S. 1989. Strategic human resource management and industrial relations.
Human Relations, 42: 157−184.
Schuler, R. S., & Jackson, S.E. 1987. Linking competitive strategies with human
resource management practices. Academy of Management Executive, 1: 207–
219.
Storey, D. J. 2002. Education, training and development policies and practices in
medium-sized companies in the UK. Omega, 30: 249−264.
Thang, L., & Quang, T. 2005. Antecedents and consequences of dimensions of human
resource management practices in Vietnam. International Journal of Human
Resource Management, 16: 1830−1846.
Tzafrir, S. 2005. The relationship between trust, HRM practices and firm
performance. International Journal of Human Resource Management, 16:
1600−1622.
Vandenberg, R., Richardson, H., & Eastman, L. 1999. The impact of high
involvement work practices on organization effectiveness. Group and
Organization Management, 24: 300−399.
Wiley, J. W. 1991. Customer satisfaction. Human Resource Planning, 14, 117−127.
Wright, P. C., & Geroy, G. D. 2001. Changing the mindset. International Journal of
Human Resource Management, 12: 586−600.
Wright, P. M., & McMahan, G. C. 1992. Theoretical perspectives for strategic human
resource management. Journal of Management, 18: 295−320.
45
Chapter 2: Training and firm performance: A review of literature
Wright, P.M., & Snell, S.A. 1991. Toward an integrative view of strategic human
resource management. Human Resource Management Review, 1: 203–225.
Zheng, C., Morrison, M., & O'Neill, G. 2006. An empirical study of high performance
HRM practices in Chinese SMEs. International Journal of Human Resource
Management, 17: 1772−1803.
Zwick, T. 2006. The impact of training intensity on establishments productivity.
Labour Economics, 11:715–740.
46
Chapter 2: Training and firm performance: A review of literature
2.7 Appendix
Table 2.1: The studies of the relationship between training and firm performance
No
Author/study
Sample
Respond
size
rate (%)
Firm performance
A. Data from a large sample of heterogeneous firms
1
Ahmad
&
107
60
Training has positive effects on employee’s
Schroeder (2003)
commitment
(r=.52**)
and
perceived
operational performance (r=.37**).
2
Aragon-Sanchez
457
9
Training has positive effects on quality (5 items,
α=.73).
et al. (2003)
3
Ballot
et
al.
290
(2001)
4
Ballot
et
al.
350
(2006)
Archival
Training led to increase ROI (288% for France
data
and 441% for Sweden)
Archival
Training has positive effects on value added per
data
worker (17.3% for France and 7.3% for
Sweden).
5
Barrett
&
215
33.5
General training has a significant positive effect
O’Connell
on productivity growth (r=.14**).
(2001)
6
7
Bartel (1994)
Barling
et
495
al.
20
Archival
Implementation
data
productivity by 6 % per year.
N/A
Training led to increase on credit card sales
(1996)
8
Bernthal
of
formal
training
raised
(r=.30) and personal loan sales (r=.40*)
&
127
Wellins (2006)
Convenien
Training has positive effects on operating cash
ce sample
flow/net sales, operating cash flow/ total assets,
profit margin, ROA, ROE (global benchmarking
study)
9
Birley
&
249
Westhead (1990)
10
Bishop (1994)
Archival
Training raised sales (r=.27**) of the companies
data
2594
75
100 hours of formal training for new hire led to
increased ROI ranged from 11% to 38% and has
positive effect on turnover.
47
Chapter 2: Training and firm performance: A review of literature
11
Black & Lynch
2945
64
10 % increase in average education will lead to
(1996)
an 8.5 % in crease in productivity in
manufacturing
and
a
12.7
%
in
non-
manufacturing.
12
Boon & van der
173
N/A
Training raised value added per employee and
Eijken (1998)
13
Bracker
gross output.
& 73
45
Training led to increase on sales, income, and
Cohen (1992)
14
Cappelli
firm present value.
&
1304
72
Training has positive effects on sales per
Neumark (2001)
15
Cho et al. (2006)
worker, productivity, labor efficiency.
78
36
Training has positive effects on turnover, labor
productivity, and ROA.
16
Delery
&
590
65
Training
Huselid (1996)
has
performance
positive
(r=.06*)
effects
and
on
market
firm
share
(r=.19**).
17
Deng
et
al
97
54
Training raised export intensity and average
(2003)
18
export sale growth over three years (r=.17**).
Ely (2004)
486
100
Training has positive effects on new sales
revenue
(r=.16*),
productivity
customer
satisfaction,
quality
(r=.21*),
and
speed
(r=.27*).
19
Faems
at
al. 416
28
Training has positive effects on net profitability
(2005)
(r=.10),
voluntary
turnover
(r=.03),
and
training
has
productivity (r=.15**).
20
Fey & Bjorkman
101
28
Technical
(2001)
and
non-technical
positive effects on overall firm performance
(r=.44**,
non-managerial
and
r=.48**,
managerial )
21
Fey et al (2000)
101
28
Technical
and
non-technical
training
has
positive effects on HR outcome(r=.23* to .51*)
& overall firm performance (r=.22* to .26*).
22
Garcia (2005)
78
19
Training led to sales per employee, employee
satisfaction (α=.79), client satisfaction (α=.70),
owner/ shareholder satisfaction (α=.71).
48
Chapter 2: Training and firm performance: A review of literature
23
Gelade & Ivery
137
49
Training has positive effects on sales (r=.19**),
(2003)
clerical accuracy (r=.18**), and customer
satisfaction (r=.37**).
24
Ghebregiorgis &
82
42
Training has positive effects on sales per
Karsten (2007)
employee(r=.-01), grievances (r=.05), voluntary
turnover (r=.25*), and absenteeism (r=-.01).
25
26
Guerrero
&
180
12
Training has positive effects on productivity
Barraud-Didier
(r=-.02), objective profitability (r=-.04), and
(2004)
product & services quality (r=.10*).
Harel & Tzafrir 76
35
Training raised market share (r=.53**).
5
Training
(1999)
27
Horgan
&
392
Muhlau (2006)
28
has
positive
effects
on
work
performance, cooperation, and discipline.
Huang (2000)
315
36
Training has positive effects on sale growth,
profit growth, ROI, ROS, turnover, and market
share.
29
Ichniowski et al.
36
60
Training has positive effects on production line
(1996)
uptime
and
overall
customer
satisfaction
(r=.44**).
30
Kalleberg
&
688
Moody (1994)
Archival
Training has positive effects on market share
data
(r=.22**), product quality (r=.18**), customer
satisfaction (r=-.01), and employee relations
(r=.10**).
31
Katou
& 178
30
Training has positive effects on perceived
Budhwar (2007)
effectiveness (r=.56**), efficiency (r=.57**),
innovation (r=.53**), and product quality
(r=.46**).
32
Khatri (2000)
194
24
Training has positive effects on sales growth
(r=.08), profit margin (r=.17**), and perceived
performance (r=.18**)
33
Kintana
et
al.
956
17
Training has positive effects on productivity
(2006)
34
Koch
(r=.04).
&
319
7
Training has positive effects on sales per
McGrath (1996)
employee.
49
Chapter 2: Training and firm performance: A review of literature
35
Lawler
et
al.
491
26
Training has positive effects on productivity,
(1998)
customer satisfaction, quality and speed (r=.13*
to .28*), profitability and competitiveness
(r=.16* to .33*).
36
Lyau & Pucel
131
55
Training led to increase value added per
(1995)
37
employee and sales per employee.
Mabey
&
179
N/A
Varies by training type led to increase operating
Ramirez (2005)
revenue per employee and reduce cost of
employee (r=.05 to .19*).
38
Martell
&
115
26
Training has positive effects on perceived
Carroll (1995)
39
business unit performance (r=.15**).
Meschi & Metais
102
44
Training led to increase return on investment.
152
49
Training led to raise ROA, ROE, overhead,
(1998)
40
Newkirk-Moore
&
Bracker
spread, and mixed results.
(1998)
41
Ng & Siu (2004)
485
62
1 percent increase in managerial training
induced increase in sales from 0.13 to 0.32
percent
42
Ngo et al. (1998)
253
20
Training has positive effects on perceived
competitive sales
(r=.21**),
new product
development (r=.35**), competitive net profit
(r=.31**), employee satisfaction (r=.32**).
43
Paul
& 34
76
Training has positive effects on ROI (r=.20**),
Anantharaman
net profit, sale, productivity, quality (r=.29**),
(2003)
speed of delivery (r=.12**), operating cost
(r=.22**), competence (r=.58**), and employee
commitment (r=.43**).
44
Rodriguez
&
120
5.4
Training has positive effects on ROA, total sales
Ventura (2003)
45
Shaw
et
growth, sales per employee, and turnover.
al 227
36
Training has positive effects on voluntary
(1998)
46
Storey (2002)
turnover (r=.19**).
314
22
Training led to raise GRATE (r=.01 to .15*),
cash flow (r=.06 to .14*), and profitability.
50
Chapter 2: Training and firm performance: A review of literature
47
Thang & Quang
137
9
There is a positive association of training and
(2005)
development with perceived market (r=.33**)
and firm performance (r=.45**).
48
Tzafrir (2005)
104
38
There is a positive association of training and
development with perceived market (r=.47**)
and firm performance (r=.66**).
49
Vandenberg
et
49
100
Training has positive effects on ROE (r=.02)
al. (1999)
50
and turnover (r=-.30*).
Wiley (1991)
200
100
Training has positive effects on store net sales
(r=-.40**) and customer satisfaction (r=.31**)
51
Zeng
et
al.
74
22
Training has positive effects on competency,
(2006)
52
turnover, and employee commitment.
Zwick (2006)
2079
Archival
1 percent increase in training in 1997 could
data
increase average productivity in the period
1998-2001 by more than 0.7 percent.
B. Data from a specific company survey
53
Bartel (1995)
1
1
Training was found to have a positive and
significant effect on ROI (49.7 %), job
performance, and productivity.
54
Krueger
&
2
2
Reading, writing, and math has positive effect
Rouse (1998)
on ROI (7 %) in manufacturing company,
turnover, absenteeism, and job performance in
both manufacturing and service company.
55
Pine &
Judith
(1993)/
1
1
Team work training led to increase ROI (125 %)
The
and
Garrett Engine
56
Phillips
(1994)/
have
positive
effects
to
equipment
downtime.
1
1
Interpersonal skills training led to increase ROI
Information
(336 %) and have positive effects to behaviors.
Serv. Inc
57
Phillips
Financial
(1994)/
1
1
Selection training led to increase ROI (2,140 %)
Serv.
and reduction in turnover of branch manager
Co.
58
Phillips
trainees.
(1994)/
1
1
Supervisory skills training led to increase ROI
U.S government
(150%) and have positive effects on the skills.
51
Chapter 2: Training and firm performance: A review of literature
59
Phillips
(1994)/
1
1
Customer lending training led to increase ROI
Midwest
(1,988 %) and net profit per loan.
Banking
60
Phillips
(1994)/
1
1
Time management training led to increase ROI
Multi-Marques
61
Phillips
(215 %)
(1994)/
1
1
Motivation, perform, and appraisal training led
Coca-Cola
to increase ROI (1,447 %) and sales, reduced
bottling Co. in
waste and absenteeism.
San Antonio
62
Carnevale
Schulz
&
1
1
Supervisory skills training led to increase ROI
(1990)/
(400 %) and have positive effects on production
Vulcan Materials
63
Phillips
(1994)/
Yellow
Freight
worker turnover.
1
1
Performance appraisal training led to increase
ROI (1,115 %).
System
64
65
Phillips
(1994)/
1
1
Customer services training led to increase ROI
International Oil
(501 %) and have positive effects on tracked
Co.
pullout costs and customer complaints.
Phillips
(1994)/
1
1
Literacy skills training led to increase ROI (741
Magnavox
%) and have positive effects on tracked average
Electronic
monthly efficiency.
Systems
66
Phillips
(1994)/
1
1
Tax professionals training led to increase ROI
Arthur Andersen
(100 %), and have positive effects on tracked
& Co.
fees and chargeable hours.
52
Chapter 2: Training and firm performance: A review of literature
Figure 2.1: A framework for analyzing training and firm performance issues.
HR outcomes
Firm performance
-
Knowledge, skills,
and abilities
-
-
Attitudes, behaviors,
and motivation
-
Training
Financial performance (ROI,
ROA, ROE, ROS, Sales,
Productivity, etc.)
Non-Financial performance
(Labor Turnover, Absence,
Conflict, Quality, etc)
Figure 2.2: Training, organizational strategy, and firm performance
Organizational strategy
Firm performance
-
Training
-
53
Financial performance (ROI,
ROA, ROE, ROS, Sales,
Productivity, etc.)
Non-Financial performance
(Labor Turnover, Absence,
Conflict, Quality, etc)
Chapter 3: Training and firm performance: The case of Vietnam
Chapter 3: The impact of training on firm performance: the
case of Vietnam1
Nguyen Ngoc Thang 2
Faculty of Economics and Business Administration, Ghent University
Dirk Buyens
Faculty of Economics and Business Administration, Ghent University & Vlerick
Leuven Gent Management School
Ngo Van Thu
Faculty of Mathematical Economics
Hanoi National Economics University
1
This paper is the product of a collaborative effort of Nguyen Ngoc Thang, Prof. Dr. Buyens and Dr.
Ngo Van Thu. The paper accepted for presentation at the 1st Asian Management and Entrepreneurship
Workshop, December 1-2, 2008, INSEAD, Brussels, Belgium. An earlier version of this paper was
published in Working Paper Series, Faculty of Economics and Business Administration, Ghent
University 08/538: 1-26
2
Corresponding author. E-mail: [email protected]. I am grateful to prof. Gerdie Everaert,
FEB, Ghent University for his helpful suggestions about econometrics and statistics.
54
Chapter 3: Training and firm performance: The case of Vietnam
Abstract
This study uses data from the Vietnam Employer Survey Instrument 2007 to measure
the impact of training on firm performance. The major findings indicate that
manufacturing companies that implemented training in 2006 had increased sales and
productivity. We found training had no statistically significant effect on sales and
productivity of non-manufacturing companies. In addition, manufacturing companies
that implemented training programmes after 2005 lead to an increase in both sales and
productivity per year between 2005 and 2006 but there is no statistically significant
effect on 2005-2006 percentage change in sales and productivity of nonmanufacturing companies if these companies provided training after 2005.
Keywords: Training; Sales; Productivity; Firm performance.
55
Chapter 3: Training and firm performance: The case of Vietnam
3.1 Introduction
Human resource academics and professionals together have identified training
policies that are critical for improving employee skills, firm performance, and
organisational survival (Schuler 1995) and are considered essential if a firm is to
remain competitive (Barney 1991; MacDuffie 1995; Salas & Cannon-Bowers, 2001).
Thus, training and its impact on firm performance are an important topic in the fields
of human resource management and industrial relations. A number of authors have
attempted to estimate the relationship between training programmes and productivity
using firm-level data (Bishop 1991; Bartel 1994; Tan & Batra 1995; Arthur, Bennett,
Edens & Bell 2003; Aragon-Sanchez, Barba-Aragon & Sanz-Valle 2003; Garcia
2005; and Zwick 2006). Bishop (1991) used the data from the Employment
Opportunities Pilot Projects (EOPP) Survey and a subjective measure method to link
training and productivity whereas Bartel (1994) used a standard Cobb-Douglas
production function and firm-level data from several economic sectors to estimate the
impact of training on firm productivity.
In the light of the international attention paid to the relationship between
training and firm performance, it is disturbing that the literature on this topic is so
limited in the Vietnamese context. In this paper, we use the data from the VESI 2007
and Cobb-Douglas production function to estimate the impact of training on firm
productivity and sales in Vietnam. Our approach to the study is facilitated by using
data that contain information on the value of sales, receipts or shipments, the book
values of capital stock, the cost of materials used in production during the calendar
years 2005 and 2006, the number of labor, employee training costs, and other related
information.
56
Chapter 3: Training and firm performance: The case of Vietnam
In an attempt to contribute to this research field, we provide an overview of the
literature on the effects of training on firm performance. A brief on the current
training situation in Vietnam and the research design are provided in the third and
fourth sections. Data collection and the estimation framework that are used for the
study are described in the fifth and sixth sections. Results and discussions are
presented in the seventh section and the last section is our conclusions.
3.2 Literature Review
Human capital resources include knowledge, skills, experience, etc controlled
by a firm that enable the firm to improve its performance, competitiveness,
innovation, efficiency and effectiveness (Daft, 1983; Martocchio & Baldwin, 1997;
Lawler & Ledford, 1998; Bassi & McMurrer 1998 ). The belief that employerprovided training has an impact on firm productivity has been prevalent among
academics for many years. Some of the studies (Barron et al. 1994 and Bishop 1994)
have looked at the relation between training and productivity by using a subjective
measure method of productivity. They have estimated the impact of training in the
first three months of employment on firm productivity using data from the 1982
EOPP survey with 659 companies. The survey included information on formal and
informal training, duration and intensity of training, wages, and productivity. Barron
and colleagues (1994) found that a 10 percent increase in training lead to 3.7 percent
increase in productivity. Besides data from the EOPP survey, Bishop (1994) used
another data set from the National Federation of Independent Businesses (NFIB)
survey to estimate the impact of training on firm productivity. The NFIB survey has a
larger sample of companies (2,599 companies) than the EOPP survey but the two
57
Chapter 3: Training and firm performance: The case of Vietnam
surveys have similar contents and focus on the most new hires. Bishop concluded
that formal training has no initial effect on anything but it increases current
productivity by 15.9 percent.
Another measure method (Holzer et al, 1993; Bartel 1994; Black & Lynch
1996a; and Boon &Van der Eijken 1998) is to use a firm-level dataset to estimate the
impact of training on productivity. Holzer and colleagues (1993), using data on total
hours of training and companies' outcomes from the Michigan Job Opportunity BankUpgrade programme between 1988 and 1989, estimated the effect of total hours of
training in the product scrap rate. They found that training had positive effects on the
quality of output. In addition, training has little effect within the first few years on
sales, but positive and marginally significant effects on short-term employment
changes. Bartel (1994) used data on the training policies and economic characteristics
of firms in the Columbia Business School survey to measure the impact of formal
training programmes on labour productivity. The survey contained information on
training activities, number of employees and output in 1983 and 1986. The major
finding of this study is that firms that were operating below their labour productivity
in 1983 and implemented training programmes after 1983 caused significant
productivity gains during the 1983-1986 periods. Bartel (1994) also found that returns
on training investment increased productivity by about 16 percent. Black & Lynch
(1996a) looked at the relationship between training and productivity by using the final
sample of 2,945 firms from the National Center on the Educational Quality of the
Workforce's National Employer Survey. They used a Cobb-Douglas production
function in their estimation and found that a 10 percent increase in average education
58
Chapter 3: Training and firm performance: The case of Vietnam
will lead to an 8.5 percent increase in manufacturing productivity and a 12.7 percent
increase in non-manufacturing productivity.
Although training plays an important role in a firm's skill provision, creates a
sustainable competitive advantage, and improves productivity for the firm, some
studies on productivity effects of training had contrary results. Using general and
specific training for their studies, Barrett & O’Connell (2001) found that the specific
training had no significant effect on productivity growth whereas Loewenstein &
Spletzer (1999) failed to demonstrate the impact of general training on firm
productivity. Schonewille (2001) found that general and specific training had no
significant effects on productivity. Ng & Siu (2004) estimated the impact of training
on firm performance in China by type of training (technical training and managerial
training) and they found that technical training had no impact on productivity.
The literature summarised above implies that training does not always improve
or impact on firm productivity. In addition, there is a lack of studies estimating the
impact of employer-provided training on firm performance in Vietnam. Therefore, the
following study not only provides an estimated specific case but also constitutes a
timely addition to the literature.
3.3 The current training situation in Vietnam
After more than 20 years of economic reforms, Vietnam’s economy has made
important achievements in the growth of industrial output and services. The number
of private and foreign companies has increased very quickly and attracted a large
amount of labour. In addition, Vietnam has been a member of the World Trade
Organisation since November 2006 and there is expected to be a surge in foreign
59
Chapter 3: Training and firm performance: The case of Vietnam
direct investment and international trade, which will undoubtedly lead to higher
growth in labour demand. Therefore, the Vietnamese government has identified
education as a primary national policy because highly qualified human resources are
considered one of the important driving forces in accelerating the industrialisation and
modernisation process and play a basic role in social development and rapid,
sustainable economic growth (Ministry of Planning and Investments, MPI, 2001).
Many state-funded projects have been launched for human resource training such as a
five-day training course offering information about laws and policies, production
strategies, and how to set up a company (Judge & Levine, 1997); a seven-day course
focusing on improving human resource management, marketing, finances and
technology skills (World Bank, 1997); or a 14-day course training business people in
consulting and marketing (Gross & Weintraub, 2005).
On the other hand, state-owned and private enterprises have also begun to
design many training programmes for their companies. The first group which
comprises state-owned enterprises provided training for 96 per cent of incumbent
employees and 62 per cent of new employees (Quang & Dung, 1998). Through
training, employees will upgrade their technical and problem-solving skills, and some
training courses motivate employees’ working spirit and improve employees’
behaviour. The second group contains joint-venture companies and foreign-owned
companies, which tend to provide more training for employees than is provided by
state-owned enterprises. The companies in this group often seek collaboration with
education institutions or consultancy companies to organise short courses for their
employees (Quang, 1997). The training provided concentrates more on behavioural,
technical and professional skills. The third group (Thang & Quang, 2007) includes
60
Chapter 3: Training and firm performance: The case of Vietnam
small and medium-sized enterprises. They seldom have formal human resources
departments and training investment. Hence, training activities are generally
implemented by education institutions or consultancy companies. Vietnamese
government plays an important role in training skilled workforces for these
enterprises.
3.4 Research Design
The Vietnam Employer survey was designed and administered by an
individual group of researchers at Ghent University. It was a mail survey that was sent
in July and August 2007 to a nationally representative sample of Vietnamese
companies. The focus of the questionnaire was on firm characteristics (total value of
revenues, sales, or receipts; total value of capital or the cost of goods and materials
used in production), use of education and training investments (types of training
programs, total cost of training programmes, reasons of establishment training,
sources of trainers, government grants or subsidies for training), employment and
work organization (the number of employees, benchmarking programs, TQM
programme, flex-time, company strategies). This is the first survey of workplace
practices collecting information that has allowed us to estimate the impact of training
and other factors on firm productivity in Vietnam.
The Vietnam questionnaire differs from other national surveys by: (1) focusing
on the interaction of establishment practice, organisational structure, and workforce
proficiency; (2) looking at how employers satisfy their needs for skilled employees,
employers’ attitudes towards schools as current and potential suppliers of skilled
employees; and (3) measuring the outcomes of both formal and informal training.
61
Chapter 3: Training and firm performance: The case of Vietnam
Therefore, the Vietnam Questionnaire focuses on the following characteristics: (1)
firm characteristics; (2) training investments of organisations; and (3) employment
and work organisation. For instance, with respect to firm characteristics, the major
questions asked in our questionnaires were:
(1) What kind of your establishment?
(2) What was your establishment’s total value of sales, receipts, or shipments
(gross revenues, sales, or receipts) for calendar year 2005 and 2006?
(3) At the end of calendar year 2005 and 2006, what was the total book value
of the fixed capital stock in your establishment (for example, structures,
equipment, furniture, vehicles, and others)?
(4) At the end of calendar year 2005 and 2005, what was the cost of goods and
services used in the production of your sales (for example, energy costs, raw
materials, and intermediate goods)?
The questions in this part will be colleted information for sales and
productivity dependent variables as well as for capital, cost variables, and kind of
establishment (domain activity).
With respect to training investments of organizations, we concentrated on
these following main questions:
(1) What was your establishment’s total cost of training programs for calendar
year 2005 and 2006?
(2) Are any of the following reasons the cause of your establishment training?
(3) Does your establishment evaluate the effectiveness of training programs?
With respect to employment and work organization, we asked companies
some following major questions:
62
Chapter 3: Training and firm performance: The case of Vietnam
(1) How many employees were on your payroll at the end of calendar year
2005 and 2006?
(2) What percentages of your currently employed workers have been with the
firm for less than one year?
(3) Does your establishment implement any of the following strategies?
Cost strategy
Quality strategy
Flexibility strategy
The questions in the training part collected information for the training cost
variable, whereas the questions on employment and work organisation included data
for the report labour variable as well as a number of dummy variables such as cost
strategy, quality strategy, flexibility strategy, Total Quality Management, flexible
time programme, and percentages of your currently employed workers who had been
with the firm for less than one year.
The main focus of our research was the inter-section between employers'
practices and human capital in those companies. Therefore, we could not choose small
companies because they could not provide enough information such as value of sales,
book value of the fixed capital stock, cost of goods and services, HR training policies,
or work organisation characteristics. Other small companies did not maintain a
separate line item for training in the budget, or they were not sure about expenditure
data for the training costs. Non-governmental and non-profit organisations, public
administrative organisations, and corporate headquarters were not included in the
sample.
63
Chapter 3: Training and firm performance: The case of Vietnam
3.5 Data Collection
In the case of Vietnam, the survey had a sampling frame that included both the
manufacturing firms (food and tobacco, textile and clothing, wood and paper, printing
and publishing, chemicals and petroleum, primary metal, machinery and computers,
electrical machinery, and miscellaneous manufacturing) and non-manufacturing firms
(construction, transportation service, communication, wholesale trade, finance and
banking, insurance, hotels, business services) in July and August 2007. A nationally
representative sample of 1,000 companies was drawn from several industries by using
the 2007 telephone directory for Vietnam.
The purpose of this survey was to collect information on a broad range of firm
characteristics, training activities, training costs, reasons for training, kind of training,
employment and work organisation. The survey did not ask for information on the
amount of time employees spent on the training programme. Therefore, T stands for
the information regarding to the training costs of the company each year. For each
questionnaire in the survey, output Y is measured by the VND of sales, receipts, or
shipments and K is measured by fixed capital stock of the company at the end of the
calendar year. Reported labour (RL) is measured as the number of employees in the
