International Journal of Production Research, 2015

Vol. 53, No. 10, 2885–2903, http://dx.doi.org/10.1080/00207543.2014.946569

Effects of human resource management practices on logistics and supply chain competencies –
evidence from China logistics service market
Ming Juan Dinga*, Booi H. Kama, Jia Ying Zhangb and Ferry Jiea
a
School of Business IT and Logistics, College of Business, RMIT University, Melbourne, Australia; bSchool of Management, College
of Business, RMIT University, Melbourne, Australia
(Received 4 August 2012; accepted 11 July 2014)

The Chinese logistics service market is a vibrant and highly contested arena. The industry, however, has been characterised
as operationally inefficient in comparison with those of the developed economies. Shortage of logistics human resources
and lack of logistics expertise have been identified as two of the key contributory factors. Based on responses from 76
Chinese logistics service providers to a survey conducted in 2010, this study explores whether, and how, four sets of human
resource management (HRM) practices contribute to nurturing three logistics and supply chain (L&SC) competencies in the
Chinese logistics service market. Results from a hierarchical multiple regression analysis show that not all HRM practices
were equally effective in building L&SC competencies. While training and development, and recruitment and selection
were significant in contributing to nurturing the three L&SC competencies, both performance management and reward
management did not. These findings suggest that conventional HRM practices designed to reward individual performance
may not be suited to nurturing team-based L&SC competencies in the Chinese context. The implications of these findings
were discussed and directions for further studies offered.
Keywords: human resource management practices; logistics and supply chain competencies; Chinese logistics service
market

1. Introduction
The Chinese logistics service market is a vibrant and highly contested arena. The industry has a total logistics value,
which reflects its market size and total demand for logistics services, of RMB158,400 billion (about US$26,400 billion)
in 2011 (Li & Fung Research Centre 2012). On a year-on-year basis, this figure represents a 12.3% growth in real terms
from 2010 (Li & Fung Research Centre 2012), notwithstanding the world-wide economic slowdown since the global
financial crisis of 2008. Despite its impressive growth, the Chinese logistics industry has been described as operationally
inefficient, based on the value of its logistics spent as a percent of GDP (about 18%) compared with those of the devel-
oped economies (no more than 9%), such as the USA, Germany and Japan (KPMG 2008; Li & Fung Research Centre
2012).
Structurally, the industry has been characterised as fragmented, in terms of the number of operators, their geographi-
cal coverage (KPMG 2008) and market dominance by the large companies. There is no consistent figure on the number
of logistics service providers (LSPs) in China. Biederman (2007) estimated the total to be around 300,000. Given that
this figure predates the 2008 economic crisis, during which time many of the retrenched employees of state-owned as
well as private logistics enterprises started their one-person (owner-driver) transport operations (Kam and Rimmer
2011), the figure could be twice or even three times that of Biederman’s (2007) estimate. In terms of geographical remit,
no one transport company owns a nationwide network that covers all cities and villages (Li & Fung Research Centre
2012). As for market dominance, the sales revenue of China’s top 50 logistics enterprises accounted for less than 13.5%
of the total revenue of the industry in 2009 (Jiang 2013).
Numerous studies have pointed to the shortage of logistics human resources and lack of logistics expertise as critical
issues hindering logistics operations in China (Hong and Liu 2007; Zhou et al. 2008). In a dynamic growth market,
shortage of skilled labour supply in logistics and supply chain (L&SC) operations has resulted in high personnel turn-
over industry-wide (Li & Fung Research Centre 2012). Recent research in supply chain management (SCM) in China
also found that human resource management (HRM) practices have a significant impact on logistic service operations,
describing lack of logistics professionals as a critical issue that can no longer be ignored (Bolton and Wei 2003; Kam,

*Corresponding author. Email: mingjuan.ding@rmit.edu.au

© 2014 Taylor & Francis

2886 M.J. Ding et al.

Tsahuridu, and Ding 2010; Song and Wang 2009; Zhou et al. 2008). Zhou et al. (2008) further noted that retaining tal-
ented personnel in SCM has been a major operational challenge for LSPs in China, with limited service offerings stand-
ing out as a distinctive barrier to sales and revenue growth. With rapid growth anticipated to continue, lack of qualified
logistics personnel has been predicted to worsen in mainland China (Wang et al. 2006).
Although China is still in a transformative phase with incomplete institutional reforms, the country has come a long
way in terms of HRM reform (Chung 2011). One of its long standing HRM practices, known as the ‘Iron Rice Bowl’
policy, was phased out in the late 1980s. The most salient change in personnel and employment practices has been the
development of a contractual labour system, which includes wage regulations, the introduction of welfare systems by
means of a social security fund, and the creation of a labour market to end the assignment of employees to companies
by the State (Chung 2011). The development of modern HRM practices in China has been found to be related to a
number of characteristics, including organisational ownership structure, and size and location of company, with foreign
owned, larger organisations located in the country’s south having more developed and sophisticated HRM practices
(Warner 2008). Strategic human resource participation and the changing business environment were also found to have
a strong influence prompting the adoption of modern HRM practices in Chinese companies (Zhu, Cooper, and De Cieri
2005).
Despite the swelling literature on HRM practices and logistics service operations in China, the contributory effect of
modern HRM practices on developing L&SC competencies among LSPs in China remains poorly understood (Hsu
et al. 2012; Shang and Marlow 2007; Wong and Karia 2010). In one of the few studies that explore the effects of HRM
practices on the development of L&SC capabilities in China, Kam, Tsahuridu, and Ding (2010) found that different
HRM practices exert dissimilar effects on different L&SC capabilities. While most of the hypothesised relationships
between HRM practices and L&SC capabilties found significant carry the positive sign, recruitment and evaluation was
found to negatively affect two of the L&SC capabilites examined. Kam, Tsahuridu, and Ding (2010) attributed this
counterintuitive finding to the continued prevalence of informal recruitment methods in China, such as through word-of-
mouth recommendations of business associates within the Guanxi net (Cunningham and Rowley 2008), which negate
the effectiveness of formal employee recruitment and selection methods. Kam, Tsahuridu, and Ding’s (2010) findings
bring to light the idiosyncratic circumstances surrounding HRM practices in China, raising questions concerning the effi-
cacy of western HRM practices as a means to nurturing L&SC competencies in organisations, in particular those involv-
ing logistics service provisions.
Kam, Tsahuridu, and Ding’s (2010) study examined the causal relationships between four different HRM practices
on four L&SC capabilities. The four HRM practices – recruitment and selection, reward management, performance
management, and induction, training and development – were measured as single-item constructs, which do not reflect
the multidimensional nature of these practices. Likewise, the four L&SC capabilities were also represented as single
item constructs in Kam, Tsahuridu, and Ding’s (2010) analysis. This study extends the work of Kam, Tsahuridu, and
Ding (2010) by formulating the same four HRM practices as multidimensional constructs. Rather than examining the
causal links between HRM practices and L&SC capabilities, this study explores the relationships between HRM prac-
tices and L&SC competencies, distinguishing competencies as the joint outcomes of several specific capabilities to
reflect the multidimensional nature of competencies (Ding, Kam, and Lalwani 2012).
Daugherty et al. (2000) pointed out that companies have, in the past, been turning to technological and infrastructure
improvements and investments as means to increase supply chain performance. They argued that to elevate supply chain
performance to a higher level, the next wave of improvements and investment should focus on the people who manage
and operate the supply chain. By exploring the relationship between HRM practices and L&SC competencies, this study
aims to contribute to building a long-awaited knowledge base to adress issues arising from shortges of skilled talents in
the logistics service industry in China.
The next section commences by first reviewing the concepts of L&SC competencies and HRM practices, followed
by the formulation of hypotheses linking HRM practices to L&SC competencies. The research methodology, covering
operationalisation of variables, data collection procedures, sample profile and data analysis are described in Section 3.
Section 4 presents the results of the hierarchical regression analysis, followed by discussion in Section 5. Section 6
concludes by discussing the implications of the findings, their limitations and suggestions for further studies.