companies.
The initial contacts for this study were the general managers of the companies
or business units at each site. We mailed each company a cover letter and
questionnaire
measuring firm characteristics, training activities, and work
organisation, but response was insufficient and non-respondents were eventually
phoned. A final total of 196 companies participated in the study. Hence the response
rate based on the 1,000 companies was 19.6 percent. Appendix tables 3.1 and 3.2
64
Chapter 3: Training and firm performance: The case of Vietnam
present the distribution of the sample by industry and summary statistics of major data
of the survey.
While we were computing a mean and a standard deviation of all these
variables in the survey, it was found that the standard deviation is much larger than
the mean (appendix table 3.2). This means that the population is not normally
distributed. As a consequence of the non-normal distribution, we could not use raw
data for a regression because it is only valid if we can assume that the data follow a
normal distribution type, otherwise the results of regression might be underestimated
(Damodar, 1995; Keller, 2009). In this context, one often tries to normalise the range
of the variables properly before the computation. The suggested method for dealing
with non-normal distributions is to use data transformation (Levin & Rubin, 1998;
Keller, 2009). We decided that logarithm transformation was suitable because logtransformed data fitted very well with our estimation framework. We converted the
raw data (K, RL, and T) into transformed data by taking logarithms of all these
variables. LnK, lnRL, and lnT were normally distributed as shown in appendix table
3.3 because all the means of logarithm variables were much larger than standard
deviations.
3.6 The Estimation Framework
Analogously to the previous studies (Bartel 1994; Black & Lynch 1996a;
Barrett & O’Connell 2001; Ng & Siu 2004; and Zwick 2006), we assume the
production function to be adequately described by a Cobb-Douglas specification
because the Cobb-Douglas functional form of production functions is widely used to
represent the relationship of an output to inputs. Another important reason, however,
65
Chapter 3: Training and firm performance: The case of Vietnam
is this function will help us to solve non-normal distribution problem. More
specifically, in appendix table 3.2, we identify that the raw data of our survey do not
have a normal distribution. Therefore, when we used the Cobb-Douglas production
function, we transformed data from non-normal distribution to normal distribution
(appendix table 3.3). Returning to our study, output Y of a company is a function of
three inputs, capital K, reported labour RL, and training T. The production function
can be written as:
Y = A*Kβ *RLγ *Tλ
(1)
Where A is an efficiency parameter, and β, γ and λ are numbers greater than
zero. Output elasticity measures the responsiveness of output to a change in levels of
either labour or capital used in production. This means that if β = 0.15, a 1% increase
in capital would lead to approximately a 0.15% increase in output. The model (1) is
nonlinear in the variables Y, K, RL, or T. Thus, if we log-transform model (1) and we
add a vector of control variables X, we obtain:
Ln(Y) = lnA + βlnK + γ lnRL +λlnT + αX
(2)
We divide equation (1) through report labour and take logarithms of both
sides. We get the following function:
Ln(Y/RL) = lnA + βlnK + (γ-1) lnRL +λlnT + αX
(3)
The models (2) and (3) are linear on the parameters lnA, β, γ, γ-1, λ and are
therefore a linear regression models. This means that models (2) and (3) are nonlinear
in the variables Y, K, RL, or T but linear in the logarithm of these variables. Thus, we
need to calculate logarithms of the above variables before we apply some regressions.
Appendix table 3.3 presents the distribution of these variables.
66
Chapter 3: Training and firm performance: The case of Vietnam
The equation (3) presents a model of productivity from which we will estimate
the impact of training on productivity. However, there are many factors relevant to
company productivity besides capital, labour and training factors. Thus, in order to
avoid omitting variable bias and to eliminate unobserved heterogeneity in productivity
levels, we use the deferent equation of the models (2) and (3), and now have the
following models to estimate the parameter change of sale and productivity:
Ln(Yi) - Ln(Yi-1) = a + β(lnKi - lnKi-1) + γ(lnRLi - lnRLi-1) + λ(lnTi - lnTi-1) +
wi
(4)
Ln(Yi /RLi) - Ln(Yi-1 /RLi-1) = a + β(lnKi - lnKi-1 ) + (γ-1)(lnRLi - lnRLi-1) +
λ(lnTi - lnTi-1) + wi
(5)
A change in training provided previously may be related to a change in
productivity in the near future. Hence, the first advantage of equations (4) and (5) is
forecasting whether training provided in 2005 brought firm sales and productivity
growth between 2005 and 2006. Second, all unobserved effects that might be
correlated with any of the independent variables are removed.
3.7 Results and discussion
Before estimating the equations (2) and (3), we will present some descriptive
statistics on the major variables of the companies in table 3.4. Dependent variables
include logarithm of productivity 2006 (ln(Y/RL) and log Sales (ln(Y)).
According to the framework, company increase in training might lead to an
increase in sales but not an increase in productivity because productivity (Y/RL)
depends on both sales and reported labour. There were a number of studies (Bassi &
Van Buren, 1998; Bernthal & Wellins, 2006; Fraser et al, 2002; Ghebregiorgis &
67
Chapter 3: Training and firm performance: The case of Vietnam
Karsten, 2007; Wiley, 1991) estimated the impact of training on firm sales whereas
other studies (Ballot et al, 2006; Faems et al, 2005; Lyau & Pucel, 1995; and Mabey
& Ramirez, 2006) investigated the impact of training on firm productivity. Therefore,
we chose to estimate the impact of training on both sales and productivity because we
would like to provide for readers with a full picture about the relationship between
training and sales and productivity. Other dependent variables are 2005-2006 percent
change in productivity and sales.
There are several independent variables above these equations. First, an
independent variable is the log of 2006 book value of the capital for a calendar year
for company n. Second, an independent variable is the log of 2006 reported labour.
Reported labour is measured by the number of employees at the end of the calendar
year 2006. Third, a training variable is measured by the cost of training. Table 3.4
summarises the dependent and independent variables used in our study.
We use all the above variables for equations (2) and (3) and simultaneously
control for possible multicollinearity among the variables (Damodar, 1995; Keller,
2009). The last results of regression are presented in table 3.5 and table 3.6. All
remaining variables are highly significant.
In table 3.5, we present the results of estimating equation (3) using 2006
labour productivity as the dependent variable. In row 7 of table 3.5, the training
variable has significant impact on productivity of manufacturing companies. A 1
percent increase in training cost lead to a 0.18 percent increase in productivity in a
manufacturing company. It could be argued that training plays an important role in
improving productivity of a manufacturing company. This result may shed some light
68
Chapter 3: Training and firm performance: The case of Vietnam
on the importance of providing training for employees in organisations in emerging
countries.
Other interesting results in column 2 of table 3.5, we can see that the training
of the manufacturing company has the smallest significant impact on productivity
compared with the capital variable and the report labour variable. More specifically, a
1 percent increase in capital will lead to a 0.59 percent increase in manufacturing
productivity while a 1 percent increase in labour will lead to a 0.77 percent decrease
in manufacturing productivity. In addition, the capital variable and the reported labour
variable also have a significant impact on productivity of the non-manufacturing
company. In column 3 of the table 3.5, the implied coefficient would suggest that for
a 1 percent increase in capital, productivity would rise by 0.38 percent while a 1
percent increase in labour, productivity would reduce by 0.32 percent.
As discussed in the first paragraph of this section, since a model to estimate
2006 productivity of the company in the survey is in use, another model (equation 2)
of the determinant of 2006 sales is estimated in which the dependent variable is the
sales of the company in the sample and the independent variables are the summary
statistics of principal variables in table 3.6. The results of the equation (2) estimation
using 2006 sales as the dependent variable are shown in table 3.6. The training
variable is an important determinant of company sales and has significant effect in
both the manufacturing and non-manufacturing sectors. The estimated coefficient in
the Cobb-Douglas model indicates that a 1 percent increase in training will lead to a
0.18 percent increase in sales in manufacturing companies.
In tables 3.5 and 3.6, we can see that training has no significant effect on sales
and productivity in non-manufacturing companies. There are two possible reasons.
69
Chapter 3: Training and firm performance: The case of Vietnam
First, training might be effective in sales and productivity after 2006. Second, when
employees attending training programmes, the large amount of output might loss
associated with on-the-job training. Unfortunately, our survey does not allow us to
explore these possibilities in more detail.
Row 5 of table 3.6 shows that the number of labour variable has a positive
impact on sales of both manufacturing and non-manufacturing companies. More
specifically, a 1 percent increase in labour will lead to a 0.23 percent and 0.68 percent
increase in sales respectively. Therefore, we can conclude that the number of
employees in manufacturing companies had less effect on sales compared with nonmanufacturing companies in the survey.
However, the capital in manufacturing
companies had the strongest effect on sales compared with non-manufacturing
companies. The estimated coefficient would suggest that for a 1 percent increase in
capital, sales would rise by 0.59 percent and 0.38 percent for manufacturing firms and
non-manufacturing firms respectively.
The next step in the analysis is to consider whether the implementation of
these training programmes led to significant increases in productivity and sales after
2005. We use equations (4) and (5) to estimate changes of labour productivity and
sales of the company. In order to estimate equations (4) and (5), information relating
to the companies in year 2005 is needed and results are shown in tables 3.7 and 3.8.
In table 3.7, equation (5) was used to consider whether the companies that
implemented training programmes led to raise their sales after 2005. The results show
that the estimated coefficient on training has a significant effect in the manufacturing
company group, indicating that companies that implemented training programmes
after 2005 had an increase in productivity per year between 2005 and 2006 (b = 0.32,
70
Chapter 3: Training and firm performance: The case of Vietnam
p < 0.05). We find that training has no statistically significant effect on 2005-2006
percentage change in sales of non-manufacturing companies. In addition, the reported
labour variable has an effect on the 2005-2006 percentage change in productivity of
manufacturing companies (b = -0.73, p < 0.05) whereas the capital variable has an
effect on the 2005-2006 percentage change in productivity of manufacturing and nonmanufacturing companies (b = 0.23, p < 0.05 and b = 0.67, p < 0.05 respectively).
According to equation (3), we can argue that the companies that implemented
training after 2005 reduced the size of their workforces and each worker would be
performing more tasks more efficiently. This would have created an increase in output
per worker. However, the companies in the survey that implemented training
programme after 2005 actually raised the size of their workforce between 2005 and
2006 (data collected from question 20 on size of workforce). Therefore, we can
conclude that the argument is rejected by the data.
Equation (4) was used to consider whether the companies that implemented
training programmes led to the sales rise of these companies after 2005 and results are
shown in table 3.8. Similarly to the results in table 3.7, training has a significant effect
on the 2005-2006 percentage change in sales of manufacturing companies (b = 0.32, p
< 0.05) but has no statistically significant effect on the 2005-2006 percentage change
in productivity of non-manufacturing companies. In addition, the capital variable has
an effect on the 2005-2006 percentage change in sales of both manufacturing (b =
0.23, p < 0.05) and non-manufacturing companies (b = 0.67, p < 0.05). The reported
labour variable has no effect on the 2005-2006 percentage change in sales of either
manufacturing or non-manufacturing companies.
71
Chapter 3: Training and firm performance: The case of Vietnam
3.8 Conclusions
The results from VESI 2007 show clearly that most employers in Vietnam
provide some type of training for their employees, although there is a variation among
different companies according to size and industry. It means that employers believe
that training frequently improves employees’ skills and boosts their motivation. This,
in turn, leads to higher productivity and profits. The training costs are relative to the
number of workers employed by the companies. Those with more staff are more
likely to provide training programmes than smaller companies. The decision about
training investments by employers also differs according to their group of employees,
skills of newly hired employees, timing, and location. As in other countries, mediumsized companies in Vietnam are less likely to offer computer, teamwork, or basic
education training. In addition, as outsourcing of training increases, some training
programmes have been provided by consultants outside these companies.
The study has used company-level data to examine the impact of employee
training and firm performance in Vietnam. The major findings indicate that
manufacturing companies that increased training in 2006 will lead to significant
increases in sales and productivity. However, we found that training has no
statistically significant effect on sales and productivity of non-manufacturing
companies. In addition, manufacturing companies that implemented training
programmes after 2005 will see to an increase in both sales and productivity per year
between 2005 and 2006. We also found no statistically significant effect on 20052006 percentage change in sales and productivity of non-manufacturing companies if
these companies provided training after 2005. The findings mean that a relationship
72
Chapter 3: Training and firm performance: The case of Vietnam
between training and firm performance exists, not only at the level of the individual
employee, as demonstrated in previous studies, but also at company level.
Our study was designed to overcome some limitations of previous studies
using subjective estimates of productivity and sales and collects more data on firm
characteristics, education and training characteristics, and employment and work
organisation characteristics. However, we may still not be capturing all company
characteristics linked to firm performance because there is an increasing concern
about organisation characteristics for the production framework. In addition, we only
estimated the effects of training on productivity and sales. Therefore, we provide the
following recommendations for future research.
First, we suggest that future research needs to analyse the various dimensions
of employee training programmes, such as formal and informal employee training, the
type of training methods and design, the type of employees trained, and time spent by
employees in training.
Second, we have estimated the impacts of training on sales and productivity.
Therefore, there is an opportunity for future research to estimate the impacts of
training on other non-financial firm performance.
Third, the effects of training on firm performance of each sector (e.g., textile
and clothing, wood and paper, chemicals and petroleum, construction industry,
finance and banking, insurance, hotels, business services) may vary. Thus, more
studies on the relationship between training and firm performance for specific sectors
are needed.
Fourth, it is important to examine how organisational strategies moderate the
relationship between human resource training and firm performance.
73
Chapter 3: Training and firm performance: The case of Vietnam
Fifth, the international comparison of relationship between training and firm
performance is required in order to provide an overall picture of human capital
investment.
Finally, cooperation between companies and the statistics agency of
government is necessary in order to collect data and information on training,
establishment characteristics and workplace practices every year.
74
Chapter 3: Training and firm performance: The case of Vietnam
3.9 References
Aragón-Sánchez, A., Barba-Aragon, I., & Sanz-Valle, R. 2003. Effects of training on
business results. International Journal of Human Resource Management, 14:
956−980.
Arthur, W. A., Jr.,Bennett, W., Jr., Edens, P. S., & Bell, S. T. 2003. Effectiveness of
training in organizations: A Meta-Analysis of Design and Evaluation Features.
Journal of Applied Psychology, 88: 234−245.
Ballot, G., Fakhfakh, F., & Taymaz, E. 2006. Who benefits from training and R&D,
the firm or the workers? British Journal of Industrial Relations, 44: 473−495.
Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of
Management, 17: 99–120.
Barrett, A., & O'Connell, P.J. 2001. Does training generally work? The returns to incompany training. Industrial and Labor Relation Review, 54(3):647–62.
Barron, J., Berger, M., & Black, D. 1994. How Well Do We Measure Training?
Mimeo, Purdue University.
Bartel, A. P. 1994. Productivity gains from the implementation of employee training
programs. Industrial Relations, 33: 411–425.
Bassi, L. J., & McMurrer, D. P. 1998. Training investment can mean financial
performance. Training and Development, 52(5): 40−42.
Bassi, L. J., & Van Buren, M. E. 1998. State of the industry report. Training and
Development, 52(1): 21−43.
Bernthal, P., & Wellins, R. 2006. Trends in leader development and succession.
Human Resource Planning, 29(2): 31−40.
75
Chapter 3: Training and firm performance: The case of Vietnam
Bishop, J. 1991. On-the-job Training of New Hires, in Market Failure in Training?
ed. David Stern and Jozef M. M. Ritzen, New York: Springer-Verlag, pp. 61–98.
Bishop, J. 1994. The Impact of Previous Training on Productivity and Wages, in
Training and the Private Sector: International Comparisons ed. Lynch, L,
Chicago: University of Chicago Press.
Black, S., & Lynch, L. 1996a. Human Capital Investments and Productivity.
American Economic Review (Papers & Proceedings) 86(2): 263–67.
Boon, M., & van der Eijken, B. 1998. Employee training and productivity in Dutch
manufacturing firms. Netherlands Official Statistics, 13: 19−24.
Daft, R. 1983. Organizational theory and design. New York: West.
Damodar N. G., 1995. Basic econometrics. Third Edition. McGraw-Hill, New York.
Faems, D., Sels, L., DeWinne, S., & Maes, J. 2005. The effect of individual HR
domains on financial performance. International Journal of Human Resource
Management, 16: 676−700.
Fraser, S., Storey, D., Frankish, J., & Roberts, R. 2002. The relationship between
training and small business performance. Environment and Planning C, 20(2):
211−233.
García, M. 2005. Training and business performance: The Spanish case. International
Journal of Human Resource Management, 16: 1691−1710.
Ghebregiorgis, F., & Karsten, L. 2007. Human resource management and
performance in a developing country. International Journal of Human Resource
Management, 18: 321−332.
Gross, A., & Weintraub, R. 2005. Vietnam Human Resources Update, Wisconsin:
Pacific Bridge, Inc.
76
Chapter 3: Training and firm performance: The case of Vietnam
Holzer, H., Block, R., Cheatham, M., & Knott, J. 1993. Are Training Subsidies for
Firms Effective? The Michigan Experience. Industrial and Labor Relations
Review, 46: 625–636.
Judge, M., & Levine, J. 1997. Good fences, bad neighbours, Vietnam Business
Journal, 24(12): 24.
Keller, G. 2009. Managerial Statistics. Eighth Edition. South-Western, Ohio.
Lawler, E. E., Mohrman, S. A., & Ledford, G. E. 1998. Strategies for high
performance organizations - The CEO report. San Francisco: Jossey-Bass
Publishers.
Levin, R., & Rubin, D. 1998. Statistics for Management. Seventh Edition, Prentice
Hall, New Jersey.
Loewenstein, M.A., & Spletzer, J.R. 1999. General and Specific Training: Evidence
and Implications. Journal of Human Resources, 34(4): 710–33.
Lyau, N. M., & Pucel, D. J. 1995. Economic return on training investment at the
organization level. Performance Improvement Quarterly, 8(3): 68−79.
Mabey, C., & Ramirez, M. 2005. Does management development improve
organizational
productivity?
International
Journal
of
Human
Resource
Management, 16: 1067−1082.
MacDuffie, J. P. 1995. Human resource bundles and manufacturing performance:
Organizational logic and flexible production systems in the world auto industry,
Industrial and Labor Relations Review, 48: 197–221.
Martocchio, J. J., & Baldwin, T. T. 1997. The evolution of strategic organizational
training. Research in Personnel and Human Resources Management, 15: 1−46.
77
Chapter 3: Training and firm performance: The case of Vietnam
Ministry of Planning and Investment 2001. The socio-economic development strategy
in the period of 2001–2010. Hanoi: Statistics House.
Ng, Y.C., & Siu, Y.M. 2004. Training and enterprise performance in transition:
evidence from China. The International Journal of Human Resource
Management, 15: 878–894.
Quang, T., & Dung, H. K. 1998. Human resource development in state-owned
enterprises in Vietnam. Research and Practice in Human Resource Management,
6: 85–103.
Quang, T. 1997. Sustainable economic growth and human resource development in
Vietnam. Transitions, 38, (1 & 2): 255–80.
Salas, E., & Cannon-Bowers, J. A. 2001. The science of training: A decade of
progress. Annual Review of Psychology, 52: 471−499.
Schonewille, M. 2001. Does Training Generally Work? Explaining Labour
Productivity Effects form Schooling and Training. International Journal of
Manpower, 22(1/2): 158–72.
Schuler, R.S. 1995. “Human resource management” in The International
Encyclopaedia of Business and Management Handbook of Human resource
management (2001), ed. Poole, M & Warner, M., London: Thomson Learning.
Tan, H.W., & Batra, G. 1995. Enterprise Training in Developing Countries:
Incidence, Productivity Effects and Policy Implication. Unpublished paper, The
World Bank.
Thang, N.N., & Quang, T. 2007. International Briefing 18: Training and Development
in Vietnam, International Journal of Training and Development, 11(2): 139–149.
Wiley, J. W. 1991. Customer satisfaction. Human Resource Planning, 14: 117−127.
78
Chapter 3: Training and firm performance: The case of Vietnam
World Bank 1997. Vietnam Deepening Reform for Growth. Report No. 17031-VN
(Washington, DC: World Bank).
Zwick, T. 2006. The impact of training intensity on establishments productivity.
Labour Economics, 11(6): 715–40.
79
Chapter 3: Training and firm performance: The case of Vietnam
3.10 Appendix
Table 3.1: Distribution of Sample by Industry
Cumulative
Industry
Frequency
Percent
Percent
Manufacturing
Food and Tobacco
Textile and Apparel
Lumber and Paper
Printing and Publishing
Chemicals and Petroleum
Primary Metals
Fabricated Metals
Machinery & Computers, Electrical
Machinery, and Instruments
Transportation Equipment
Miscellaneous Manufacturing
22
11.22
11.22
7
3.57
14.79
17
8.67
23.46
7
3.57
27.04
15
7.65
34.69
5
2.55
37.24
32
16.33
53.57
16
8.16
61.73
24
12.24
73.98
3
1.53
75.51
7
3.57
79.08
7
3.57
82.65
6
3.06
85.71
5
2.55
88.26
5
2.55
90.81
6
3.06
93.87
3
1.53
95.40
6
3.06
98.46
1
0.51
98.98
2
1.02
100.0
100
Non-Manufacturing
Construction
Transportation Services
Communication
Utilities
Wholesale Trade
Retail Trade
Finance
Insurance
Hotels
Total
196
80
Chapter 3: Training and firm performance: The case of Vietnam
Table 3.2: Summary Statistics of major companies' data of the survey
Mean
Unit
S.D
Sales, receipts or shipments
2005 (y2005)
mill VND
267786
399108
326191
471740
266238
816208
312275
824151
247545
349527
285532
406758
622.0
1496.7
678.6
1641.4
229.6
370.9
300.7
532.3
455.2
391.3
555.7
617.5
0.24
0.48
0.25
0.41
Sales, receipts or shipments
2006 (y2006)
mill VND
Book value of capital stock
2005 (k2005)
mill VND
Book value of capital stock
2006 (k2006)
mill VND
Total cost of good and services
2005(c2005)
mill VND
Total cost of good and services
2006(c2006)
mill VND
Total labor force 2005 (rl2005)
Person
Total labor force 2006(rl2006)
Person
Total training cost 2005(t2005)
mill VND
Total training cost 2006(t2006)
mill VND
Total training cost 2005/
VND/per
Total labor force 2005
person
Total training cost 2006/
VND/per
Total labor force 2006
person
Total training cost 2005/
Total cost of good and services
2005
%
Total training cost 2006/
Total cost of good and services
2006
%
81
Chapter 3: Training and firm performance: The case of Vietnam
Table 3.3: Summary Statistics of major companies' data of Principal Variables
Mean
Unit
S.D
Ln (y2005)
mill VND
18.5401
1.43234
Ln (y2006)
mill VND
18.7550
1.39097
Ln (k2005)
mill VND
18.2647
1.67546
Ln (k2006)
mill VND
18.4506
1.71607
Ln (c2005)
mill VND
18.4580
1.44221
Ln(c2006)
mill VND
18.6045
1.40559
Ln (rl2005)
Person
5.7868
1.04628
Ln (rl2006)
Person
5.8820
1.02375
Ln (t2005)
VND
11.7138
1.09657
Ln (t2006)
VND
11.9439
1.10764
12.7533
1.16954
12.8730
1.12458
5.9270
.59326
6.0619
.65424
Ln (y2005/ rl2005)
mill VND
Ln (y2006/ rl2006)
mill VND
Ln (t2005/ rl2005)
VND/per
person
Ln (t2006/ rl2006)
VND/per
person
Ln ( t2005/ c2005)
%
-2.1391
1.15745
Ln ( t2006/ c2006)
%
-2.0554
1.15296
82
Chapter 3: Training and firm performance: The case of Vietnam
Table 3.4: Summary Statistics of Principal Variables
Dependent variables:
Logarithm of productivity 2006
Logarithm of sales 2006
2005-2006 percent change in productivity
2005-2006 percent change in sales
Independents variables:
Logarithm of capital 2006,
Logarithm of report labor 2006,
Logarithm of training
83
Chapter 3: Training and firm performance: The case of Vietnam
Table 3.5: Dependent variable: Log (Productivity 2006) (T-values in parentheses)
Dependent variable Ln (Y/RL)
Independent variable
Manufacturing
Non-Manufacturing
Constant
4.19**
10.24**
(4.45)
(6.78)
0.59**
0.38**
(12.45)
(3.93)
-0.77**
-0.32**
(-7.07)
( -1.08)
0.18*
-0.17
(1.63)
(-0.78)
N=
155
41
2
0.55
0.32
Ln (Capital)
Ln (Report labor)
Ln (Training)
R
Note:
T-tests are given in parentheses.
*Significance at the 0.1 level.
**Significance at the 0.05 level.
84
Chapter 3: Training and firm performance: The case of Vietnam
Table 3.6: Dependent variable: Log (Sale 2006) (T-values in parentheses)
Dependent variable Log (Y)
Independent variable
Manufacturing
Non-Manufacturing
Constant
4.19**
10.24**
(4.45)
(6.78)
0.59**
0.38**
(12.45)
(3.93)
0.23**
0.68**
(2.10)
( 2.27)
0.18*
-0.17
(1.63)
(-0.78)
N=
155
41
2
0.72
0.59
Ln (Capital)
Ln (Report labor)
Ln (Training)
R
Note:
T-tests are given in parentheses.
*Significance at the 0.1 level.
**Significance at the 0.05 level.
85
Chapter 3: Training and firm performance: The case of Vietnam
Table 3.7: Dependent variable: 2005-2006 Percent change in productivity (T-values in
parentheses)
Dependent variable: 2005-2006 Percent change in productivity
Independent variable
Manufacturing
Non-Manufacturing
Constant
0.07*
0.08
(1.72)
(0.87)
0.23**
0.67**
(3.01)
(6.54)
-0.73**
-0.74
(-1.77)
(0.46)
0.32**
0.34
(3.02)
(0.41)
N=
155
41
R2
0.13
0.54
F
7.53**
14.28**
Ln (Capital)
Ln (Report labor)
Ln (Training)
Note:
T-tests are given in parentheses.
*Significance at the 0.1 level.
**Significance at the 0.05 level.
86
Chapter 3: Training and firm performance: The case of Vietnam
Table 3.8: Dependent variable: 2005-2006 Percent change in sales (T-values in
parentheses)
Dependent variable: 2005-2006 Percent change in sales
Independent variable
Manufacturing
Non-Manufacturing
Constant
0.07*
0.08
(1.72)
(0.87)
0.23**
0.67**
(3.01)
(6.54)
0.27
0.26
(-1.77)
(0.46)
0.32**
0.34
(3.02)
(0.41)
N=
155
41
R2
0.14
0.56
F
8.18**
15.77**
Ln (Capital)
Ln (Report labor)
Ln (Training)
Note:
T-tests are given in parentheses.
*Significance at the 0.1 level.
**Significance at the 0.05 level.
87
Chapter 3: Training and firm performance: The case of Vietnam
The Vietnam Employer Survey Instrument
To measure the economic returns to education, to monitor the changing shape of school and
collegiate curricula, to identify important shifts in the demand for skilled labor, adaptability,
and educational quality of the Vietnam workforce, we implement the Vietnam Employer
Survey (designed by Ph.D. candidate Nguyen Ngoc Thang in collaboration with Prof. Dirk
Buyens from Ghent University, Belgium).
The Vietnam questionnaire differs from other national survey by:

Focusing on the interaction of establishment practice, organizational structure, and
workforce proficiency;

How employers satisfy their needs for skilled employees, employer attitudes towards
schools as current and potential suppliers of skilled employees; and

Measuring the outcomes of both formal and informal training.
Vietnam Questionnaire focuses on the following areas:

Employee proficiency as indicators of workforce quality;

To link workforce quality with establishment productivity; and

Company training.
This questionnaire is designed to make completion as easy as possible. Most questions can be
answered by simply ticking boxes. Very little information will need to be looked up. If the
requested information isn't available or would be very difficult to obtain, please provide us
with your best estimate.
Any questions regarding this survey, please contact:
Nguyen Ngoc Thang
Mobil phone: +84-914 630 048
E-mail: [email protected]
88
Chapter 3: Training and firm performance: The case of Vietnam
I. FIRM CHARACTERISTICS
Question 1
In what year did you start operations in this location?
............................
Question 2
What kind of your establishment?
Manufacturing
Non-Manufacturing
Line of business: ..........................................................................................................................
Question 3
What was your establishment’s total value of sales, receipts, or shipments (gross revenues,
sales, or receipts) for ?
Calendar year 2005
Calendar year 2006
...............................
.................................
Question 4
At the end of calendar year, what was the total book value of the fixed capital stock in your
establishment (for example, structures, equipment, furniture, vehicles, and others)?
Calendar year 2005
Calendar year 2006
...............................
.................................
Question 5
What was the cost of goods and services used in the production of your sales (for example,
energy costs, raw materials, and intermediate goods)? ............................
Calendar year 2005
Calendar year 2006
89
Chapter 3: Training and firm performance: The case of Vietnam
...............................
.................................
Question 6
What percentage of your managers and supervisors use computers in their jobs?
............................
Question 7
At this or any other location in your company is there a research and development center for
new products or processes in your line of business?
Yes
No
II. TRAINING
Question 8
Does your establishment have a separate department that is responsible for the training of
your employees?
Yes
No
Question 9a
Does your establishment pay for or provide computer literacy training?
Yes
No
Question 9b
Does your establishment pay for or provide literacy, or basic education training?
Yes
No
Question 9c
Does your establishment pay for or provide executive development training?
90
Chapter 3: Training and firm performance: The case of Vietnam
Yes
No
Question 9d
Does your establishment pay for or provide line supervisory skills training?
Yes
No
Question 9e
Does your establishment pay for or provide new methods or procedures training?
Yes
No
Question 9f
Does your establishment pay for or provide new-hire orientation training?
Yes
No
Question 9g
Does your establishment pay for or provide production or equipment training?
Yes
No
Question 9h
Does your establishment pay for or provide health and safety training?
Yes
No
Question 9i
Does your establishment pay for or provide sales or customer-service training?
Yes
No
91
Chapter 3: Training and firm performance: The case of Vietnam
Question 9j
Does your establishment pay for or provide teamwork or problem-solving training?
Yes
No
Question 10
Do any of the following reasons describe why your establishment does not provide any
formal or informal training?
Workers can pick up job skills and become proficient in the job without any formal or
informal training.
Skilled workers are readily hired from other firms.
Skills provided by schools are sufficient.
Training does not provide any significant benefits for our needs.
Funds for training are not available.
Labor turnover is too high to take advantage of training.
Time for training is not available.
Question 11
What was your establishment’s total cost of training programs for calendar year?
Calendar year 2005
Calendar year 2006
...............................
.................................
Question 12
What percentage of total training costs is spent on:
a. Newly hired managers and supervisors? ...........................
b. Continuing training for managers and supervisors? ...........................
c. Newly hired non-supervisory employees? ...........................
d. Continuing training for non-supervisory employees? ...........................
92
Chapter 3: Training and firm performance: The case of Vietnam
Question 13
Are any of the following reasons the cause of your establishment training?
Changes in products or services you provide
Changes in technology
Changes in the organization of work
Need to improve the quality of your output
Need to improve worker productivity
New hires did not have necessary skills
Need to train more to remain competitive
Others
Question 14
Does your establishment use any of the following outside sources of trainers?
Private consultants
Equipment suppliers or buyers
Unions
Private industry councils or other industry associations
Government-funded training programs
Technical and vocational institutions
Community and junior colleges
Four-year colleges or universities
Others
Question 15
Does your establishment evaluate the effectiveness of training programs?
Yes
No
Question 16
93
Chapter 3: Training and firm performance: The case of Vietnam
Which of the following employees provide informal instruction and training at your
establishment (read to respondent; indicate all that apply)?
Managers
Supervisors
Technical workers
Others
Question 17
What percentage of your workers would you regard as being fully proficient at their current
job? ...........................
Question 18
Has your establishment used any government grants or subsidies to train workers?
Yes
No
Question 19
Does your establishment participate in any of the following activities?
Provide funds or equipment to educational institutions
Participation on educational advisory boards
Participation on Private Industry Councils
Cooperative research agreements with local universities
Internship programs
Adopt-a-School arrangements with local schools
Agreement-to-Hire with local schools (e.g., co-op education programs)
III. EMPLOYMENT AND WORK ORGANIZATION
Question 20
How many employees were on your payroll at the end of ?
Calendar year 2005
Calendar year 2006
...............................
.................................
94
Chapter 3: Training and firm performance: The case of Vietnam
Question 21
What percentages of your currently employed workers have been with the firm for less than
one year? ...........................
Question 22
Has your establishment participated in any benchmarking programs that compare practices
and performances with other organizations?
Yes
No
Question 23
Has your establishment adopted a formal Total Quality Management program?
Yes
No
Question 24
Does your establishment have flextime?
Yes
No
Question 25
Does your establishment implement any of the following strategies?
Cost strategy
Quality strategy
Flexibility strategy
Others
Question 26
Of the following four factors, which is the most important to the way your establishment competes
in its product market?
95
Chapter 3: Training and firm performance: The case of Vietnam
Price
Overall quality
Innovative products
Tailoring products to specific customers’ needs
Question 27
Would you be interested in receiving a summary report of the results of this survey?
Yes (go to question 28)
No
Question 28
To ensure that you receive the summary report of the results of the survey, please complete
the below:
Name and Title: ...........................................................................................................................
Organization: ................................................................................................................................
Address: .......................................................................................................................................
Tel: ...............................................................................................................................................
Fax: ..............................................................................................................................................
E-mail: ..........................................................................................................................................
Thank you for taking the time to complete this questionnaire!
96
Chapter 4: Training, organisational strategy and firm performance
Chapter 4: Human resource training, organisational
strategy and firm performance1
Nguyen Ngoc Thang 2
Faculty of Economics and Business Administration, Ghent University
Dirk Buyens
Faculty of Economics and Business Administration, Ghent University & Vlerick
Leuven Gent Management School
1
This paper is the product of a collaborative effort of Nguyen Ngoc Thang and Prof. Dr. Buyens. The
paper was presented at the 2008 Economics & International Business Research Conference, Miami,
U.S., December, 10-13, 2008 and published in The Business Review, 11(2), 176-183 and Working
Paper Series, Faculty of Economics and Business Administration, Ghent University 2008/541: 1-31
2
Corresponding author. E-mail: [email protected]. I am grateful to Dr. Ngo Van Thu, Faculty
of Mathematical Economics, Hanoi National Economics University for his helpful suggestions about
econometrics and statistics.
97
Chapter 4: Training, organisational strategy and firm performance
Abstract
Although there have been growing studies of the effects of training on firm
performance, research attention have been limited to the conditional context of
moderate the training- firm performance relationship. In this study, we used the
contingency approach to examine the relationship between training, organisational
strategy and firm performance. Regression results from the Vietnam Employer Survey
Instrument 2007 show that organisational strategy does moderate the training – firm
performance relationship. More specifically, quality strategy does moderate the
training - firm sales and productivity relationship. However, we found no significance
for the moderating effects of cost strategy and flexibility strategy on the training-firm
performance relationship.
Keywords: training; organizational strategy; firm performance
98
Chapter 4: Training, organisational strategy and firm performance
4.1 Introduction
The link between firm-provided training and organisational performance is
now recognised as essential by most organisations (Black & Lynch, 1996; Garcia,
2005; Khatri, 2000). The knowledge and skills of employees through training
activities have become important in firm performance. Preffer (1994) and Upton
(1995) argued that success in today’s competitive markets is determined primarily by
human capital, not physical capital, and strongly advocated greater firm investments
in training in order to provide better knowledge, skills and capabilities for employees
than their competitors do. Accordingly, firms spending on training activities expect
that it is instrumental for organisations to remain and enhance their employees skills
and knowledge in order to create sustainable competitive advantage (Barney, 1991)
and improve firm performance (Kozlowski et al., 2000; Salas & Cannon-Bowers,
2001).
Though training activities are strongly accepted as relating to firm
performance, we believe that, guided by contingency theory, training may be more
beneficial for organisations if it is consistent with other characteristics of the
organisations. For example, strategic human resource management researchers
suggest that the impact of training on firm performance may gain better results if
training activities are consistent with an organizational strategy (Jackson & Schuler,
1995; Miles & Snow, 1984; Wright et al., 1995). However, there are several different
organisational strategies in contemporary settings. Thus, the contingency theory also
suggests that researchers need to identify and classify the particular organisational
strategy a firm adopts before they examine the relationship between training,
organisational strategy, and firm performance.
99
Chapter 4: Training, organisational strategy and firm performance
Unfortunately, despite the growing studies on strategic human resource
management, they have not provided a solid theoretical foundation for the choice of a
contingency variable. We have chosen the contingency approach to explore the
relationship between human resource training, organisational strategy, and firm
performance for two reasons. First, the contingency approach implies interactions
more than does the simple linear relationship in the universal approach. Second, we
would like to contribute to the strategic human resource management literature by
overcoming the above limitation of previous studies using contingency approach. We
hope that our research will fill this gap.
The purpose of this paper was to examine whether organisational strategy
moderates the relationship between training and firm performance or not. The setting
for this examination was firms operating in Vietnam and data from the VESI 2007.
Our paper includes six sections. We discuss in the second section the theoretical
advancements linking training, organisational strategy and firm performance as well
as how to identify and classify between the strategies a firm adopts. In the third
section, several hypotheses are also offered. Data and variables that are used for
estimation are described in the fourth section. In the next section, we present the
results of regression analysis for training, organisational strategy, and firm
performance. In the last section, we turn our discussion to theoretical and managerial
implications. Limitations and directions for future research are interpreted and
proposed in this section.
100
Chapter 4: Training, organisational strategy and firm performance
4.2 Theoretical background
Although there is a strong belief that training is frequently acknowledged to
play an important role in improving an organisations performance (Alliger et al.,
1997; Kozlowski et al., 2000), the theoretical rationale for this relationship is still
open to debate. Some authors have adopted a universalistic perspective to examine the
link between training and firm performance. The universalistic perspective implies a
direct linear relationship between training and firm performance. For example, some
studies show that training activities are frequently correlated with sales, productivity,
and turnover (Ahmad & Schroeder, 2003; Bishop 1991; Black & Lynch 1996; Faems
et al, 2005); Garcia, 2005; Rodriguez & Ventura, 2003; Zwick, 2006). Therefore,
organisations that provide more training programmes expect a higher firm
performance.
Other researchers have developed arguments that are consistent with the
contingency perspective (Bracker & Cohen, 1992; Khatri, 2000; Miles & Snow, 1984;
Newkirk-Moore & Bracker, 1998). According to the contingency perspective, the
relationship between training and firm performance is conditioned by an
organisation’s strategic posture. It means that matching training with firm strategy
may increase organisational performance. More specifically, if a firm wants to
compete against other competitors in the skills and knowledge of its employees,
training programmes would be more likely to have an impact on firm performance.
For example, Khatri (2000) found that training was related to sales growth if it was
used in combination with organisational strategy, whereas Newkirk-Moore & Bracker
(1998) found that organisations exhibited greater return on equity when they trained
senior managers in strategic planning.
101
Chapter 4: Training, organisational strategy and firm performance
Although the contingency perspective implies that, in order to be effective, a
training policy must be consistent with different strategic positions because an
organisation’s strategy is considered to be the primary contingent factor in the
strategic human resource management literature. There is a variety of strategies that
can be used in an organisation. Therefore, researchers are required to select primary
strategies and then specify and examine how the training will interact with these
organisation strategies to result in better organisational performance.
To select a theory of organisational strategy, Osterman (1994) have
categorised the alternative organisational strategies into “high road” strategies and
“low road” strategies. “High road” strategies focus on cost reduction, whereas “low
road” strategies concentrate on quality, product and service, or market innovation as
the central contingency variable. The content of the two categories suggests that there
are three primary organisational strategies: cost strategy, quality strategy, and
flexibility strategy (Gervin, 1993; Leong et al., 1990; Upton, 1995). Therefore, on the
one hand, firms that highly standardise processes or reduce errors are considered to
apply a cost strategy. On the other hand, companies that focus on skill acquisition and
innovation are consistent with a quality strategy, and firms that are agile, adaptable
and responsive are associated with a flexibility strategy. In the following sections, we
discuss in more detail the interaction of training and cost strategy, quality strategy,
and flexibility strategy in improving firm performance.
Cost strategy refers to the cost from the firm’s perspective of producing the
product. When competing solely on price, the firm with the lower cost structure wins,
since it could either charge less than the competition and increase volume, or charge
the same as the competitor to generate more margins on the same volume (Porter,
102
Chapter 4: Training, organisational strategy and firm performance
1991). Since labour is one of the inputs of production equation and price of products
certainly matters to customers, a wise manager might control the inputs by
diminishing the amount of labour in the business process or substituting mechanised
systems for human capital (Snell, 1992). More specifically, high technology has not
only to reduce production cost by the elimination of labour, but also create cost
advantages that a business obtains from economies of scale or suppress decisionmaking capabilities of employees (Osterman, 1994; Porter, 1998).
Quality strategy concentrates on improving the quality of products and
services. When consumers are increasingly demanding assurance of the quality of
products they buy, the quality of output is very important to the survival of
organisations. However, quality of output not only depends on technology, but also
depends on human skills, knowledge, and the mental effort of employees (Dean &
Snell, 1995; Powell, 1995; Shea & Howell, 1998; Eriksson & Hansson, 2003). In such
strategic contexts, human capital plays an important role and is a central component
of these quality strategies because the skills and knowledge of employees can help
them to understand statistical process control, and diagnose and solve problems. Thus,
the talents and capabilities of employees would be more likely to have an impact on
performance if a firm’s approach to competition follows the strategy.
Flexibility strategy is very critical in addressing changing customer needs in a
highly competitive market (Bernadette & Gavin, 2005; Jay & Alec, 2006). In general
terms, flexibility is the ability and capability to adapt or change in order to achieve
high performance. Some companies pursue a flexibility strategy that enables them to
decrease customer response time, increase product range, and develop new products
effortlessly and at efficient cost (Boyer & Lewis, 2002; Koste & Malhotra, 1999).
103
Chapter 4: Training, organisational strategy and firm performance
Other companies see flexibility as greatly improved capabilities to achieve economies
of scale and modular designs enhancing customer responsiveness or meeting the
demand of the market by facilitating faster product development and assembly
(Robertson & Ulrich, 1998). Consequently, if firms want successfully to pursue a
flexibility strategy, they need to develop a highly skilled and adaptable workforce
because this strategy depends much more on employees than other input factors
(Upton, 1995). In this context, training is an important mechanism for building and
pursuing a flexibility strategy.
There are a number of theoretical models that have been used to describe the
link between training, organisational strategy, and firm performance in the strategic
human resource management literature. First, the behavioural perspective (Jackson et
al., 1989; Schuler, 1992; Wright & McMahan, 1992) implies that successful
implementation of organisational strategy depends heavily on employee behaviour
because employee behaviour is a primary mediator between strategy and firm
performance. Thus, the organisation should implement human resource practices to
elicit, control, and reinforce those behaviours. For example, an organisation can set up
and use human resource practices that ensure that employees with the required
abilities are hired and motivated to behave in ways consistent with organisational
strategy. Since behavior is a function of ability and motivation, when applied to
training, the behavioural perspective suggests that training is major means used to
encourage and reinforce the employee’s motivation and behaviour.
The second theoretical model is control theory in strategic human resource
management (Snell, 1992) which focuses on three types of control systems: (1)
behaviour control, (2) output control, and (3) input control, all used simultaneously in
104
Chapter 4: Training, organisational strategy and firm performance
the strategic context of firms. Accordingly, input control adjusts the antecedent
conditions of performance - the knowledge, skills, abilities, values, and motives of
employees; behaviour control adjusts the transformation process; and output control
regulates results. Therefore, effective performance depends on matching human
resource practices with an organisational context established by strategy. Applying
theoretical control to training suggests that training can be viewed as an instrument
that controls and adjusts input from firms such as knowledge, skills and abilities of
employees. For example, when cause-effect knowledge is incomplete and standards of
desirable performance are ambiguous, neither behaviour control nor output control is
likely to be a viable option for managers. In such case, input control is the final option
and training will result in positive organisational inputs (Ouchi, 1980).
Although the behavioural perspective and control theory have their roots in the
contingency perspective, they do not describe how a number of human resource
practices are consistent with detailed different strategies in particular. Thus, taking a
specific strategy, we discuss the specific theoretical links between training,
organisational strategy and firm performance. A summary of our research model is
presented in figure 4.1.
Insert Figure 4.1 About Here
4.3 Hypotheses
First, we explore the relationship between human resource training, cost
strategy, and performance. Since labour is one of the key independent variables of a
production equation and reduction in employees continues to be a major aspect of
105
Chapter 4: Training, organisational strategy and firm performance
strategies to restructure operations and reduce these costs (Uchitelle & Kleinfield,
1996), if a firm’s approach to competition depends on cost strategy, it could control
cost by decreasing the amount of human capital needed in the production process by
machined systems. However, the option is suitable for firms only if their production
systems require lower skill levels and rarely the decision-making capabilities of
employees (Gomez-Mejia & Balkin, 1992). For example, a firm can use advanced
technology to reduce costs through the elimination of employees, lower costs of HR
practices (including training costs), wages, and reducing product errors. When applied
to training, according to Cascio (1991), a firm is purposely designed to minimise the
impact of people, the added expense of elaborate training systems would be saved and
training costs might be minimal. Thus, we hypothesise:
Hypothesis 1: Cost strategy moderates the relationship between training and
firm performance.