2. Literature review and hypotheses

2.1 L&SC competencies
The terms competencies and capabilities have been used interchangeably in extant management literature (see e.g. Day
1994). This study views competencies as the cumulative outcomes of specific capabilities (Ding, Kam, and Lalwani
 International Journal of Production Research 2887

2012), a conception based on Javidan’s (1998) competencies hierarchy. In an attempt to clarify Prahalad and Hamel’s
(1990) notion of ‘core competences’, Javidan (1998) argued that resources are the building blocks of an organisation’s
value chain and hence are at the bottom of the competencies hierarchy. Capabilities represent the ability of an organisa-
tion to exploit its resources and are functionally based, occupying the second level in the hierarchy (Javidan 1998).
Examples of capabilities are operational routines and processes that manage the utilisation of resources. The cross-
functional integration and co-ordination of capabilities across different strategic business units in an organisation would
eventually give rise to competency, which is thus situated at the third level of the hierarchy. At the top of the hierarchy
are core competencies, which refer to skills and knowledge bases developed from the integration and harmonisation of
competencies across the entire organisation.
Javidan (1998) further explained that a functional dependency exists between the levels in the hierarchy, with the
strength of each level being built on that of the level below. Additionally, each level also features a higher form of value
added for the company. At the lowest level, resources have little value on their own. Through the development of rou-
tines and processes, functional capabilities generate value for the organisation through resource exploitation at the sec-
ond level. Competencies then add additional value to the resources by expanding the boundaries of individual
capabilities, drawing the synergies from each. Because core competencies exploit resources and capabilities across the
entire corporation, they add the most value to the organisation, the central tenet of Prahalad and Hamel’s (1990) ‘core
competences’ thesis.
Javidan’s (1998) competencies hierarchy coincides with Grant’s (1996) interpretation of Prahalad and Hamel’s
(1990) ‘core competences’ – ‘capabilities which are fundamental to a firm’s competitive advantage and which can be
deployed across multiple product markets’ (376). Similarly, Esper, Fugate, and Davis-Sramek (2007) also viewed
resources as the source of a firm’s capabilities and competency is created through the combination of capabilities.
L&SC competencies refer to the ability of a firm to use its technological knowhow, production method and manage-
ment expertise to support supply chain operations (Ngai, Chau, and Chan 2011) and have been regarded as a source of
superior firm performance (Defee et al. 2010; Esper, Fugate, and Davis-Sramek 2007). Four L&SC competencies –
positioning, integration, agility and measurement – first identified by the Global Logistics Research Team at Michigan
State University (MSUGRT 1995) as critical to achieving world-class performance, have been repeatedly employed by
researchers (e.g. Cho, Ozment, and Sink 2008; Ding, Kam, and Lalwani 2012; Morash, Droge, and Vickery 1996; Shang
and Marlow 2007; Stank and Lackey 1997) to examine firm performance, especially from an operational perspective.
MSUGRT (1995) defined positioning as the ability to select and plan approaches strategically for different logistical
operations; integration, the ability to develop means to create internal logistical operations excellence and external sup-
ply chain linkages; agility, the ability to rapidly respond to evolving market needs; and measurement, the means to
benchmark operational performance, both internally and externally. Ngai, Chau, and Chan (2011) argued that agility is
one of most distinctive competencies that a firm should possess, as it helps a firm to respond to market changes visible
to customers. Drawing on the findings of earlier studies on LSPs in China (e.g. Hong and Liu 2007; Lai 2004; Wang
et al. 2008), Ding, Kam, and Lalwani (2012) argued that within the context of the Chinese logistics market, positioning,
distribution support and agility are three of the most critical L&SC competencies that could help LSPs in China to gain
competitive advantage. Following Ding, Kam, and Lalwani (2012), this study also selects agility, positioning and distri-
bution support as the three L&SC competencies to investigate whether, and how, HRM practices could contribute to
their development in the Chinese logistics industry.

2.1.1 Positioning
Positioning competency represents an ability to carry out an extensive range of supply chain and logistics tasks using
innovative means (such as high value logistics services to supplement clients’ operations) to differentiate service offer-
ings from competitors. Several studies (e.g. Bask 2001; Hertz and Alfredsson 2003; Schary and Skjott-Larsen 2001)
have examined the positioning strategies used by LSPs and found that a competency-based positioning strategy leads to
solutions that created values for customers (Juga, Pekkarinen, and Kilpala 2008; Mothilal et al. 2012; Trentin 2011).
LSPs in China with positioning competency have also been found to provide more innovative supply chain solutions to
customers than those without (Hong, Chin, and Liu 2007; Wang et al. 2008). In operationalising the positioning con-
struct, we viewed the combined capabilities of providing innovative supply chain solutions, offering an extensive range
of logistics services, accommodating unique requests of clients and having expertise in a range of industries (Items P1–
P4 in Table 1) as an indication of this competency. These items mirror ideas discussed in Hong, Chin, and Liu (2007),
Mothilal et al. (2012), Trentin (2011), and Wang et al. (2008).
2888 M.J. Ding et al.

2.1.2 Distribution support

Qureshi, Dinesh, and Pradeep (2008) defined distribution support competency as a firm’s ability to effectively provide
extensive spatial reach in freight distribution and delivery. Distribution support competency is one of the logistics
resource management strategies for developing a classic third party logistics (3PL) model (Ross 2002). It has been iden-
tified as a key element that could assist LSPs to achieve higher profit and service advantage in the Chinese market that
stretches across a vast land mass (Cho, Ozment, and Sink 2008; Kam and Rimmer 2011; Morash, Droge, and Vickery
1996; Qureshi, Dinesh, and Pradeep 2008; Wang et al. 2008). Distribution support competency is measured by three
items in this study (Items DS1–DS3 in Table 1), which, in combination, demonstrate a capability to help customers
carry out their distribution function across a wide geographic locale with very competitive pricing.

2.1.3 Agility
Kidd (1994) argued that an agile enterprise is founded on processes and structures that facilitate speed, adaptation and
robustness to deliver outcomes in a dynamic and unpredictable business environment. Supply chain agility is the ability
of its constituent members to leverage the resources and capabilities of one another to respond to changing market envi-
ronment in a speedy manner (Swafford, Ghosh, and Murthy 2006), such as expediting delivery services, and innovating
flexible delivery schedule to respond to customers’ requirements (Cho, Ozment, and Sink 2008; Shang and Marlow
2007). Agility has been found to positively impact on business performance (Mason-Jones, Naylor, and Towill 2010;
Seebacher and Winkler 2013; Vickery et al. 2010; Vinodh et al. 2010) and is a core competency LSPs need to develop
to operate in a dynamic market environment (MSUGRT 1995; Stank and Lackey 1997; Shang and Marlow 2007). This
study draws on items (Items A1–A3 in Table 1) used by Bask (2001), Hertz and Alfredsson (2003), Swafford, Ghosh,
and Murthy (2006), and Yusuf, Sarhadi, and Gunasekaran (1999), which reflect the above concepts, to form the agility
competency construct.

2.2 HRM practices

Human resources are widely acknowledged as key elements that contribute to firms’ success and performance (Karami,
Analoui, and Cusworth 2004; Luthans, Hodgetts, and Luthans 1997; Peace II and Robinson 1997). Therefore, contempo-
rary firms are keen to attract talents in order to achieve their business vision. However, possessing human resources does
not necessarily lead to firm’s success as poor HRM can negatively impact employee’s perception towards job satisfaction
and their organisational commitment (Allen and Grisaffe 2001; Mathis and Jackson 2007), which, in turn, will influence
a firm’s ability to achieve its performance goals (Delery 1998; Katou and Budhwar 2006). For better performance, organi-
sations also need to establish and maintain effective on-the-job HRM practices, such as training and development,
employee performance management and reward management (Chand and Katou 2007; Fey et al. 2009).
Scholars studying HRM practices and organisational performance commonly define HRM as a strategy and/or pro-
cess for effective utilisation of human resources in order to achieve organisational goals (e.g. Laka-Mathebula 2004;
Lee, Lee, and Wu 2010). The importance of HRM to organisational performance has become a research focus since
1990s (Lee, Lee, and Wu 2010). A significant body of research (such as Birdi et al. 2008; Delaney and Huselid 1996;
Ellinger et al. 2008; Fong et al. 2011; Harel and Tzafrir 1999; Zheng, Morrison, and O’Neill 2006) finds that HRM
practices are positively related to firm performance. Zheng, Morrison, and O’Neill (2006) also contended that the adop-
tion of good HRM practices can generate better HRM outcomes and contribute positively to firm performance of small
and medium-sized enterprises in developing countries, such as China.
Over the past two decades, empirical studies have examined and revealed a wide range of HRM practices that are
vital to firms’ performance. Delaney and Huselid (1996) found that staff selection, employee skills, employee motiva-
tion, structure of jobs and work and training are positively related to organisational performance. Harel and Tzafrir
(1999) reported that six HRM practices (recruitment, selection, compensation, employee participation, internal labour
market and training) are positively related to firm and market performance. Fong et al. (2011) argued that recruitment
and selection, teamwork, training and development and performance appraisal show a positive relationship with knowl-
edge sharing, indirectly impacting on the performance of manufacturing and service organisations in developing coun-
tries, like Malaysia. From the work mentioned above, it is apparent that HRM practices differ across studies according
to each research work’s aims (Katou and Budhwar 2006). Therefore, it is important to define the boundary of HRM
practices in each individual study (Lee, Lee, and Wu 2010). This study focuses on four essential HRM practices:
recruitment and selection, training and development, performance management and reward management because
they are directly related to sourcing and retaining skilled logistics work force. HRM-performance literature
 International Journal of Production Research 2889