Hypothesis 1a: a cost strategy will moderate the relationship between training
and firm sales.
Hypothesis 1b: a cost strategy will moderate the relationship between training
and firm productivity.
Second, we describe the relationship between human resource training, quality
strategy, and performance. As companies respond to global competition, there is a
growing recognition of the important role of quality in competitive advantages,
determining market success and enhancing organisational performance (Carmen et al.,
1996; Powell, 1995; Shea & Howell, 1998; Waldman & Gopalakrishnan, 1996). In
this context, quality strategies focus on continually improving business processes to
increase product reliability and customer satisfaction.
106
Chapter 4: Training, organisational strategy and firm performance
According to the resource-based view of the firm, performance differences
across firms can be attributed to the variance in the firms' resources and capabilities.
Knowledge and skills have long been argued as a valuable, unique, and critical
resource in most firms that enable them to conceive of and implement strategies that
improve their efficiency and effectiveness (Barney, 1991; Pfeffer, 1994). More
specifically, firm resources and strategy interact to produce positive organisational
performance. However, more than firms’ resources, the knowledge and skills of
employees are more likely to produce competitive advantages because they are often
rare, socially complex, and too difficult to imitate. Thus, firms could improve product
and service quality, and customer satisfaction through their training activities because
knowledge and skills acquisition lie at the heart of a successful quality strategy
(Eriksson & Hansson, 2003). Accordingly, we suggest:
Hypothesis 2: Quality strategy moderates the relationship between training
and firm performance.
Hypothesis 2a: a quality strategy will moderate the relationship between
training and firm sales.
Hypothesis 2b: a quality strategy will moderate the relationship between
training and firm productivity.
Third, the relationship between human resource training, flexibility strategy,
and performance will be considered. In the face of competition, when more
companies are accessing low-cost and high-quality suppliers in the market, flexibility
is to be explored and firms are increasingly concentrating on flexibility as a way to
obtain competitive advantage (Upton, 1995). They believe that flexibility will help
107
Chapter 4: Training, organisational strategy and firm performance
them not only to respond to needs and change quickly of customer on price, quality,
and new products but also to compete with competitors in the market.
Technology pertains to the processes used in design, planning and production
systems (Dean and Snell, 1991). Conventional wisdom has it that increased use of
sophisticated technologies such as advanced manufacturing technology or computerintegrated manufacturing leads to an increase in flexibility. However, some studies
found that advanced manufacturing technology had neither a direct nor a moderated
effect on flexibility (Boyer et al., 1997; Suarez et al., 1996; Zammuto & O’Connor,
1992; Jaikumar, 1986). One possible explanation for why organisations fail to achieve
flexibility is that they have invested in the right technology but they either fail to
stress worker training or do not understand its importance (Fisher et al., 1994).
Therefore, the best way to increase flexibility is that organizations may invest in
worker training in addition to advanced technology and organisational systems (Gupta
& Somers, 1996).
The above reason suggests that in contexts in which organisations are
purposely designed to pursue a flexibility strategy, manager not only determine the
type of workforce or technology they need for this strategy but also combine the
workforce and technology in order to achieve high performance because a firm’s
employee is one key to the puzzle of implementing new technologies (Meredith,
1987b). To successfully implement flexibility strategy, organisations must also
provide and develop the knowledge, skills and technological competence of their
employees to allow them to understand an entire production process as well as to
know how to run the plant without errors and to get the job done (Parthasarthy &
Sethi, 1992; Upton, 1995). Therefore, training plays an important role in building
108
Chapter 4: Training, organisational strategy and firm performance
flexibility and these efforts would provide technical, problem-solving skills, and build
the confidence people need to carry out their tasks.
Therefore, the following
hypothesis is offered:
Hypothesis 3: Flexibility strategy moderates the relationship between training
and firm performance.
Hypothesis 3a: a flexibility strategy will moderate the relationship between
training and firm sales.
Hypothesis 3b: a flexibility strategy will moderate the relationship between
training and firm productivity.
In summary, the argument in this section suggests that although firms could
pursue one strategy or a multitude of organisational strategies simultaneously, each of
the organisational strategy orientations requires a different approach to training
because the relationship between training and organisational-level performance might
moderate or rely on the type of organizational strategy being pursued. If firms pursue
cost strategy, training would not be a method for driving superior performance. On
the other hand, if firms approach competition with a quality and flexibility strategy,
they must develop and maintain the knowledge and skills of employees. Thus,
training efforts would be advantageous and more likely to have an impact on
performance. We used data from Vietnam Employer Survey 2007 to test the above
hypothesis in the sections below.
109
Chapter 4: Training, organisational strategy and firm performance
4.4 Method
4.4.1 Sample and procedures
The study was conducted in several industries of both manufacturing and nonmanufacturing companies in Vietnam in July and August 2007. We selected 1000
companies from the 2007 telephone directory. Then, we sent questionnaires to the
managers in the sample firms. The questionnaire solicited information about the
companies’ strategy, training cost, and other firm characteristics for estimation. There
were 196 companies participating in the study (19.6 percent). Becker and Huselid
(1998) reviewed studies on high- performance work systems that had a response rate
ranging from 6 to 28 percent. Therefore, our response rate is consistent with the
reviewed results in that study.
4.4.2 Measures
Firm performance: Research on organisational performance varies as a
function of the outcome variables. We can categorise the variety of outcome variables
into two groups: finance outcome (ROI, ROA, ROE, ROS, Tobin’s q, sales, market
share, productivity, etc.) and non-finance outcome variables (labour turnover, absence
of employees, conflict, quality of product and/ or service, innovation, etc.). Although
a number of studies have used non-finance outcomes to ascertain the effectiveness of
human resource systems, we focused on productivity and sales because productivity
and sales are a crucial organizational outcome, a large body of work in the strategy
human resource management literature, and indicates the extent to which a firm’s
labor force is efficiently creating output (e.g., Huselid, 1995; Koch & McGrath, 1996;
Guthrie, 2001; Delery & Shaw, 2001; Boselie & Dietz, 2003)
110
Chapter 4: Training, organisational strategy and firm performance
Training cost: Our research went beyond simply measuring the incidence of
formal and informal training to examine the determinants of the types and costs of
training in which employers invest, school, consultancy agencies and employerprovided training, who is receiving training. Training variable is measured by the
training cost of the company.
Organizational strategy: since we want to test the moderating influence of
organizational strategies on the relationship between training and firm performance,
of course, strategy is one of variables in the equation. According to the above
analysis, we created a set of organizational strategies. Researchers have used a variety
of approaches to measure strategy variables. We used direct question to assess the
extent to which a firm pursued one strategy of three strategies (cost, quality, and
flexibility) or a multitude of strategies at the same time because of two reasons: (1)
the lack of advance knowledge in theoretical framework with respect to
organizational strategy of local managers, (2) some managers do not eagerness to
provide sensitive and detail data of their organizations.
Capital stock: In Cobb-Douglas production function, capital stock is one of the
key variables and measured by book value of the company. In addition, according to
previous studies (e.g., Huselid, 1995; Koch & McGrath, 1996), capital stock was
included as a variable to controlled for any extraneous possible effects of capital. To
measure organizational capital stock, we asked companies about the total book value
of the fixed capital stock in their establishment (for example, structures, equipment,
furniture, vehicles, and others) at the end of calendar year 2005 and 2006.
Firm size: Since firm size may be associated with the use of human resource
training function as well as firm performance (Guthrie, 2001; Jackson & Schuler,
111
Chapter 4: Training, organisational strategy and firm performance
1995). More specifically, large organizations may be more likely than small ones to
have well-developed training and higher productivity. Thus, firm size was another
control variable. Size was measured as the natural logarithm of the number of
employees (e.g., Huselid, 1995; Koch & McGrath, 1996; Datta et al., 2005). We
obtained this data from the VESI 2007.
4.4.3 The Estimation Framework
We assume the production function to be adequately described by a CobbDouglas specification because the Cobb-Douglas functional form of production
functions is widely used to represent the relationship of an output to inputs. Output Y
of company is a function of three inputs, capital K, reported labour RL, and training
T. The production function can be written as:
Y = A*Kβ *RLγ *Tλ
(1)
Where A is an efficiency parameter, β, γ and λ are numbers greater than zero.
The model (1) is nonlinear in the variables Y, K, RL, or T. Thus, if we log-transform
model (1) and we add a vector of control variables X, we obtain:
Ln(Y) = lnA + βlnK + γ lnRL +λlnT + αX
(2)
We divide equation (1) through report labour and take logarithm of both sides.
We get following function:
Ln(Y/RL) = lnA + βlnK + (γ-1) lnRL +λlnT + αX
(3)
The models (2) and (3) are linear on the parameters lnA, β, γ, γ-1, λ and are
therefore a linear regression model. It means that model (2) and (3) are nonlinear in
the variables Y, K, RL, or T but linear in the logarithm of these variables. Thus, we
need to calculate logarithm of above variables before we apply some regressions.
112
Chapter 4: Training, organisational strategy and firm performance
Appendix tables 4.1 and 4.2 presents the distribution of these variables before and
after transform data.
4.5 Results
We conducted hierarchical ordinary least squares regression analysis to test
hypotheses 1, 2, and 3. Tables 4.3 and 4.4 show the results of the hierarchical
regression analyses. Model 1 represents the regression of the control variables
including firm size, capital, and training cost. We added these variables first because
we wanted to control for any extraneous effects across size, capital, or training cost.
Model 2 adds organisational strategies to both sets of regressions. The set of
organisational strategies was entered in order to control for any effects strategies may
have on firm performance. If the results of regression are significant, we can conclude
that organisational strategies have a direct effect on firm performance. To explore the
moderating influence of organisational strategy on the training-firm performance
relationship, we created model 3 by adding a set of cross-variables of each of
organisational strategy and training and simultaneously controlled for possible
multicollinearity caused by the interaction terms being correlated with their
constituent variables (Damodar, 1995).
As indicated in regression model 3, in table 4.3, the interaction term comprised
of training and organisational strategies had significant effects on sales in both
manufacturing firms (∆R2= 0.01, F = 44.78, p < 0.05) and non-manufacturing firms
(∆R2= 0.15, F = 5.53, p < 0.05). These results mean that organisational strategy in
general moderates the training-firm sales relationship. When specific moderation
hypotheses 1a, 2 a, and 3a were tested, the results in the interaction terms show that
113
Chapter 4: Training, organisational strategy and firm performance
one of the interaction terms in the equation predicting sales was significant. More
specifically, a quality strategy interacts with training to predict firm sales in
manufacturing firms (b = 2.37, p < 0.1) supporting hypothesis 2a. We also found no
significance for the moderating effect of cost strategy and flexibility strategy on the
training-firm sales relationship and therefore this result provides no support for
hypotheses 1a and 3a.
Other interesting results in model 2, table 4.3 include the positive significant
effect that cost strategy and flexibility strategy variables have on firm sales of
manufacturing companies (b = 0.6, p < 0.05 and b = 0.67, p < 0.05 respectively). For
non-manufacturing companies, however, there was no significant effect of any
strategy on firm sales.
In addition in model 2, table 4.3, the capital and number of labour variables
has positive impact on sales of both manufacturing and non-manufacturing
companies. More specifically, a 1 percent increase in capital will lead to a 0.59
percent and 0.33 percent increase in sales respectively whereas the estimated
coefficient on labour would suggest that for a 1 percent increase in labour, sales
would rise by 0.23 percent and 0.68 percent in manufacturing and non-manufacturing
companies respectively.
The results in regression model 3, table 4.4 show that training-organisational
strategies interaction terms were significant in firm productivity in both
manufacturing firms (∆R2= 0.01, F = 21.94, p < 0.05) and non-manufacturing firms
(∆R2= 0.24, F = 1.98, p < 0.05). These results suggest that organisational strategy
does in fact moderate the training- firm productivity relationship.
114
Chapter 4: Training, organisational strategy and firm performance
To test the exact moderating influence of specific organisational strategies in
hypotheses 1b, 2b, and 3b, we continue to explore the hierarchical regression results
of training-organisational strategies interactions terms in table 4.4. We found that the
interaction term of training and cost strategy and flexibility strategy had no
significance in the regression model 3 in table 4.4, suggesting that cost strategy and
flexibility strategy did not moderate the relationship between training and firm
productivity. The analysis provides virtually no support for hypotheses 1b and 3b.
Results in table 4.4 also show that the significance of the interaction term of quality
strategy and firm productivity in manufacturing firms (b = 2.37, p < 0.1), thereby
hypothesis 2b is well supported by our data. We can also conclude that company’s
approach to competition depends on quality strategy had higher productivity when
quality strategy works in conjunction with training.
The results in model 2, table 4.4 indicate that cost strategy and flexibility
strategy have an effect on firm productivity in manufacturing companies (b = 0.6, p <
0.05 and b = 0.67, p < 0.05 respectively). However, they have no significant direct
effect on firm productivity in non-manufacturing firms. In addition, quality strategy
has no significant direct effect on firm performance in both manufacturing and nonmanufacturing firms.
The results in model 2, table 4.4, also show that the number of labour and
training variables has a positive effect on productivity in manufacturing companies. A
1 percent increase in labour will lead to a 0.76 percent decrease in productivity
whereas the estimated coefficient on training would suggest that for a 1 percent
increase in training, productivity would rise by 0.18 percent.
115
Chapter 4: Training, organisational strategy and firm performance
In summary, we found some empirical support for the moderating influence of
organisational strategies on firm performance in general and quality strategy
interacting with training to predict firm sales and productivity in particular. These
findings suggest that the impact of training on firm performance is not only
conditioned by an organisation’s strategic posture, but also show firm investment in
training could be more beneficial for firms in some contexts than in others. More
specifically, training-organisational strategy interactions could lead to higher firm
performance. We also found that cost strategy and flexibility strategy have a direct
impact on firm sales and productivity.
4.6 Discussion and Conclusion
4.6.1 Theoretical implications
The study examined contingency approaches to human resource training and
firm performance. With respect to our principal hypothesis and controls for firm-level
differences in investigating organisational strategy, we found strong empirical
evidence that the relationship between training and firm performance was moderated
by organisational strategy. These results demonstrate that the impact of training on
firm performance has been further enhanced if training is matched with the
organisational strategy stance (e.g., Cappelli & Singh, 1992; Wright, et al, 1995).
More specifically, this study shows that quality strategy moderates the relationship
between training and firm sales and productivity. The training programmes which
provide new knowledge to enhance skill and multiple communication efforts and
heighten employee awareness about the company's quality objectives are especially
important to firms trying to compete on quality. Our findings were also supported by
116
Chapter 4: Training, organisational strategy and firm performance
parallel evidence from companies such as Cadillac plant, Xerox BP&S, IBM
Rochester that have used comprehensive training programmes as a crucial step to
improve firm performance through total quality management (Blackburn & Rosen,
1993; Pfeffer, 1994).
Although the relationship between training and firm performance has been
well developed in educational economics (Becker, 1962; Chapman, 1993), science of
training (McGehee & Thayer 1961; Tannenbaum & Yukl 1992; Martocchio & Judge
1997), and total quality management literature (Crosby, 1979; Deming, 1982;
Blackburn & Rosen, 1993), our results contribute to the rapidly developing human
resource management literature. More specifically, organisational strategy is a major
contingency factor affecting the human resource practices-performance link. This
issue has been discussed in the strategic human resource management field, but as yet
there is no strong theoretical rationale for the choice of a contingency variable in
previous studies (Tharenou, Saks & Moore, 2007) Thus, our study provides the much
needed evidence that human resource training activities designed to develop talent,
skills, and increase employee problem-solving improve firm sales and productivity
when the training is matched with the firm’s strategic stance. In addition, some
previous studies which examined only the direct effects of training on firm
performance might have underestimated results because they failed to take into
account strategy-training interaction.
In the organisational strategy literature, some research has already been done
on aligning decisions in human resource management, industry matter, and
productivity as well as human capital, research and development or technology
policies, and performance (Ballot et al., 2001; Bracker & Cohen, 1992; Datta et al.,
117
Chapter 4: Training, organisational strategy and firm performance
2005). Our study shows that flexibility strategy did not moderate the relationship
between training and firm sales and productivity. Our finding fills a void by
reinforcing some critical links and advancing understanding of this stream of research
by establishing the impact of alignment between the workforce training,
organisational flexibility strategy, and firm performance. One possible explanation for
this non-finding of moderation is that some companies do not have the right
technology or fully understand the importance of flexibility strategy (Fisher et al.,
1994). In addition, labour costs are one of the higher costs affecting the production
equation. Thus, in a context in which firms have been control costs by diminishing the
amount of human capital by substituting mechanised systems, the connection between
training and firm performance might be minimal.
4.6.2 Managerial implications
This study highlights another way in which training interacting with
organisational strategies can contribute to improved firm performance. In practice, our
study has the three following important implications for managers.
First, recognising the moderating roles of organisational strategy in connection
between training and firm performance, our study provides an empirical evidence for
human resource training decision-making and implementation of the three
organisational strategy orientations. For example, some companies will only provide
general information training programme for employees when they pursue cost
strategy, whereas other firms that seek to increase levels of customer services, product
quality or firm flexibility must provide and develop training programmes for their
employees because training increases skills and behavioural repertoires of employees
118
Chapter 4: Training, organisational strategy and firm performance
in a way that can impact on efficiency and adaptability. Thus, managers need to
identify and consider their strategies more carefully in order to provide training in a
way that is effective and efficient because training does not come cheaply, although
some companies view these expenditures not as costs but as investments.
Second, our study suggests that training, organisational strategies, and other
firm characteristics appear to operate as an integrated system. However, managers
have been offered rather simplistic structural systems in the past (Eisenhardt &
Tabrizi, 1995). Therefore, employee training involvement, organisational strategy,
firm sales and productivity should be designed with a contingency approach, rather
than be assumed to be universally appropriate. Strategy formulation must include
careful assessment of strengths and weaknesses of firm resources such as technology
and equipment, human capital, or formal reporting structure, not just customer
expectations. Future managers need to provide a structural system that enables
training to be woven into its fabric while allowing for the development and
integration of new knowledge and skills to create customer value (Grant, 1996).
Third, this study also suggests that training has implications for a more active
and important role in organisational strategy. More specifically, training can promote
the development of employees with the knowledge and skills necessary to implement
a variety of different strategies and to respond to a variety of demands. It requires
firms to develop a participative mechanism that enables the firm to better monitor and
respond to changes in the competitive environment. It is difficult for a firm to create
the mechanisms but when firms possess the mechanisms, they can gain competitive
advantage (Barney, 1991). Therefore, managers need not only to match training with
organisational strategies, but also consider this match as an imperfectly imitable
119
Chapter 4: Training, organisational strategy and firm performance
intangible resource that leads to one way in which firms can create a competitive
advantage.
4.6.3 Limitations and suggestions for future research
Although our study provides interesting insights about the relationship
between training, organisational strategy and firm performance, several limitations of
this study should be emphasised and provide recommendations for future research.
First, we used a contingency perspective to examine the interactions between
training and organisational strategies. The results found support for the contingency
perspective. However, Doty & Glick (1994) suggest that a configuration approach to
training and strategies could represent nonlinear synergistic effects and higher-order
interactions that cannot be represented br a contingency approach. More specifically,
training will enhance organisational effectiveness when it is used in conjunction with
other human resource practices in order to maximise horizontal fit, and then link these
human resource practices to organizational strategies to maximize vertical fit. Thus,
we strongly recommend that future research need to identify the configurations of
training and organisational strategies and test the interactions under the configuration
perspective.
Second, this study was limited to the use of a single moderator –
organisational strategy of companies operating in Vietnam to test the contingency
hypothesis. However, several other organisational characteristics have effects on the
relationship between training and firm performance, such as industry, technology, or
company structure. Therefore, the interactions between training and other
organisational characteristics might result in high performance. Future research needs
120
Chapter 4: Training, organisational strategy and firm performance
to test moderating effects of other organisational characteristics on the trainingperformance link in order to gain more insight into the relationship between training
and firm performance. In addition, future research also needs to provide a theoretical
rationale for the choice of contingency variables before testing the contingency
perspective.
Third, the concept of organisational strategy is so diverse that it is difficult to
measure it. This is the reason why measures of organisational strategies in this study
have tended to be general rather than specific. Thus, future research should provide a
theoretical basis for the choice of a strategy measure and consider the organisational
strategy constructs that are being measured. In addition, future research also needs to
improve research results with more objective indicators of organisational strategy
(Glick et al., 1990).
Finally, in this study, we measured only firm financial performance: sales and
productivity. However, firm performance includes financial and non-financial
indicators. Therefore, future researchers need to examine similar relationships by
measuring both financial and non-financial indicators in order to enable the
generalisation of findings. Future studies also need to be especially careful in
measuring firm performance by subjective or perceptual methods because they may
not provide accuracy of results and be comparable across firms over time.
Despite the limitations discussed above, this study provides several important
contributions to both theoretical literature and practice. We found that organisational
strategy moderates the relationship between training and firm performance. So rather
than choose between the perspectives, we encourage more future research on this
121
Chapter 4: Training, organisational strategy and firm performance
relationship in order to gain a full understanding of how firms can provide training for
their employees to enhance firm performance.
122
Chapter 4: Training, organisational strategy and firm performance
4.7 Reference
Ahmad, S., & Schroeder, R. G. 2003. The impact of human resource management
practices on operational performance. Journal of Operational Management, 21:
19−43.
Alliger, G. M., Tannenbaum, S. I., Bennett, W., Traver, H., & Shortland, A. 1997. A
meta-analysis on the relations among training criteria. Personnel Psychology, 50:
341−358.
Ballot, G., Fakhfakh, F., & Taymaz, E. 2001. Firms' human capital, R&D and
performance: A study on French and Swedish firms. Labour Economics, 8:
443−462.
Barney, B. 1991. Firm resources and sustained competitive advantage. Journal of
Management, 17: 99–129.
Becker, B. E., & Huselid, M. A. 1998. High performance work systems and firm
performance: A synthesis of research and managerial implications. In. K. M.
Rowland & G. R. Ferris (Eds.), Research in personnel and human resource
management: 53-101. Greenwich, CT: JAI Press.
Becker, G.S. 1962. Investment in Human Capital: A theoretical analysis. Journal of
Political Economy 70(2): 9–49.
Bernadette, P., & Gavin C. R. 2005. Flexibility, Firm-Specific Turbulence and the
Performance of the Long-lived Small Firm. Review of Industrial Organization
26(4): 415–443
123
Chapter 4: Training, organisational strategy and firm performance
Bishop, J, 1991. On the job training of new hires. In Market Failure in Training?
Edited by David Stern & Jozef M. M. Ritzen, (pp. 61-94). New York: SpringerVerlag.
Black, S. E., & Lynch, L. M, 1996. Human-capital investments and productivity. The
American Economic Review, 86: 263−267.
Blackburn, R,, & Rosen, B, 1993. Total quality and human resources management:
Lessons learned from Baldrige award-winning companies. Academy of
Management Executive, 7(3): 49–66.
Boselie, P., & Dietz, G. 2003. Commonalities and contradictions in research on
human resource management and performance. Paper presented at the annual
meeting of the Academy of Management, Seattle, U.S.
Boyer, K. K., & Lewis. M. W. 2002. Competitive Priorities: Investigating the Need
for Trade-Offs in Operations Strategy. Production and Operations Management,
11: 9–20.
Boyer, K.K., Leong, G.K., Ward, P.T., & Krajewski, L.J. 1997. Unlocking the
potential of advanced manufacturing technologies. Journal of Operations
Management 15: 331–347.
Bracker, J., & Cohen, D. J. 1992. Impact of training and development activities on
technology oriented entrepreneurial performance. Journal of Small Business
Strategy, 3: 1−14.
Cappelli, P., & Singh, H. 1992. Integrating strategic human resources and strategic
management. In D. Lewin, 0.S. Mitchell, & P D. Sherer (Eds.), Research frontiers
in industrial relations and human resources: 165–192. Madison, WI: Industrial
Relations Research Association.
124
Chapter 4: Training, organisational strategy and firm performance
Carmen, J., Shortell, S., Foster, R., Hughes, E., Boerstler, H., O'Brien, J., &
O'Connor, E. 1996. Keys for successful implementation of total quality
management in hospitals. Health Care Management Review, 21: 48–60.
Cascio, W. F. 1991. Costing human resources: The financial impact of behavior in
organizations. Boston: PWS-Kent.
Chapman, P.G. 1993. The economics of training, first edition. Exeter: BPCC
Whearons Ltd.
Crosby, P. B. 1979, Quality is free: The art of making quality certain. New York:
New American Library.
Damodar N. G.1995. Basic econometrics. Third Edition. McGraw-Hill, New York.
Datta, D. K., Guthrie, J. P., & Wright, P. M. 2005. Human resource management and
labor productivity: Does industry matter? Academy of Management Journal 48:
135–145.
Dean, J. W., Jr., & Snell, S. A. 1995. The strategic use of integrated manufacturing.
Working paper, University of Cincinnati.
Dean, J.W., & Snell, S.A., 1991. Integrated manufacturing and job design. Academy
of Management Journal 34: 776–804.
Delery, J. E., & Shaw, J. D. 2001. The strategic management of people in work
organizations: Review, synthesis and extension. In K. M. Rowland & G. R. Ferris
(Eds). Research in personnel and human resource management: 165–197.
Greenwich, CT: JAI Press.
Deming, W. E. 1982, Quality, productivity and competitive position. Cambridge, MA:
MIT Center for Advanced Engineering Study.
125
Chapter 4: Training, organisational strategy and firm performance
Doty, D., & Glick, W. 1994, Typologies as a Unique Form of Theory Building.
Academy of Management Review, 19: 230–251.
Eisenhardt, K., & Tahrizi, B. 1995. Accelerating adaptive processes: Product
innovation in the global computer industry. Administrative Science Quarterly, 40:
84–110.
Eriksson, H., & Hansson, J. 2003. The impact of TQM on financial performance.
Measuring Business Excellence, 7(1): 36–50.
Faems, D., Sels, L., DeWinne, S., & Maes, J. 2005. The effect of individual HR
domains on financial performance. International Journal of Human Resource
Management, 16: 676−700.
Fisher, M.L., Jain, A., & MacDuffie, J.P., 1994. Beyond black. Harvard Business
Review 72(6): 13–14.
García, M. 2005. Training and business performance: The Spanish case. International
Journal of Human Resource Management, 16: 1691−1710.
Gerwin, D., & Tarondeau, J. C. 1982. Case studies of computer-integrated
manufacturing systems: A view of uncertainty and innovation processes. Journal
of Operations Management, 2: 87–92.
Glick, W. H., Huber, G. P., Miller, C. C., Doty, D. H., & Sutcliffe, K. M. 1990.
Studying changes in organizational design and effectiveness: Retrospective event
histories and periodic assessments. Organization Science, 1: 293–312.
Gomez-Mejia, L. R., & Balkin, D. B. 1992. Compensation, organizational strategy,
and firm performance. Cincinnati: South-Western.
Grant, R. 1996. Prospering in dynamically-competitive environments: Organizational
capability as knowledge integration. Organization Science, 7: 375–387.
126
Chapter 4: Training, organisational strategy and firm performance
Gupta, Y.P., & Somers, T.M. 1996. Business strategy, manufacturing flexibility, and
organizational performance relationships: a path analysis approach. Production
and Operations Management 5(3): 204–233.
Guthrie, J. P. 2001. High-involvement work practices, turnover, and productivity:
Evidence from New Zealand. Academy of Management Journal, 44: 180–190.
Huselid, M. A. 1995. The impact of human resource management practices on
turnover, productivity, and corporate financial performance. Academy of
Management Journal, 38: 635–672.
Jackson, S. E., & Schuler, R. S. 1995. Understanding human resource management in
the context of organizations and their environments. In J. T. Spence, J. M. Darley,
& J. Foss (Eds.), Annual review of psychology, 46: 237–264. Palo Alto, CA:
Annual Reviews.
Jackson, S. E., Schuler, R. S., & Rivero, J. C. 1989. Organizational characteristics as
predictors of personnel practices. Personnel Psychology, 42: 727–786.
Jaikumar, R., 1986. Postindustrial manufacturing. Harvard Business Review, 64(6):
69–76.
Jay J. E., & Alec C. J. 2006. Efficiency, flexibility, or both? Evidence linking strategy
to performance in small firms. Strategic Management Journal, 26(13): 1249–1259
Khatri, N. 2000. Managing human resources for competitive advantage. International
Journal of Human Resource Management, 11: 336−365.
Koch, M. J., & McGrath, R. G. 1996. Improving labor productivity: Human resource
management policies do matter. Strategic Management Journal, 17: 335–354.
127
Chapter 4: Training, organisational strategy and firm performance
Koste, L. L., & Malhotra, M. K. 1999. A Theoretical Framework for Analyzing the
Dimensions of Manufacturing Flexibility. Journal of Operations Management,
18: 75–93.
Kozlowski, S. W. J., & Klein, K. J. 2000. A multilevel approach to theory and
research in organizations: Contextual, temporal, and emergent processes. In K. J.
Klein & S. W. J. Kozlowski (Eds.), Multilevel theory, research, and methods in
organizations: Foundations, extensions, and new directions (pp. 3−90). San
Francisco, CA: Jossey-Bass.
Leong, G. K., Snyder, D., & Ward, P. 1990. Research in the process and content of
manufacturing strategy. Omega, 18(2): 109–122.
Martocchio, J.J., & Judge, T. A. 1997. Relationship between conscientiousness and
learning in employee training: mediating influences of self-deception and selfefficacy. Journal of Applied Psychology, 82:764–73
McGehee, W., & Thayer, P.W. 1961. Training in business and industry, John Wiley
and Sons Inc., New York.
Meredith, J., 1987b. Implementing new manufacturing technologies: managerial
lessons over the FMS life cycle. Interfaces 17(6): 51–62.
Miles, R. E., & Snow, C. C. 1984. Designing strategic human resources systems.
Organizational Dynamics, 13: 36−52.
Newkirk-Moore, S., & Bracker, J. S. 1998. Strategic management training and
commitment to planning. International Journal of Training and Development, 9:
82−90.
Osterman, P. 1994. How common is workplace transformation and who adopts it?
Industrial and Labor Relations Review, 47: 173–188.
128
Chapter 4: Training, organisational strategy and firm performance
Ouchi, W. G. 1980. Markets, bureaucracies and clans. Administrative Science
Quarterly, 25: 129–141.
Parthasarthy, R., & Sethi, S. P. 1992. The impact of flexible automation on business
strategy and organizational structure. Academy of Management Review, 17: 86–
111.
Pfeffer, J. 1994. Competitive advantage through people. Boston: Harvard Business
School Press.
Porter, M.E. 1991. Towards a Dynamic Theory of Strategy. Strategic Management
Journal, 12: 95–117.
Porter, M.E. 1998. On Competition, Boston: Harvard Business School, 1998
Powell, T. 1995. Total quality management as competitive advantage: A review and
empirical study. Strategic Management Journal, 16: 15–37.
Robertson, D., & Ulrich, K. 1998. Planning for Product Platforms, Sloan Management
Review, 39: 19–31.
Rodríguez J.M., & Ventura J. 2003. Human resource management systems and
organizational performance: an analysis of the Spanish manufacturing industry,
International Journal of Human Resource Management, 14: 1206–1226.
Salas, E., & Cannon-Bowers, J.A. 2001. The science of training: A decade of
progress. Annual Review of Psychology, 52: 417–499.
Schuler, R. S. 1992. Strategic human resource management: Linking people with the
strategic needs of the business. Organizational Dynamics, 21: 18–32.
Shea, C., & Howell, J. 1998. Organizational antecedents to the successful
implementation of total quality management. Journal of Quality Management, 3:
3–24.
129
Chapter 4: Training, organisational strategy and firm performance
Snell, S. A. 1992. Control theory in strategic human resource management: The
mediating effect of administrative information. Academy of Management Journal,
35: 292–327.
Suarez, F.F., Cusumano, M.A., & Fine, C.H. 1996. An empirical study of
manufacturing flexibility in printed circuit board assembly. Operations Research,
44: 223–240.
Tannenbaum, S.I. & Yukl, G. 1992. Training and development in work organizations.
Annual Review of Psychology, 43: 399–441
Tharenou, P., Saks, A., & Moore, C. 2007. A review and critique of research on
training and organizational level outcomes. Human Resource Management
Review, 17: 251–273.
Uchitelle, L., & Kleinfield, N. R. 1996. On the battlefields of business, millions of
casualties. New York Times, March 3: A1.
Upton, D. M. 1995. What really makes factories flexible? Harvard Business Review,
73: 74–84.
Waldman, D., & Gopalakrishnan, M. 1996. Operational, organizational, and human
resource factors predictive of customer perceptions of service quality. Journal of
Quality Management, 1: 91–107.
Wright, P. M., & McMahan, G. C. 1992. Theoretical perspectives for strategic human
resource management. Journal of Management, 18: 295–320.
Wright, P. M., Smart, D., & McMahan, G. C. 1995. Matches between human
resources and strategy among NCAA basketball teams. Academy of Management
Journal, 38: 1052–1074.
130
Chapter 4: Training, organisational strategy and firm performance
Wright, P.M., & Shcmian, W.S. 1998. Failing to Find Fit in Strategic Human
Resource Management: Theoretical and Empirical problems. In Wright, P., Dyer,
L., Boudreau, J. and Milkovich. G. (eds) Research in Personnel and Human
Resource Management. Greenwich, CT: JAI Press.
Zammuto, R.F., & O’Connor, E.J. 1992. Gaining advanced manufacturing technology
benefits: the roles of organization design and culture. Academy of Management
Review, 17: 701– 728
Zwick, T. 2006. The impact of training intensity on establishments productivity.
Labour Economics, 11: 715–740
131
Chapter 4: Training, organisational strategy and firm performance
4.8 Appendix
Table 4.1: Summary Statistics of major companies' data of the survey
Mean
Unit
S.D
Sales, receipts or shipments
2005 (y2005)
mill VND
267786
399108
326191
471740
266238
816208
312275
824151
247545
349527
285532
406758
622.0
1496.7
678.6
1641.4
229.6
370.9
300.7
532.3
455.2
391.3
555.7
617.5
0.24
0.48
0.25
0.41
Sales, receipts or shipments
2006 (y2006)
mill VND
Book value of capital stock
2005 (k2005)
mill VND
Book value of capital stock
2006 (k2006)
mill VND
Total cost of good and services
2005(c2005)
mill VND
Total cost of good and services
2006(c2006)
mill VND
Total labor force 2005 (rl2005)
Person
Total labor force 2006(rl2006)
Person
Total training cost 2005(t2005)
mill VND
Total training cost 2006(t2006)
mill VND
Total training cost 2005/
VND/per
Total labor force 2005
person
Total training cost 2006/
VND/per
Total labor force 2006
person
Total training cost 2005/
Total cost of good and services
2005
%
Total training cost 2006/
Total cost of good and services
2006
%
132
Chapter 4: Training, organisational strategy and firm performance
Table 4.2: Summary Statistics of major companies' data of Principal Variables
Mean
Unit
S.D
Ln (y2005)
mill VND
18.5401
1.43234
Ln (y2006)
mill VND
18.7550
1.39097
Ln (k2005)
mill VND
18.2647
1.67546
Ln (k2006)
mill VND
18.4506
1.71607
Ln (c2005)
mill VND
18.4580
1.44221
Ln(c2006)
mill VND
18.6045
1.40559
Ln (rl2005)
Person
5.7868
1.04628
Ln (rl2006)
Person
5.8820
1.02375
Ln (t2005)
VND
11.7138
1.09657
Ln (t2006)
VND
11.9439
1.10764
12.7533
1.16954
12.8730
1.12458
5.9270
.59326
6.0619
.65424
Ln (y2005/ rl2005)
mill VND
Ln (y2006/ rl2006)
mill VND
Ln (t2005/ rl2005)
VND/per
person
Ln (t2006/ rl2006)
VND/per
person
Ln ( t2005/ c2005)
%
-2.1391
1.15745
Ln ( t2006/ c2006)
%
-2.0554
1.15296
133
Chapter 4: Training, organisational strategy and firm performance
Table 4.3: Results of Regression Analysis for Training, Organizational Strategy, and
Firm Sales
Variables
Model 1
Manufacturing
Non-
Model 2
Manufacturing
manufacturing
Constant
4.189**
(4.456)
0.596**
(12.451)
0.229**
(2.101)
0.177*
(1.633)
Capital
Firm size
Training
10.245**
(6.777)
0.382**
(3.931)
0.678**
(2.274)
-0.172
(-.778)
Cost strategy
Quality
strategy
Flexibility
strategy
Training
Non-
Nonmanufacturing
3.464**
(3.429)
0.594**
(12.327)
0.234**
(2.127)
0.185*
(1.708)
0.599**
(1.939)
10.696**
(6.637)
0.329**
(2.939)
0.682**
(2.128)
-0.174
(-0.722)
0.468
(0.977)
2.591*
(1.762)
0.605**
(12.553)
0.270**
(2.438)
0.201
(1.451)
0.954**
(2.706)
11.508**
(4.533)
0.337**
(2.582)
0.796**
(2.047)
-0.317
(-0.873)
0.639
(1.038)
0.091
(0.583)
0.419
(1.125)
0.007
(0.047)
0.465
(1.041)
0.668**
(2.056)
-0.126
(-0.304)
0.995**
(2.692)
-0.195
(-0.396)
-3.93
(-1.267)
-4.04
(-0.458)
2.37*
(1.609)
-2.045
(-0.212)
-3.60
(-0.752)
6.544
(0.556)
Cost strategy
×
Quality
strategy
Training
×
Flexibility
strategy
R2
∆R2
F for ∆R2
Note:
Manufacturing
manufacturing
×
Training
Model 3
0.71
128.9**
0.58
17.59**
0.72
0.61
0.73
0.62
0.01
0.03
0.01
0.01
65.70**
8.9**
44.78**
5.53**
N = 196 for all models.
T-tests are given in parentheses.
*Significance at the 0.1 level.
**Significance at the 0.05 level.
134
Chapter 4: Training, organisational strategy and firm performance
Table 4.4: Results of Regression Analysis for Training, Organizational Strategy, and
Firm Productivity
Variables
Model 1
Manufacturing
Non-
Model 2
Manufacturing
manufacturing
Constant
4.189**
(4.456)
0.596**
(12.451)
-0.771**
(-7.073)
0.177*
(1.633)
Capital
Firm size
Training
10.245**
(6.777)
0.382**
(3.931)
-0.322
(-1.081)
-0.172
(-.778)
Cost strategy
Quality
strategy
Flexibility
strategy
Training
Non-
Nonmanufacturing
3.464**
(3.429)
0.594**
(12.327)
-0.766**
(-6.963)
0.185*
(1.708)
0.599**
(1.939)
10.696**
(6.637)
0.329**
(2.939)
-0.318
(-0.990)
-0.174
(-0.722)
0.468
(0.977)
2.591*
(1.762)
0.605**
(12.553)
-0.730**
(-6.582)
0.201
(1.451)
0.954**
(2.706)
11.508**
(4.533)
0.337**
(2.582)
-0.204
(-0.525)
-0.317
(-0.873)
0.639
(1.038)
0.091
(0.583)
0.419
(1.125)
0.007
(0.047)
0.465
(1.041)
0.668**
(2.056)
-0.126
(-0.304)
0.995**
(2.692)
-0.195
(-0.396)
-3.93
(-1.267)
-4.04
(-0.458)
2.37*
(1.609)
-2.045
(-0.212)
-3.60
(-0.752)
6.544
(0.556)
Cost strategy
×
Quality
strategy
Training
×
Flexibility
strategy
R2
∆R2
F for ∆R2
Note:
Manufacturing
manufacturing
×
Training
Model 3
0.55
61.69**
0.32
5.77**
0.56
0.35
0.57
0.37
0.01
0.03
0.01
0.01
31.87**
3.15**
21.94**
1.98**
N = 196 for all models.
T-tests are given in parentheses.
*Significance at the 0.1 level.
**Significance at the 0.05 level.
135
Chapter 4: Training, organisational strategy and firm performance
Figure 4.1: Training, organizational strategy, and firm performance
Organizational strategy
-
Cost strategy
Quality strategy
Flexibility strategy
Firm performance
Training
-
136
Firm Sales
Firm Productivity
Chapter 5: Training and firm performance: An international comparison
Chapter 5: Exploring the training - firm performance link in
emerging economies: an international comparison between
Vietnam and China1
Nguyen Ngoc Thang 2
Faculty of Economics and Business Administration, Ghent University
Dirk Buyens
Faculty of Economics and Business Administration, Ghent University & Vlerick
Leuven Gent Management School
1
This paper is the product of a collaborative effort of Prof. Dr. Buyens and Nguyen Ngoc Thang. It has
accepted for presentation at the An International Symposium “China’s Rise and Its Impact on Asia:
Democratization, Development and Culture, March 20-22, 2009, Kentucky, U.S. and 24th Workshop on
Strategic Human Resource Management April 6-7, 2009, INSEAD, Brussels, Belgium
2
Corresponding author. E-mail: [email protected]
137
Chapter 5: Training and firm performance: An international comparison
Abstract
This paper provides a comparative analysis the role of training and its impact on firm
performance in different emerging economies – Vietnam and China. The starting
point is an examination of the country contexts and training, and how these have
shaped organizational approaches to human resource (HR) training. The paper also
reviews the results of recent studies that have investigated the relationship between
training and firm performance in Vietnam and China. The review results show that
training is positively related to firm performance and reveals some convergence of
HR training in both of these countries. We are also drawing some propositions that
might happen to HR training in two these countries in the future. The paper ends with
some theoretical and management implications.
Keywords: Training; Firm performance; Convergence; Vietnam; China
138
Chapter 5: Training and firm performance: An international comparison
5.1 Introduction
The relevance of human capital, defined to include both education and postschool training, contributes to the economic growth and firm performance through
raising the productivity of an enterprise and facilitating the adaptation and use of new
technologies (Lawler, Mohrman, & Ledford, 1998; Martocchio & Baldwin, 1997).
However, there is currently a debate regarding whether or not the private sector or the
government is the best provider of training. In addition, training among countries
seems to be associated with the stages of industrial and economic development,
cultural features, country institutions, or globalisation (Rowley, & Benson, 2002;
Rowley, Benson, & Warner, 2004). There are only a few studies on comparative
training and its impact on firm performance in terms of emerging economies and very
little multitude of bilateral comparative study of Vietnam and China. This paper
consequently attempts to make a contribution to close this research gap.
It is difficult to compare training and its impact on firm performance in
different countries (e.g. different culture, economic values), and this study is no
exception. This paper was undertaken among developing countries in Asia - Vietnam
and China. These countries were chosen because (1) they are developing countries
which have joined the World Trade Organisation (WTO) and are attempting to make
a transition from a command economy to a market economy, (2) they show high
economic growth and the restructuring and downsizing of state-owned enterprises
(SOE) are increasing and SOE have been playing a very significant role with respect
to employment, (3) foreign investment has increased exponentially since the
introduction of Investment Law and its influence on training, and (4) governments
and families are anxious to invest in education and training. This comparative analysis
139
Chapter 5: Training and firm performance: An international comparison
focuses on the social-economic context of the two human resource training systems
and aims to provide an answer to the question “How the different developing country
contexts are shaped company approaches to training?”
The paper begins with an examination of the country contexts and training,
and how these have shaped organisational approaches to HR training. In the next
section, we briefly review the results of current studies that have investigated the
influence of human resource training on firm performance in both these countries.
The fourth section provides results, discussion, explanations, propositions that might
happen for HR training in the future, and implications for theory and practice. The
conclusions and suggestions for future research are then outlined in the last section.
5.2 Method