Table 1. Variable description.

Variable Item Description Reference

Positioning P1 We are capable of providing innovative supply Hong, Chin, and Liu (2007), Mothilal et al. (2012),
chain solutions Trentin (2011) and Wang et al. (2008)
P2 We are capable of providing an extensive range of
logistics services, including bulk-breaking,
consolidation and labelling
P3 We are capable of accommodating unique requests
by implementing preplanned solutions
P4 We are capable of providing logistics expertise in a
range of industries
Distribution DS1 We are capable of providing widespread or Cho, Ozment, and Sink (2008), Morash, Droge, and
support extensive distribution coverage Vickery (1996), Kam and Rimmer (2011) and Qureshi,
Dinesh, and Pradeep (2008)
DS2 Our transport and distribution network has helped
customers achieve cost saving
DS3 We are capable of providing global distribution
coverage
Agility A1 We are capable of providing rapid response to Bask (2001), Hertz and Alfredsson (2003), Swafford,
customer requests Ghosh, and Murthy (2006) and Yusuf, Sarhadi, and
Gunasekaran (1999)
A2 We are capable of arranging a flexible delivery
schedule to fit with customer’s production schedule
A3 We are capable of delivering expedited shipments
to meet customer needs
Company size CS Number of employees in China Wu et al. (2006)
Geographical GC Number of cities in China covered by operations Qureshi, Dinesh, and Pradeep (2008) and Bolton and
coverage Wei (2003)
Logistics LE Years of experience operating in the Chinese Hong, Chin, and Liu (2004)
experience logistics market
ICT resource ICT1 We use advanced computerised documentation Lai, Zhao, and Wang (2007) and Lin and Ho (2009)
systems to manage order processing.
ICT2 We use state-of-the-art software to forecast and
organise delivery schedules
ICT3 Compared to our competitors, we invest more on
computer hardware and software
Recruitment RS1 Interview panels are typically used as a main Ahlstrom, Bruton, and Chan (2001), Kam, Tsahuridu,
and selection selection method in our organisation and Ding (2010), Fong et al. (2011), Warner (2008)
and Zhu (1998)
RS2 We rely on word of mouth to fill our vacant
positions
RS3 We offer flexible working hours to employees
Training and TD1 We provide job-related training to employees Ahlstrom, Bruton, and Chan (2001), Kam, Tsahuridu,
development and Ding (2010), Menon (2012) and Wilkinson et al.
(2005)
TD2 We provide career development opportunities to
employees
TD3 We have employee retention policies to retain
skilled employees
TD4 Employees are encouraged to offer ideas on how
to improve work processes in our organisation
Performance PM1 Salary increases are determined by annual Ahlstrom, Bruton, and Chan 2001; Kam, Tsahuridu,
management performance appraisal results in our organisation and Ding (2010), Huo and Von Glinow (1995),
Hempel (2001) and Cooke (2005)
PM2 Promotion is determined by annual performance
appraisal results in our organisation
PM3 We undertake annual performance appraisals of our
employees
Reward RM1 We offer attractive salaries to our employees Delaney and Huselid (1996), Islam and Siengthai
management (2010) and Kam, Tsahuridu, and Ding (2010)
RM2 We offer attractive welfare packages to our
employees
2890 M.J. Ding et al.

(e.g. Bookbinder and Tan 2003; Lieb 2008; Lin 2007) suggests that a workforce with the appropriate talent and skills
would be a positive contributing factor to service competencies of LSPs in Asian countries, like China. However, the
majority of Chinese LSPs face difficulties in recruiting and retaining skilled workforce (Cooke 2005; Chung 2011). By
focusing on these four HRM practices, this study addresses one of the biggest HRM challenges facing Chinese LSPs.

2.2.1 Recruitment and selection

Recruitment has been defined as the process of attracting people on a timely basis, in sufficient numbers and with appro-
priate qualifications, to apply for jobs with an organisation (Mondy and Noe 2008). Selection refers to the process of
choosing the individual, from a group of applicants, who is best suited for a particular position and for the organisation
(Mondy and Noe 2008). The selection methods, tools and testing methods used during the selection processes, such as
interview and referee check, should be carefully designed to ensure the validity and reliability of recruitment systems
(Fong et al. 2011). Previous studies (e.g. Ahlstrom, Bruton, and Chan 2001; Cooke 2005; Wilkinson et al. 2005) sug-
gest that the majority of Chinese firms lack effective evaluation systems for recruiting and retaining competent and pro-
fessional employees. Instead, informal process, such as (backdoor) Guanxi and word-of-mouth, are commonly used by
many Chinese firms (Cooke 2005). Although there is evidence that Chinese firms are beginning to adopt more transpar-
ent and sophisticated recruitment processes, recruitment management still falls behind the developed economies (Cooke
2005). Given the above, items measuring more transparent process (panel interview) and less transparent process (word-
of-mouth) are both included in this study. Moreover, flexible working time is also included as a measurement item due
to its importance to the operations of Chinese LSPs. All the three items included (Items RS1–RS3 in Table 1) draw on,
and have been tested, in earlier empirical studies, such as Zhu (1998), Ahlstrom, Bruton, and Chan (2001), Warner
(2008) and Fong et al. (2011).

2.2.2 Training and development

Training and development refers to putting in place relevant training programmes to maintain and develop capabilities,
both individual and organisational, which are expected to contribute towards the process of organisational change (Valle,
Martin, and Romero 2000). There are two ways training activities influence organisational performance. First, training
can improve skills and abilities relevant to employee’s tasks and development. Second, training increases employees’
satisfaction with their job and workplace (Harel and Tzafrir 1999). A number of studies (e.g. Ahlstrom, Bruton, and
Chan 2001; Menon 2012; Wilkinson et al. 2005) have found that training in problem solving, leadership, team building
and job skills to be statistically related to the success of SCM practices. HRM practices, particularly soft skill training,
employee exchanges with partners, and system-performance-based evaluations, form the main organisational mecha-
nisms that facilitate the creation of specialised human resources that would lead to enhanced performance and profitabil-
ity (Menon 2012). In this study, career development is measured by three items – career opportunities, retention policy
and encouragement of idea-offering – because they form the typical concerns of Chinese employees in career advance-
ment. All three items (Items TD2 to TD4 in Table 1) draw on and have been tested in previous studies (Birdi et al.
2008; Delaney and Huselid 1996; Gomez and Lorente 2003; Luthans, Hodgetts, and Luthans 1997). Ideally, a multi-
item measurement of training should be used to measure different types of training that are offered by the sampled
LSPs. However, given that the majority of Chinese logistics firms lack training system (Shi and Handfield 2012), it does
not make sense to measure the details of training without having a training system in place. Therefore, training is mea-
sured by a single item (provision of job-related training, Item TD1 in Table 1) in the current study. In combination,
these four items form the construct denoting training and development.