In the effort to integrate the effects of globalisation in the analysis, the various
socio-economic contextual factors were the starting-point for this paper, in order to
analyse the possible contextual dependency of the various human resource training
systems. Whereas empirical study is comparatively easy in terms of the different
human resource training systems, this type of research design is not a realistic option
for a study which is reviewing the varied of cultural, economic and managementrelated contexts of each country (Pudelko, 2006). Therefore, to answer the above
research question, one empirical study seems to be unrealistic, so a literature review
approach was chosen to provide a variety of socio-economic contextual factors and
sub-areas of management in the analysis and to assess the existing intellectual
territory and diversity of knowledge of management studies (Tranfield et al., 2003;
Weick, 2007).
140
Chapter 5: Training and firm performance: An international comparison
In addition, by reviewing and analysing a multitude of the findings from
previous empirical studies that used econometric techniques to estimate the impact of
human resource training on firm performance in Vietnam and China, and integrating
the obtained information with socio-economic contextual factors, we obtained a more
complete overview of HR training and firm performance between Vietnam and China
than any single empirical study would be able to provide. We have also addressed the
lack of critical assessments and tried to develop the existing body of knowledge
further.
5.3 Country context and training
5.3.1 Vietnam context
Vietnam embarked on the Doi Moi (renovation) policy in 1986. Since then, the
country has experienced radical changes, first and foremost in its fundamental
economic thinking. The centrally planned economy a-la-the Soviet Union was
replaced by a market economy, albeit of a socialist character, which started with a
sweeping restructuring of the state-owned sector. This allowed the private sector to
join the economy, which facilitated the process of full integration into the region and
world mainstream (Thang & Quang, 2005a). During 20 years of Doi Moi, the gross
domestic product (GDP) of Vietnam has seen sustained growth (Central Institute of
Economic Management, CIEM, 2006). The rate of increase was 8.2 per cent each year
on average in the 1991–1995 period, reaching 8.5 percent in 2007 (General Office of
Statistics, 2008).
The Doi Moi (renovation) policy has opened up new opportunities for Vietnam
to make full use of its inherent comparative advantages, notably relatively untapped
141
Chapter 5: Training and firm performance: An international comparison
natural resources and an abundant and low-cost workforce. These advantages are
being exploited to raise Vietnamese exports, which helps generate an increasing flow
of foreign income for economic growth and industrialisation. Vietnam has also
attracted significant inflows of foreign direct investment (FDI). FDI not only generate
profits for foreign investors, but also represente an important capital source, which
brings in technology transfer and advanced managerial skills. In addition, FDI has
created tens of thousands of jobs (Ministry of Planning and Investment, 2001).
However, Vietnamese labour remains relatively abundant and inexpensive although
many companies are faced with a chronic shortage of skilled workers. As a result of
Vietnam becoming a member of the WTO in November 2006, there is expected to be
a surge in foreign direct investment and international trade, which will undoubtedly
lead to much higher growth in labour demand (Anh & Thang, 2007).
Training in Vietnam: The educational system in Vietnam has developed from
pre-school education to doctoral level at university. The system had been dominated
by public and formal schools, but there are now some private schools, different forms
of informal education, open learning, distance education, and joint ventures with
foreign institutions (Ministry of Education and Training, MOET, 2001). The
Vietnamese government considers vocational training as one of the main tasks of
education and HR development because the majority of jobs most needed in
Vietnam’s transitional economy relate to technical skills. Annually, over one million
new workers seek jobs (General Office of Statistics, 2008). The growing economy
needs qualified workers. At the same time the employment problem has become more
critical. Although the Vietnamese government has implemented several policies and
designed specific programmes to reform the education and training system, there is an
142
Chapter 5: Training and firm performance: An international comparison
urgent need to improve the quality of Vietnamese workers at all levels of the labour
structure. It is reported that only 20 percent of the working age population has
vocational education or training and that education is not linked strongly with
practical and organisational needs (MOET, 2001; CIEM, 2006). Up to 80 percent of
graduates need specific employer training to match specific job requirements.
The shortage of qualified workers in sectors with opportunities for growth and
employment has a negative impact on the quality of the production process and
endangers the growth strategies of companies (CIEM, 2006). Vocational education
development is challenged from both a supply and demand perspective. On the supply
side, there has been and continues to be a shortage of faculty, facilities, equipment,
materials and practical training programmes. On the demand side, many students
consider that vocational education lacks the prestige attributable to a university
education in a society where education is still regarded as the biggest investment any
parents can make for their children’s future (Thang & Quang, 2007). Consequently,
many potential students will not pursue a vocational education in favour of a college
or university degree even though the unemployment rate among college and
university graduates is extremely high. The percentage of students enrolling in
professional secondary and vocational schools remains low with slight and slow
increase (General Office of Statistics, 2008). This has caused a huge imbalance in the
labour market in Vietnam and effect on the sustainable development of the country.
Most Vietnamese companies recognise the importance of training and
development to their success, but face problems in funding these activities. Employers
often decide upon equipment and built factories rather than training and developing
people. However, the quality of education in general is not adequate, often failing to
143
Chapter 5: Training and firm performance: An international comparison
meet regional and world standards or the actual needs of the companies (CIEM,
2006). The majority of graduates are critically limited in practical skills and in the
ability to adapt to professional work, work discipline and teamwork. To close this
gap, private and state-owned enterprises have begun to reserve a proportion of their
budget for employee training (Thang & Quang, 2007; Thang, Thu & Buyens, 2008).
In these schemes, incentives are offered to enterprises to encourage in-house training
for their employees. Exemption from taxes relating to training is permitted, as is
subsidised credit for newly established training institutions (Vietnam’s Law of
Education, 1998). Indeed, the practice of the dual system of training in both schools
and enterprises has been quite successful because theory and basic skills can be more
efficiently taught in schools and institutions whereas advanced technical and practical
skills are better learned in the workplace (MOET, 2001; CIEM, 2006).
5.3.2 China context
China launched its first attempt at economic reform at the end of the 1970s
with “open door” policies and entered a period of rapid and sustainable economic
growth. The majority of reforms were aimed at replacing direct government
administration at the enterprise level, facilitating the introduction and expansion of
private enterprises, and attracting foreign direct investment (Ahlstrom et al., 2005).
However, the socialist market mechanism has been maintained in a general context of
political stability. Real GDP growth rates for China have averaged about ten percent
each year for the past 30 years (China Statistics Yearbook, 2004). These reforms have
led to an emergent external labour market, require a large amount of labour and
brought a great opportunity to employees of the country’s huge workforce. A more
144
Chapter 5: Training and firm performance: An international comparison
flexible labour market is being developed to replace government assignment and
firms have gained more autonomy to recruit employees and other HR functions. In
the first 20 years of reform, 300 million job positions have been created (Xie & Wu,
2001).
Training: Although China has gained some great achievements in economic
growth and increased annual spending on education, the skills and knowledge of
workforce are still poor. According to the First Census of China 2000, only 3.61
percent of the Chinese population has received higher education. This situation has
forced the central government to pay more attention to education and training needs.
Some laws and regulations related to training were issued (Xie & Wu, 2001).
While the Vocational Education Law in 1996 encouraged financial institutions to
support and develop vocational education by applying a means for credit or
cooperation between enterprises and vocational school for the training of students, the
Labour Reserve System imposed in 1996 was prepared for those who graduated from
high school but were not qualified for higher education to undertake vocational
school. However, the training and development infrastructure was still weak. There is
a constant lack of equipment and qualified teachers, and most infrastructures for this
development remain under construction, especially in the rural and remote areas.
Therefore, enterprises have faced an acute deficiency of skilled workers (Yan, 2007).
Economic reform developed the classification system of SOEs and non-SOEs.
Non-SOEs include local private enterprises and foreign-invested enterprises (FIE).
FIEs tend to offer more training programmes than other types of enterprises. The large
FIEs often pay more attention to training and offer training and development packages
to their employees (Tang et al., 1996; Ngo et al., 1998). The introduction and
145
Chapter 5: Training and firm performance: An international comparison
exponential increase of foreign investors has created the opportunity for local nonSOEs to adopt some of the “new” HR training policies (Zhu, Rowley & Warner,
2007). SOEs are often less receptive to adopting sound HRM than the local private
companies. In addition, SOEs provide less training for their employees. This situation
has been caused by many factors but the main reason is the “old” training vision of
managers and their budgets, which lack internal resources for training. They view
expenditure for training as an expense rather than as human resource capital
investment. Commonly, employers decide upon other investment priorities (such as
technological change) rather than the training and developing of people, which has
left the employees with no choice but to seek self-development in external vocational
schools, colleges and universities (Xie & Wu, 2001).
5.4 The literature on the relationship between training and firm
performance
The evidence for the links between training and firm performance is extremely
strong in the developed countries (Lawler et al., 1998; Martocchio & Baldwin, 1997;
Zwick, 2006) and increasingly in the developing countries such as China and Vietnam
(Tang et al. 1996; Ng and Siu, 2004; Thang & Quang, 2005a). A number of studies on
China and Vietnam have estimated the impact of training on firm performance by
using firm-level data collected through mail surveys. The most frequently cited China
studies are those by Tang and colleagues (1996), Zhu (1998), Ng & Siu (2004) and
Vietnamese studies are those of Quang & Dung (1998), Thang & Quang (2005a,
2005b), and Thang, Thu & Buyens (2008). The main attributes and findings of these
studies are summarised in table 5.1.
146
Chapter 5: Training and firm performance: An international comparison
The first study on China looked at 156 FIEs and was that by Tang and
colleagues (1996) conducted in late 1995. It indicated that training had a positive and
significant effect in (1) improving the administrative ability of management, (2)
improving productivity, (3) expanding employees’ skill range, (4) developing
employees’ ability to cope with technical innovation, (5) responding to production
changes and (6) improving employees’ morale. In addition, the authors also found that
staff turnover had a powerful effect on employer decisions to provide training to
employees because the high mobility of employees implies that a given rate of
investment in employees, results in a smaller stock of workers with firm-specific
skills.
The second study of 253 enterprises by Ngo et al., (1998) analysed the
relationship between training and firm performance of Chinese, American, Japanese
and British firms that had been operating in China. The findings indicated that
training had positive effects on employee satisfaction, employee retention,
competitive sales performance, competitive new product development, and
competitive net profit. In addition, they found that local Chinese firms tended to
provide less structural training and development than American, British, and Japanese
firms.
The third study of 440 enterprises of various ownership types in Shanghai by
Zhu (1998) showed that training was recognised as an effective tool to improve firm
performance. More specifically, she found that training was used to help employees
understand the organisational business strategy and value system. In addition, the
results also indicated that training focused more on job-related skill and improvement
of employee productivity.
147
Chapter 5: Training and firm performance: An international comparison
Finally, a study by Ng & Siu (2004) estimated the impact of training on firm
performance in SOEs and non-SOEs. They found that managerial training had a
positive and significant effect on sales in both SOEs and non-SOEs.
However,
technical training made no contribution to firm productivity. The study also indicated
that training objectives have three major dimensions, namely enhancing working
relationships, tackling skill deficiencies, and skill development. In addition, SOEs
tend to focus more on skill development whereas non-SOEs concentrate on enhancing
both working relationships and skill development.
Three Vietnamese studies have sought a link between workforce training and
firm performance. First, Quang & Dung (1998) used data collected from 47 SOEs in
southern cities and provinces in Vietnam to examine the role of human resource
training in firm performance. They found that 96 percent of the SOEs claimed to
provide training for their employees and 62 percent of the SOEs provided training for
new employees. The study also indicated that the major reason for training was to
improve employee performance, thus improving the performance of the enterprises. In
addition, other reasons for training were job satisfaction, the acquisition of
professional qualifications, and a type of compensation.
Second, Thang & Quang (2005a) used data from a study of 137 cross-sector
enterprises to estimate the impact of training on firm performance. The survey was
conducted in 2003. They found that there was a positive association of training with
market share and organisational performance. In a follow-up paper, Thang & Quang’s
(2005b) indicated that (FIEs) tended to provide more on-the-job training than other
types of enterprises. However, off the job training was preferred less by FIEs than by
SOEs.
148
Chapter 5: Training and firm performance: An international comparison
Finally, Thang, Thu & Buyens (2008) studied the impact of training
programmes on firm performance by using the data from the VESI 2007. From a
survey of 196 companies, the major findings indicated that the companies which
implemented training in 2006 had increased sales and productivity (0.18 percent) in
manufacturing companies. In addition, manufacturing companies which implemented
training programmes after 2005 increased of 0.32 percent in total sales and
productivity per year between 2005 and 2006. However, we found no statistically
significant effect on 2005-2006 percentage change in sales and productivity of nonmanufacturing companies if these companies provided training after 2005. The survey
result also shows that manufacturing companies have been solely focusing on training
for technical engineers. The econometric analysis method in this study which assisted
the authors in overcoming the limitations of estimation depends on the accuracy of the
assumption regarding the cost of training and the accuracy of the subjective estimates
of firm performance (Bartel, 2000).
5.5 Results and Discussion
5.5.1 Differences
There are a number of studies indicating that organisational differences in
human resource policies and practices, including training policy, are related to
variations in national legislation and the cultural framework of a country (Brewster &
Bournois, 1991; Lane, 1991; Randlesome, 1993; Shaw et al., 1993; Brewster &
Hegewisch, 1994). In addition, the contexts for training policy differ between
Vietnam and China due to the timing and the pace of economic reform, educational
149
Chapter 5: Training and firm performance: An international comparison
policy, and employment status. Therefore, there are three major differences in training
between Vietnam and China.
First,
both China and Vietnam
have
followed an export-oriented
industrialisation strategy and are now gradually shifting to export-oriented economies.
The strategy is linked to particular human resource management policies that stress
training and human resource development (Kuruvilla & Venkataratnam, 1996). More
specifically, Kuruvilla (1994) suggests that there are variable stages in the strategy.
The first stage focuses on low-cost production of light manufacturing goods for export
coupled with a highly compliant labour force. However, the advanced stage of exportoriented strategy is based on higher technology and highly skilled labour
requirements. Both countries, at this stage, have made efforts to develop the skills of
their workforce through various training programmes as well as providing betterqualified workers for the growing export industry. Therefore, the stage of economic
development and the industrial strategies adopted affects the decisions of both
government and employers with regard to the provision of training to employees.
China and Vietnam are currently at different stages of economic development. Local
non-SOEs in China make a significant investment in a variety of training programs to
upgrade skills of their employees (Xie & Wu, 2001) whereas local non-SOEs in
Vietnam seldom have training programmes for their employees. Almost all training
programmes have been provided by government funding (Thang & Quang, 2007).
Second, although Vietnamese education has undergone 20 years of renovation
and reform and gained some important results, there is a huge imbalance of labour
structure in the Vietnamese labour market. One explanation for this situation could be
the fact that many Vietnamese students consider that vocational education lacks in
150
Chapter 5: Training and firm performance: An international comparison
prestige compared with a university education in a society where education is still the
biggest concern shared by many parents about their children. Consequently, many
children will not pursue vocational education in favour of a college or university
degree despite the high rate of unemployment among college and university
graduates. Slow increase in the percentage of students applying for professional
secondary and vocational schools hardly helps improve the situation (Thang &
Quang, 2007). In contrast, more and more students in China are willing to undertake
vocational schooling instead of studying in college and university (Xie & Wu, 2001).
In addition, manufacturing companies in Vietnam have been focusing on training for
technical engineers rather than workers (Thang, Thu & Buyens, 2008), whereas
training in China has spread from the unskilled to technical engineers and staff. The
different stages of economic development may be a reason for this phenomenon.
Finally, there are more training and development laws and regulations in
China than there are in Vietnam because China pursued economic reform 20 years
before Vietnam. During this time, the Chinese government introduced more than 20
laws and regulations relating to employment training (Rowley & Benson, 2002).
More specifically, Chinese laws and regulations on training include the labour law;
the strategic decision on education system reform by the central committee of the
communist party of China; the compulsory education law of 1986; the vocational
education law in 1996; the labour reserve system enforced in 1996; the vocational
ability appraisal system and the vocational qualification certificate system. However,
in Vietnam, there are only the labour code, educational law, and vocational law.
Furthermore, the functions of the mediation and arbitration system are more effective
in China than in Vietnam (Zhu & Fahey, 1999).
151
Chapter 5: Training and firm performance: An international comparison
5.5.2 Similarities
The country context, education and training situations, and case studies also
highlight four significant similarities in training between Vietnam and China.
First, economic reform has dramatically changed the business landscapes of both
Vietnam and China, especially the openness of the economy and encouragement of
foreign investment. FIEs have been brought in and have transferred new human
resource policies and practices to Vietnam and China in general and training policies
in particular. Perhaps one of the biggest factors influencing employer-training
decisions is the labour market in which firms operate and the skills available in that
market. Therefore, when foreign investors recognise the shortage of qualifications and
skills within the labour market for their production processes and purposes, training is
considered a necessary and vital tool to fill this gap. Studies by Ngo and colleagues
(1998) and Thang & Quang (2005b) indicated that FIEs have been offering more
training for employees than other types of enterprises.
Second, within SOEs in both China and Vietnam, training is still used as a
reward mechanism (Xie & Wu, 2001; Quang & Dung, 1998) or SOEs use more
formal training programmes rather than informal ones. More specifically, training is
considered a means to provide the employees with some kind of compensation within
the SOE’s, especially when employees attend training programmes abroad. In these
cases, the trainees tend to consider training as an opportunity to travel or to save
money, due to the low level of income and poor benefits system of SOEs.
Third, both the Chinese and Vietnamese education systems are under
construction and renovation (Xie & Wu, 2001; Thang & Quang, 2007). Thus, the
graduates are still weak in quality and lack the necessary and practical skills when
152
Chapter 5: Training and firm performance: An international comparison
they join the labour markets. In order to facilitate the solving of this dilemma, the
governments have placed emphasis on the whole area of training and skill
development, to encourage the link between training and job placement. Accordingly,
training organisations and companies have been cooperating in the building of
training content, curricula, teaching materials and the development of dual courses
that combine study and work experience. In this way, training organisations can
satisfy the company’s needs for labour requirements. In addition, companies can also
receive a reduction in revenue tax, if they provide training for local employees.
Finally, aside from the improvement in the quality of labour force skills and
the encouragement to link training with job placement, both China and Vietnam have
been encouraged to expand and increase international cooperation for education and
training with prestigious universities and institutes all over the world, as well as
training and research projects based on financial aids or loans from international
organisations in order to train technical workers (MOET, 2001; Keyong, 1998).
Further, foreign organisations with experience and high qualification in the training
area are being encouraged to establish educational campuses in China and Vietnam by
virtue of 100% foreign capital or join-venture ownership with local partners.
5.5.3 Is there convergence in HR training between China and Vietnam?
Convergence theorists suggest that the process of industrialisation and the
spread of advanced technology could shift all countries towards political and
economic systems similar to those of the United States (Kerr, 1983; Sparrow et al.,
1994; Tregaskis et al., 2001). An implication of this approach is that there are
convergences of HRM/ HR training across national borders. Multinational companies
153
Chapter 5: Training and firm performance: An international comparison
are physically dispersed in environmental settings that represent very different
economic, social and cultural groups (Hofstede, 1980; Humes, 1993). They adapt and
follow different HRM approaches and practices to respond to both environmental and
organisational requirements across businesses, functions and geographic locations
(Brewster, 1995; Tregaskis, 1997). Solomon (1995) argues that multinationals are
paying greater attention to cross-cultural issues as they search for ways to improve
human resource development in their overseas operations. Thus, increasingly, global
companies are exporting their management development and training systems
internationally.
However, Bamber & Lansbury (1998) argues that the differing cultural and
institutional factors might act as constraints and further limit the prospects for
convergence. More specifically, from the cultural perspective, cultural factors include
not only the values held by individuals and relations between people at work and in
their families, but also the structure of the firm and society in which they operate
(Whitehill, 1991). Both product-market and social-cultural “logic” shape HRM
policies (Evans & Lorange, 1989). From the institutional perspective, Kerr (1983)
argued that the traditional values and practices are embedded in a country’s social and
economic institutions. Accordingly, pre-industrial history, cultural factors and the
processes of industrialisation have shaped institutions that in turn have shaped Asian
business systems (Whitley, 1992). Within the field of HRM, Brewster et al. (2004)
suggest that institutional factors have a significant influence on the kinds of policies
that organisations adopt and the roles that they enact.
We now turn to the argument postulating that relative convergence in HR
training is occurring between Vietnam and China. The economic reforms in both
154
Chapter 5: Training and firm performance: An international comparison
these countries aim to replace a centrally planned economy with a market economy.
The major features of reform seem to be restructuring SOEs and to launch a new form
of ownership – private enterprises, which include FIEs and local private enterprises.
Thus, on the one hand, FIEs have been not only contributing to national economic
growth, but they have also brought modern managerial expertise into these two
countries. Those companies with long experience in market economy have more
developed and sophisticated HRM practices than companies previously in the
centrally planned economy (Weinstein & Obloj, 2002). They adopt a more
cooperative strategy to cope with the requirements of the host country and pay more
attention to providing appropriate working conditions and training for their
employees. They are more sensitive to training and consider it as an investment rather
than a cost.
On the other hand, the economy reform and the introduction of foreign
investment have created the opportunity for local domestic enterprises to adopt some
of the “new” HR practices. SOEs that are involved in joint ventures (JVs) or
contracting arrangements with foreign companies are more likely than other SOEs to
have adopted HRM. In addition, a number of studies by Ding, Goodall, and Warner
(2000) on China and Thang and Quang (2005a, 2005b) on Vietnam show that
multinational companies and JVs have a positive impact on changes in HR practices.
They not only introduce updated management systems and practices into their
business operation, but also influence local enterprises in changing traditional peoplemanagement practices. Therefore, Kamoche (2001) and Warner (1996a) suggest that
human resource management in China and Vietnam may move towards a hybrid form
combining local management characteristics with modern Western practices. It is also
155
Chapter 5: Training and firm performance: An international comparison
expected that the role of training will incorporate some aspects of a Western-style
individualistic
approach,
emphasising
work-related
knowledge
and
skills
improvement, whilst maintaining some elements consistent with host countries
ideologies.
To summarise, the above evidence indicates not only that there is some
convergence in HR training occuring in Vietnam and China, but also that this
convergence tends towards Western HR practice. However, the different stages of
industrial and economic development, coupled with the unique value systems of each
country, their various cultural features, and institutions have imposed some limitations
and constraints against on this convergence.
5.5.4 What might the future bring for training in these countries?
It is clear that the transition in both China and Vietnam is not yet complete and
the quality of labour force remains low (Xie & Wu, 2001; Thang & Quang, 2007).
Thus, policymakers continue to be confronted with difficult problems with respect to
labour training, which can influence economic reform and development. The
restructuring of the education system in order to facilitate the needs of an increasingly
developing society and meets the needs of a country in the period of industrialisation
and modernisation is increasing and will no doubt persist over the coming years. More
and more laws and regulations relating to training are officially launched in order to
renovate the contents and curricula of training, education management, and strengthen
international cooperation on training as well as encourage enterprises to attend the
requisite training courses. The cooperation on training between governments and
enterprises continues to be developed. In addition, more and more young people are
156
Chapter 5: Training and firm performance: An international comparison
willing to undertake vocational training than general training in universities in order
to comply with the job markets.
The entry of FIEs and JVs has helped to introduce new HRM concepts (Zhu,
Rowley & Warner, 2007) and as a result changes in staffing, training and
compensation practices are happening. They are more involved in capital-intensive
and high-tech which do not require the exploitation of cheap labour to make a
product, as control over the technology and the market is more important. Therefore,
they pay more attention to providing appropriate working conditions and training, and
encouraging workers’ participation in their training programmes. By cooperating with
host governments and training organisations the companies can achieve their longterm goals for skilled employees. In addition, they will continue to provide more
training for their employees than other types of ownership enterprises in Vietnam and
China in the near future. However, the different institutional frameworks and stages of
economic development between the countries will require multinational companies to
pursue a distinctive HR training policy (Rowley & Benson, 2002).
Increased levels of global competition are already affecting both China and
Vietnam, specifically with the WTO entry. Restructuring and downsizing of
enterprises are increasing. State-owned enterprises are facing privatisation across the
countries (Collins, 2005; Zhu, 2005). Local managers are beginning to realise that
they can no longer compete solely on low labour costs with labour-intensive
manufacturing strategy and are beginning to adopt sophisticated technological
processes. Accordingly, technology must be embraced and the skills to operate and
manage this technology must accompany its introduction and development. Within
this context, the technical and problem-solving skills of employees tend to be more
157
Chapter 5: Training and firm performance: An international comparison
important in the production process. Reflecting upon this relationship, comprehensive
training programmes that emphasise development of individuals coupled with
problem-solving, technical and interpersonal skills should be instrumental in
increasing productivity and ensuring the justification of customer requirements.
Retraining of the existing unqualified employees will happen. Conversely, companies
will not pay more training expenditure for their employees, but will provide a wide
range of training programmes available for those who need them. In addition, local
enterprises will follow the Western forms of HR training (Rowley, Benson & Warner,
2004).
5.5.5 Implications and relevance of analysis
This study has implications and relevance for both HRM theory and
management practices in terms of the challenges from globalisation, market
competition, and economic reform and transition.
Theoretical implications
First, the results of this study contribute to the rapidly developing HRM
literature in that it is the first study of comparative HRM training in the two emerging
and transitional Asian economies – China and Vietnam. By comparing the training
and education systems in China and Vietnam and the impact of these systems on HR
training approaches, we have seen how the concept of convergence in HR training has
to be further differentiated and developed. The HR training has been moved toward
convergence. Some common characteristics within the training appear in both China
and Vietnam, via their respective training and education systems, and HR training
policies and practices of enterprises. In addition, a trend in HR training in developing
158
Chapter 5: Training and firm performance: An international comparison
economies may be identified. For instance, FIEs offer more training than other types
of enterprises (Quang & Dung, 1998; Thang & Quang, 2005b).
Second, our contribution relates to the relationship between company-level
training and firm performance, which is of key interest to this paper. By reviewing the
studies on Vietnam and China which have estimated the impact of training on firm
performance by using firm-level data collected through the surveys, we found that
training has a significant influence on firm performance. This finding indicates an
existing relationship between training and firm performance in emerging and
transitional economies.
Finally, in terms of methodology, it is clear that there are many factors
influencing to the training decisions as well as training programmes and expenditure.
These include economic and educational reforms, institutional framework, and
globalisation. Thus, our study is inclusive as we examined HR training combined with
other factors. Also, our study examined HR training in terms of both general training
and specific training.
Management or practice implications
Our first implication involves HRM in general and HR training in particular
for all kinds of enterprise in Vietnam and China. The low level of employee
qualification and skill shortages has been a constraint for enterprises since the quality
of human resources is crucial to the success of overseas investments and local
enterprises (Rowley & Benson, 2002). Therefore, companies should pay more
attention to HR training policies if they wish to succeed in these markets. A different
approach to training policy and the resources available may need to be adopted. More
specifically, companies may use more expenditure as well as different training
159
Chapter 5: Training and firm performance: An international comparison
programmes in order to improve the skills, commitment, and knowledge of their
employees.
Second, although both Vietnam and China are emerging economies, their
different stages of industrial and economic development and different cultures impose
considerable constraints on the introduction of HR training policy as the interaction
between various business contexts and cultures will facilitate the development of a
"unique" HRM (HR training policy) approach (Sparrow et al., 1994). More crosscultural training is needed, especially for expatriate managers in dealing with HR
problems in more locally adapted contexts.
Finally, the implications of this study for policymakers in both Vietnam and
China are significant. If public policy seeks to enhance the level of skills for workers
in all firms throughout the economy, irrespective of size or nature of ownership,
formal rather than informal training will be preferred as formal training leads to a
qualification that all employers recognise, and it is easier to monitor funding to ensure
training is actually being provided. However, it is precisely this type of training that
firms do not favour as the training is not tailored to the unique requirements of the
firms and the costs in terms of loss of staff time. Therefore, the Vietnamese and
Chinese governments cannot enhance labour and deal with skill shortages in this way.
This implies that another solution or hybrid solution needs developing in order to
overcome the difficulty.
5.6 Conclusions
This study gives a mixed picture of the review of evidence on the training
context and whether those firms providing training exhibit better performance in
160
Chapter 5: Training and firm performance: An international comparison
Vietnam or China. The results suggest that training is positively related to
organisational performance in both of these countries and some convergence of HR
training across national borders is a foregone conclusion. Globalisation and
international trade and finance may place substantial pressure on firms to standardise
HR training policy. The different stages of industrial and economic development,
cultural features, and institutionalisation of these countries, however, provide some
constraints on the degree of this convergence. There are also some marked differences
in training in the two these countries.
The study also makes some predictions about what might happen in future HR
training in these countries. Restructuring and downsizing are increasing globally and
are a further pressure on these countries to reform their education and training
systems. They are facing the need to provide training for new employees while they
may have to retrain for low skills and shortage employees at the same time. The paper
also provides significant challenges for the governments, which need to provide and
manage formal training as well as enhance the capabilities of local enterprises in
providing training for their employees on an ongoing basis.
Finally, in this study, we have focused on the existence of HR training and
firm performance but not attempted to measure HR training in the workplace and
other firm characteristics. This approach would involve detailed case studies of
Vietnam and China that have examined the influence of training on firm performance.
Therefore, future research should implement a longitudinal survey of enterprises
throughout the two these countries, covering all major industrial sectors. The
longitudinal study would allow for more accurate predictions and ability comparison
of the relationship between HR training and firm performance in China and Vietnam.
161
Chapter 5: Training and firm performance: An international comparison
5.7 References
Ahlstrom, D., Foley, S., Young, M.N., & Chan, E.S. 2005. Human Resource
Strategies in Post WTO China. Thunderbird International Business Review, 47(3):
263–85.
Anh, N. N., & Thang, N. 2007. Foreign direct investment in Vietnam: An overview
and analysis the determinants of spatial distribution across provinces. Research
Report, Munich Personal RePEc Archive.
Bamber, G., & Lansbury, R. 1998. An Introduaion to International and Comparative
Employment Relations, in G. Bamber & R. Lansbury, eds. International and
Comparative Employment Relations. London: Sage, pp. 1–33.
Bartel, A. P. 2000. Measuring the employer's return on investments in training:
Evidence from the literature. Industrial Relations, 39: 502−524.
Brewster, C. 1995. Towards a European model of human resource management
practice. Journal of International Business Studies, 26(1): 5–21.
Brewster, C., & Bournois, E. 1991. Human resource management: a European
perspective. Personnel Review, 20(6): 4–14.
Brewster, C., & Hegewisch, A. (Eds). 1994. Policy and Practice in European Human
Resource Management: Evidence and Analysis. Routledge, London.
Brewster, C., Mayrhofer, W., & Morley, M. 2004. Human Resource Management in
Europe: Evidence or Convergence? London: Butterworth Heinemann.
China Statistical Yearbook (various years from 1990–2004).
CIEM. 2006. Vietnam’s Economy in 2005. Central Institute of Economic
Management.
162
Chapter 5: Training and firm performance: An international comparison
Collins, N. 2005. Economic reform and unemployment in Vietnam. In J. Benson & Y.
Zhu (Eds.), Unemployment in Asia (pp. 176–193). London and New York:
Routledge.
Ding, D. Z., Goodall, K., & Warner, M. 2000. The end of the “iron rice-bowl”:
Whither Chinese human resource management? International Journal of Human
Resource Management, 11: 217–236.
Evans, P., & Lorange, P. 1989. The Two Logics Behind Human Resource
Management," in P. Evans, Y. Doz & A. Laurent, eds. Human Resource
Management in International Firms. London: Macmillan.
GOS, General Office of Statistics 2008. Education, Health, Culture and Living
Standards Report (Hanoi, Vietnam: Statistics House).
Hofstede, G. 1980. Culture’s Consequences: International Differences in Work
Related Values, Beverly Hills, CA: Sage.
Humes, S. 1993. Managing the Multinational: Confronting the Global-Local Issue,
New York: Prentice-Hall.
Kamoche, K. 2001. Human resource in Vietnam: The global challenge. Thunderbird
International Business Review, 43: 625–650.
Kerr, C. 1983. The Future of Industrial Societies: Convergence or Continuing
Diversity? Harvard University Press, Cambridge, MA.
Keyong, D. 1998. Report on Human Resources Development in China, 1998, Leading
Institution of the APEC HRD Working Group, P. R. China.
Kuruvilla, S. 1994. Industrialization strategy and Industrial Relations policy in
Southeast Asia. Working Paper, Institute of Collective Bargaining, Cornell
University, U.S.A.
163
Chapter 5: Training and firm performance: An international comparison
Kuruvilla, S., & Venkataratnam, C. 1996. Economic Development and Industrial
Relations: The Case of South and Southeast Asia. Industrial Relations Journal,
27(1): 9–23.
Lane, C. 1991. Management of the Total Enterprise, Prentice-Hall, Englewood Cliffs,
NJ.
Lawler, E. E., Mohrman, S. A., & Ledford, G. E. 1998. Strategies for high
performance organizations-The CEO report San Francisco: Jossey-Bass
Publishers.
Martocchio, J. J., & Baldwin, T. T. 1997. The evolution of strategic organizational
training. Research in Personnel and Human Resources Management, 15: 1−46.
MOET, Ministry of Education and Training 2001. The Vietnam Education
Development Strategic Plan for 2001–10, 2001. Hanoi: Education Publishing
House.
MPI, Ministry of Planning and Investment 2001. The socio-economic development
strategy in the period of 2001–2010. Hanoi: Statistical Publishing House.
Ng, Y.C., & Siu, Y.M. 2004. Training and enterprise performance in transition:
evidence from China. The International Journal of Human Resource
Management, 15(4): 878–894.
Ngo, H. Y., Turban, D., Lau, C. M., & Lui, S. 1998. Human resource practices of firm
performance of multinational corporations: Influences of country of origin.
International Journal of Human Resource Management: 9, 632−652.
Pudelko, M. 2006. A comparison of HRM systems in the USA, Japan and Germany in
their socio-economic context. Human Resource Management Journal 16 (2): 123–
153.
164
Chapter 5: Training and firm performance: An international comparison
Randlesome, C. 1993. The Business cultures in Germany: Part I Western Germany, in
Randlesome, C, Brierley, W., Bruton, K., Gordon, C. and King, P. (Eds), Business
Cultures in Europe, 2nd ed., Butterworth-Heinemann, Oxford.
Rowley, C., & Benson, J. 2002. Convergence and divergence in Asian human
resource management. California Management Review, 44 (2): 90–109.
Rowley, C., Benson, J., & Warner, M. 2004. Towards an Asian model of human
resource management? A comparative analysis of China, Japan and South Korea.
International Journal of Human Resource Management, 15(4): 917–933.
Shaw, J.B., Tang, S.EY, Fisher, CD., & Kirkbride, P.S. 1993. Organisational and
environmental factors related to HRM practices in Hong Kong: a cross-cultural
expanded replication. International Journal of Human Resource Management,
4(4): 785-816.
Solomon, C. 1995. Learning to manage host-country nationals. Personnel Journal,
74(3): 60–66.
Sparrow, P.R., Schuler, R.S., & Jackson, S.E. 1994. Convergence or divergence:
human resource practices and policies for competitive advantage worldwide. The
International Journal of Human Resource Management, 5: 267–299.
Tang, S.F.Y., Lai, E.W.K., Cheng, L.Z., & Zhang, S.Q. 1996. Human Resource
Management Strategies and Practices in Foreign Invested Enterprises in the
People’s Republic of China, Research Report, Hong Kong Institute of Human
Resource Management.
Thang, L. C., & Quang, T. 2005b. Antecedents and consequences of dimensions of
human resource management and practices in Vietnam. International Journal of
Human Resources Management, 16: 48–64.
165
Chapter 5: Training and firm performance: An international comparison
Thang, L., & Quang, T. 2005a. Human resource management practices in a
transitional economy: A comparative study of enterprise ownerships forms in
Vietnam. Asia Pacific Business Review, 11: 25−47.
Thang, N. N., Thu, N. V., & Buyens, D. 2008. The impact of training on firm
performance: case of Vietnam. Proceedings of the 7th International Conference of
the Academy of Human Resource Development (Asia Chapter), November 3–6,
2008, Bangkok, Thailand
Thang, N.N., & Quang, T. 2007. International Briefing 18: Training and Development
in Vietnam, International Journal of Training and Development, 11(2): 139–149.
Tranfield, D., Denyer, D., & Smart, P. 2003. Towards a methodology for developing
evidence-informed management knowledge by means of systematic review.
British Journal of Management, 14(3): 207–222.
Tregaskis, O. 1997. The role of national context and HR strategy in shaping training
and development practice in French and UK organizations. Organization Studies,
18(5): 857–875
Tregaskis, O., Heraty, N., & Morley, M. 2001. HRD in multinationals: the
global/local mix. Human Resource Management Journal 11(2): 34–56.
Warner, M. 1996a. Managing China’s Enterprise Reforms: A New Agenda for the
1990s. Journal of General Management, 21(3): 1–18.
Weinstein, M., & Obloj, K. 2002. Strategic and environmental determinants of HRM
innovations in post-socialist Poland. The International Journal of Human
Resource Management, 13(4): 642–659.
Whitehill, A. 1991. Japanese Management. London: Routledge.
166
Chapter 5: Training and firm performance: An international comparison
Whitley, R. 1992. Business Systems in East Asia: Firms, Markets and Society.
London: Sage.
Weick, K. E. 2007. The generative properties of richness. Academy of Management
Journal, 50(1): 14–19.
Xie, J., & Wu, G. 2001. International Briefing 10: Training and Development in the
People's Republic of China. International Journal of Training and Development,
5(3): 223–232.
Yan, D. 2007. Study on Training for Senior Skilled Workers. A Comparison between
Japan and China. Research Report, The Japan Institute for Labour Policy and
Training.
Zhu, C.J. 1998. Human Resource Development in China during the Transition to a
New Economic System. Asia Pacific Journal of Human Resources, 35(3): 19–44.
Zhu, Y. 2005. The Asian crisis and the implications for human resource management
in Vietnam. International Journal of Human Resource Management, 16: 1261–
1276.
Zhu, Y., & Fahey, S. 1999. The impact of economic reform on industrial labour
relations in China and Vietnam. Post-Communist Economies, 11(2): 173–192.
Zhu, Y., Rowley, C., & Warner, M. 2007. Human resource management with Asian
characteristics: A hybrid people management system in East Asia. International
Journal of Human Resource Management, 18: 44–67.
Zwick, T. 2006. The Impact of training intensity on establishment productivity.
Industrial Relations, 45: 26−46.
167
Chapter 5: Training and firm performance: An international comparison
Table 5.1: A summary of empirical case studies on the relationships between training
and firm performance in China and Vietnam
No
Author/study
Sample
Performance measure
Findings
size
1
Tang
et
al.
156
(1996)

Productivity
Training has positive and significant

Employees’
effects in (1) productivity and employees’
morale
morale, (2) developing employees’ ability
Production
to cope with technical innovation, (3)
changes
responding to production changes.
Employee
Training has positive effects on perceived

2
Ngo, Turban,
Lau & Lui
(1998)
253

retention
and
employee satisfaction (r=.32), perceived
satisfaction
employee retention (r=.16), perceived

new product
competitive sales performance (r=.21),

sales and profit
perceived competitive new product
development (r=.35), and perceived
competitive net profit (r=.31).
3
4
Zhu (1998)
Ng
&
440
Siu
485
(2004)

Employee
Training is recognized as an effective tool
productivity
to improve perceived firm performance.

Commitment

Sales
1 percent increase in managerial training

Productivity
induced increase in sales from 0.13 to
0.32 percent.
5
Quang
&
47

Dung (1998)

Employee
Training has positive effects on perceived
performance
employee
Job
satisfaction.
performance
and
job
satisfaction.
6
Thang
&
137/ 169
Quang

Market share
There is a positive association of training

General
with
(2005a/
firm
market
share
and
perceived
performance
organizational performance.

Sales
1 percent increase in training lead to

Productivity
increase total firm sales and productivity
2005b)
7
Thang, Thu &
Buyens
196
(2008).
(0.18
percent
companies)
168
in
manufacturing
Chapter 6: Conclusions
Chapter 6: Conclusions
169
Chapter 6: Conclusions
In this dissertation, we have investigated the impacts of training on firm
performance. As argued in chapter 1, it is difficult to find strong evidence of training
investments justified in terms of improved firm performance in the HRM literature
(Salas & Cannon-Bowers, 2001). Therefore, we conducted a series of studies in order
to (1) advance understanding of the relationship between training on firm performance
as a contribution to the HRM literature; (2) determine the extent to which HR training
policies directly enhance firm performance; (3) analyse the moderating effects of
organisational strategy on the relationship between HR training and firm performance;
and (4) examine how the different emerging economic contexts shape organisational
approaches to HR training. In this chapter, we present the major findings of previous
chapters, and summarises the contributions of this dissertation to theoretical and
managerial implications. Finally, we discuss the limitations as well as presents
directions for future research.
6.1 Major findings
The literature reviewed in the first study (chapter 2) provided an inconsistent
and insufficient picture of previous studies on the impact of training on firm
performance. By distinguishing how the studies are conducted and how key outcome
variables are measured, we were draw three important conclusions.

As presented in the theoretical framework for analysing training and firm
performance issues in figure 2.1 and 2.2, training has directly improved HR
outcomes (e.g., knowledge, skills, abilities, attitudes, behaviour, and
motivation of employees). By directly linking training with firm performance,
most studies have ignored the potential mediating role of these HR outcomes
170
Chapter 6: Conclusions
on the relationship. Thus, an important question is whether training indeed
unequivocally affects to HR outcomes, which in turn impacts on firm
performance level. In addition, although training activities are acknowledged
to play an important role in linking employees with firm performance.
However, the specific form - universal perspective or contingency perspective
- of the relationship between training and firm performance is still open to
debate.

Almost all these studies have been implemented in developed countries (e.g.,
Aragon-Sanchez et al. 2003, Barrett & O’Connell, 2001; Bishop, 1991; Faems
at al., 2005; etc.) and the relationship between training and organisational
performance has not been adequately addressed and studied in developing
countries. In addition, the impact of training for different types of employees
(e.g., worker, supervisor, office staff, manager, etc.) and their performance
might vary according to job characteristics, specific sectors and geographical
locations.

A number of researchers (e.g., Bishop, 1991; Fey et al, 2000) have used
subjective methods for their studies, whereas other studies (e.g. AragonSanchez et al. 2003, Bassi & Van Buren, 1998; Rodriguez & Ventura, 2003)
have low response rates of questionnaires or lack reliable data for estimation.
As reviewed in previous sections, however, the results of the estimate depend
on the accuracy of the assumptions, whereas low response rate and lack of
data may lead to incorrect results. Thus, a firm-level dataset should be used to
overcome the limitations of the subjective measure method.
171
Chapter 6: Conclusions
Given that the specific form of the relationship between training and firm
performance is still open to debate, a second study (chapter 3) was set-up to examine
the impact of training on firm performance based on the universal approach. We used
empirical data from the VESI 2007 to measure the impact of training programmes on
firm performance. With a standard Cobb-Douglas production function, data from 196
companies were used to assess the impact of training on firm performance. The major
findings indicate that:

The companies that implemented training in 2006 have increased sales and
productivity of manufacturing companies (0.18 percent).

The manufacturing companies that implemented training programmes after
2005 found it lead to an increase of 0.32 percent in total sales and productivity
per year between 2005 and 2006.

There is no statistically significant effect on 2005-2006 percentage change in
sales and productivity of non-manufacturing companies if these companies
provided training after 2005.
Both the first and second studies suggested that training may be more
beneficial for organisations if training was consistent with other characteristics of the
organisations. Thus, the contingency perspective has been used to examine the link
between training and firm performance. Using the same empirical data from the
second study, the third study (chapter 4) looked at the moderating effects of
organisational strategy on the training-firm performance relationship. Results of
regression from VESI 2007 show that quality strategies moderated the training-firm
sales and productivity relationship. However, we found no significance in the
172
Chapter 6: Conclusions
moderating effects of cost strategies and flexibility strategies on the training- firm
performance relationship.
The increasing internationalisation of markets has meant organisations are no
longer operating within the confines of one national context. Thus, it is necessary to
examine how different emerging economic contexts have shaped organisational
approaches to HR training. Using the research results from chapters 2, 3, 4 and other
previous studies, the fourth study (chapter 5) examined how the Vietnamese and
Chinese contexts have shaped organisational approaches to training and the effect of
training on firm performance. The research results show that:

The results suggest that training is positively related to organisational
performance in both of these countries.

There are a number of convergences of HR training that have occurred in both
these countries. The different stages of industrial and economic development,
cultural features, and institutions, however, impose some constraints on the
degree of the convergence.

We are also making predictions about what might happen to HR training in
two these countries in the future. Restructuring and downsizing will increase
in the coming years and require the two countries to continue to reform their
education and training systems. They are faced with providing training for
new employees while they may have to retrain low-skilled and shortage
employees at the same time. The chapter also provides significant challenges
for these governments in providing and managing formal training as well as
enhancing the capabilities of local enterprises to provide training for their
employees in the future.
173
Chapter 6: Conclusions
6.2 Theoretical implications
The main purpose of this dissertation was to examine both the universal and
contingency perspectives on the relationship between training and firm performance.
Our findings contribute to the literature on HR management, strategy management,
and science of training in several ways.
First, our results contribute to the rapidly developing human resource
management literature. More specifically, organisational strategy is a major
contingency factor affecting the human resource practices-performance link. This
issue has been discussed in the strategic human resource management field. However,
there is no strong theoretical rationale for the choice of a contingency variable in
previous studies (Kozlowski et al., 2000; Kraiger, 2003). Thus, our study provides the
much-needed evidence that training activities designed to develop talent, skills, and
increased employee problem-solving improve firm sales and productivity when the
training is matched with the firm’s strategic posture. In addition, some previous
studies which examined only the direct effects of training on firm performance might
have underestimated results because they did not take into account strategy-training
interaction (Bartel, 1994; Wright et al., 1995; Thang, Thu & Buyens, 2008).
Second, in the organisational strategy literature, some research has already
been done on aligning decisions in human resource management, industry matter, and
productivity as well as human capital, research and development or technology
policies, and performance (Ballot et al., 2001; Bracker & Cohen, 1992; Datta et al.,
2005). Our finding fills a void by reinforcing some critical links and advances
understanding of this stream of research by establishing the impact of alignment
between the work force training, organisational strategy, and firm performance.
174
Chapter 6: Conclusions
Third, we contribute to the total quality management literature in that our
large-scale study confirms the expected positive relationship between quality strategy
and firm performance. The study made clarified the specific aspects of firm
performance affected by human resource training. More specifically, our study
indicated that quality strategy moderates the relationship between training and firm
sales and productivity. The training programmes which provide new knowledge, to
enhance skills and multiple communication effort heighten employee awareness about
a company's quality objectives and are especially important to firms trying to compete
on quality.
Finally, the results of this research contribute to educational economics and
science of training by identifying the relationship between company-level training and
firm performance in emerging economies. More specifically, by estimating the impact
of training on firm performance in Vietnam and reviewing the studies on Vietnam and
China that have estimated the impact of training on firm performance by using firmlevel data collected through the surveys, we found that training has a significant
influence on firm performance. These findings show that there is an existing
relationship between training and firm performance in emerging and transitional
economies.
6.3 Managerial implications
Our research also has some noteworthy implications for practice. First, our
study confirms that a positive relationship between training and firm performance
exists, not only at the level of the individual employee, as demonstrated in previous
studies, but also at company level. More specifically, training will improve the
175
Chapter 6: Conclusions
knowledge, skills, abilities and behaviour of employees leading to positive
organisational performance. Therefore, if an organisation provides training for its
employees, it clearly benefits from the training expenditure.
Second, our study provides empirical evidence for human resource training
decision making and managerial implementation of the three organisational strategy
orientations-cost strategy, quality strategy, and flexibility strategy. More specifically,
some companies only provide general information training programmes for
employees when they pursue cost strategy, whereas other firms that seek to increase
levels of customer services, product quality or firm flexibility must provide and
develop training programmes for their employees because training increases skills and
behavioural repertoires of employees in a way that can impact on efficiency and
adaptability. Thus, managers need to identify and consider their strategies more
carefully in order to provide training in a way that is effective and efficient because
training does not come cheaply although some companies view these expenditures not
as costs but as investments.
Third, our study suggests that training, organisational strategies, and other firm
characteristics appear to operate as an integrated system. However, managers have
been offered rather simplistic structural systems in the past. Therefore, employee
training involvement, organisational strategy, firm sales and productivity should be
based on a contingency approach, rather than be assumed to be universally
appropriate. Strategy formulation must include careful assessment of the strengths and
weaknesses of firm’s resources such as technology and equipment, human capital, and
formal reporting structure, not just customer expectations. Future managers need to
provide a structural system that enables training to be woven into its fabric while
176
Chapter 6: Conclusions
allowing for the development and integration of new knowledge and skills to create
customer value and other competitive advantages.
Finally, the findings relate to HRM in general and HR training in particular for
all kinds of enterprise in emerging markets, especially Vietnam and China. The low
level of employee qualification and skill shortages has been a constraint for
enterprises because the quality of HR is crucial to the success of overseas investments
and local enterprises. In addition, countries at different stages of industrial and
economic development and different cultures are important constraints on the
introduction of HR training policy. Therefore, companies should pay more attention to
HR training policy if they wish to succeed. A different training policy approach to
such resources may need to be adopted. More specifically, companies may allocate
more expenditure as well as different training programmes in order to improve the
skills, commitment, and knowledge of their employees.
6.4 Limitations and suggestions for future research
Although our study provides interesting insights about the relationship
between training, organisational strategy and firm performance, several limitations
should be emphasised.
First, we used universal and contingency perspectives to examine the
relationship between training and firm performance. The research results in chapters 3
and 4 found support for the both universal and contingency perspectives. However,
Doty & Glick (1994) suggests that a configuration approach to training and strategies
could represent nonlinear synergistic effects and higher-order interactions that cannot
be represented by a contingency approach. More specifically, training will enhance
177
Chapter 6: Conclusions
organisational effectiveness when it is used in conjunction with other human resource
practices in order to maximise horizontal fit, and then link these human resource
practices to organisational strategies to maximise vertical fit. Thus, we strongly
recommend that future research needs to identify configurations of training and
organisational strategies and test the interactions from a configuration perspective.
Second, our study in chapter 4 was limited since we used a single moderator –
organisational strategy of companies operating in Vietnam to test contingency
hypothesis. However, several other organizational characteristics have effects on the
relationship between training and firm performance, such as industry, technology, or
company structure (Ballot et al., 2001; Datta et al., 2005). Therefore, the interactions
between training and other organisational characteristics might result in high
performance. Future research needs to test the moderating effects of other
organisational characteristics on the training-performance link in order to gain more
insight into the relationship between training and firm performance. In addition, future
research also needs to provide a theoretical rationale for the choice of contingency
variables before testing the contingency perspective.
Third, the concept of organisational strategy is so diverse that it is difficult to
measure it. This is the reason why measures of organisational strategies in this study
have tended to be general rather than specific. Thus, future research should provide a
theory for the choice of a strategy measurement method and consider the
organisational strategy constructs that are being measured. In addition, future research
also needs to improve research results with more objective indicators of organisational
strategy.
178
Chapter 6: Conclusions
Fourth, in this study, we measured only firm financial performance: sales and
productivity. However, firm performance includes financial and non-financial
indicators (Thang & Buyens, 2008). Therefore, future researchers need to examine
similar relationships by measuring both financial and non-financial indicators in order
to obtain generalised findings. Future studies also need to be especially careful about
measuring firm performance by subjective or perceptual methods because they may
not provide accuracy of results and be comparable across firms over time.
Finally, in chapter 5, we have focused on the existence of HR training and firm
performance but did not attempt to measure HR training in the workplace and other
firm characteristics. This approach would involve detailed case studies on Vietnam
and China that have examined the influence of training on firm performance.
Therefore, future research should implement a longitudinal survey of enterprises
throughout the two countries, including all major industrial sectors. The longitudinal
survey would allow for more accurate predictions in comparison of the relationship
between HR training and firm performance in China and Vietnam.
179
Chapter 6: Conclusions
6.5 References
Aragón-Sánchez, A., Barba-Aragon, I., & Sanz-Valle, R. 2003. Effects of training on
business results. International Journal of Human Resource Management, 14:
956−980.
Ballot, G., Fakhfakh, F., & Taymaz, E. 2001. Firms' human capital, R&D and
performance: A study on French and Swedish firms. Labour Economics, 8:
443−462.
Barrett, A., & O'Connell, P. J. 2001. Does training generally work? The returns to incompany training. Industrial and Labor Relations Review, 54: 647−662.
Bartel, A. P. 1994. Productivity gains from the implementation of employee training
programs. Industrial Relations, 33: 411–425.
Bassi, L. J., & Van Buren, M. E. 1998. State of the industry report. Training and
Development, 52(1): 21−43.
Bishop, J. 1991. On the job training of new hires. In Market Failure in Training?
Edited by David Stern & Jozef M. M. Ritzen, (pp. 61–94). New York: SpringerVerlag.
Bracker, J., & Cohen, D. J. 1992. Impact of training and development activities on
technology oriented entrepreneurial performance. Journal of Small Business
Strategy, 3: 1−14.
Datta, D. K., Guthrie, J. P., & Wright, P. M. 2005. Human resource management and
labor productivity: Does industry matter? Academy of Management Journal 48:
135–145.
180
Chapter 6: Conclusions
Doty, D., & Glick, W. 1994. Typologies as a Unique Form of Theory Building.
Academy of Management Review, 19: 230–251.
Faems, D., Sels, L., DeWinne, S., & Maes, J. 2005. The effect of individual HR
domains on financial performance. International Journal of Human Resource
Management, 16: 676−700.
Fey, C., Bjórkman, I., & Pavlovskaya, A. 2000. The effect of HRM practices on firm
performance in Russia. International Journal of Human Resource Management,
11: 1−18.
Glick, W. H., Huber, G. P., Miller, C. C., Doty, D. H., & Sutcliffe, K. M. 1990.
Studying changes in organizational design and effectiveness: Retrospective event
histories and periodic assessments. Organization Science, 1: 293–312.
Kozlowski, S., Brown, K., Weissbein, D., Cannon-Bowers, J., & Salas, E. 2000. A
multilevel approach to training effectiveness. In K. Klein, & S.Kozlowski (Eds.),
Multi level theory, research, and methods in organizations (pp. 157−210). San
Francisco, CA: Jossey-Bass.
Kraiger, K. 2003. Perspectives on training and development. In W. C. Borman, D. R.
Ilgen, & R. J. Klimoski (Eds.), Handbook of psychology: Industrial and
organizational psychology (pp. 171−192). Hoboken, NJ: John Wiley & Sons Inc.
Rodríguez J. M., & Ventura J. 2003. Human resource management systems and
organizational performance: an analysis of the Spanish manufacturing industry.
International Journal of Human Resource Management, 14: 1206–1226.
Salas, E., & Cannon-Bowers, J. A. 2001. The science of training: A decade of
progress. Annual Review of Psychology, 52: 471−499.
181
Chapter 6: Conclusions
Thang, N. N., & Buyens, D. 2008. What do we know about relationship between
training and firm performance: A review of literature. Proceedings of the 7th
International Conference of the Academy of Human Resource Development (Asia
Chapter), November 3–6, 2008, Bangkok, Thailand.
Thang, N. N., Thu, N. V., & Buyens, D. 2008. The impact of training on firm
performance: case of Vietnam. Working Paper Series, Faculty of Economics and
Business Administration, Ghent University, 08/538: 1–26.
Wright, P. M., Smart, D., & McMahan, G. C. 1995. Matches between human
resources and strategy among NCAA basketball teams. Academy of Management
Journal, 38: 1052–1074.
182