2.2.3 Performance management

Performance management refers to activities concerned with setting targets to assess individual performance (Cakar,
Bititci, and MacBryde 2003). Such activities include monitoring progress against set targets and identifying necessary
training, education and development needs as well as deciding reward and disciplinary actions (Cakar, Bititci, and
MacBryde 2003). It is found that when employees in a firm perceive fair performance appraisal, they tend to have a
positive perspective of their firm, which would increase their loyalty and commitment to the firm (Konovsky and
Cropanzano 1991). Performance management is an HRM practice that has been identified as highly problematic in
China (Huo and Von Glinow 1995). It is also an area with limited research (Hampel 2001). Most Chinese firms use
non-systematic performance appraisals to assess the performance of their employees, while foreign firms tend to use col-
lective or group-oriented appraisal approaches (Ahlstrom, Bruton, and Chan 2001). Though there has been an increase
 International Journal of Production Research 2891

in the use of performance management and performance related rewards (mainly extrinsic) in private firms in China,
this is in contrast with the practice of foreign firms (Ahlstrom, Bruton, and Chan 2001; Cooke 2005). Drawing on the
above, this study uses three items – existence of annual performance appraisals, performance-based salary increase pol-
icy and performance-based promotion policy – to measure performance management. These items (Items PM1–PM3 in
Table 1) are drawn from the works of Luthans, Hodgetts, and Luthans (1997), Harel and Tzafrir (1999) and Gomez and
Lorente (2003), which have been tested and validated in various contexts.

2.2.4 Reward management

Reward management is defined as merit pay or incentive compensation systems implemented by organisations to reward
employees for meeting specific goals (Delaney and Huselid 1996). Some scholars (e.g. Delery and Doty 1996; Vlachos
2008) described reward management as performance-based compensation. Earlier studies have found that extrinsic
rewards (e.g. pay, working conditions and housing benefits) and intrinsic rewards (e.g. job security, empowerment, par-
ticipation and increases in task significance and task identity) both improve employee retention and attract highly skilled
talents (Ahlstrom, Bruton, and Chan 2001; Harel and Tzafrir 1999; Wilkinson et al. 2005). Two items (pay and welfare
package) are used in this study to measure the reward system used by Chinese LSPs because they are closely related to
attracting and retaining high-quality people, which is one of the major problems facing Chinese companies (Cooke
2005; Chung 2011). Both items (Items RM1 and RM2 in Table 1) have been tested and validated in previous empirical
studies, such as Delaney and Huselid (1996) and Islam and Siengthai (2010).

2.3 Competency as an indicator of organisational performance

How to accurately measure organisational performance has been a long-standing question facing scholars. Katou and
Budhwar (2006) summarised previous research and categorised organisational performance indicators into six indices:
effectiveness (in meeting organisational objectives), efficiency (in using the least resources to meet objectives), develop-
ment (of organisational capacity to meet future opportunities and challenges), satisfaction (of all stakeholders), innova-
tion (for products and processes) and quality (percentage of high-quality products). They also argued that achieving
these performance goals will help organisations increase their profitability. The L&SC competencies measured in this
study also overlap with some indicators categorised by Katou and Budhwar (2006). For example, the positioning com-
petency conceptualised in the current study reflects Katou and Budhwar’s (2006) innovation index.
L&SC competencies put LSPs in an advantageous position to create value (e.g. time and place utility) for customers
(Mentzer and Williams 2001), achieving customer satisfaction through product availability, timely delivery and less
product failure (Day 1994; Esper, Fugate, and Davis-Sramek 2007; Mentzer and Williams 2001; Morash, Droge, and
Vickery 1996). In an operations sense, L&SC competencies are indicators of organisational performance (Defee et al.
2010, Esper, Fugate, and Davis-Sramek 2007). On this account, the current study utilises L&SC competencies (agility,
positioning and distribution support competencies) as indicators of organisational performance.
Compared with the extensive works examining the HRM-performance link, research specifically investigating the
relationship between HRM practices and competency is relatively limited. Given this, the hypotheses posited in this
study largely draw on previous studies in the area of HRM and performance, using L&SC competencies as surrogates
of performance in the context of L&SC operations.

2.4 Hypothesis development

Several studies (e.g. Kam, Tsahuridu, and Ding 2010; Lin 2007; Lieb 2008) have identified recruitment and selection as
one of the biggest challenges in China, especially in the logistics service industry. Fong et al. (2011) observed that
recruitment and selection practices have a significant positive association with knowledge sharing which can lead to
improvement of innovation capability (Lin 2007) and hence performance. The core of the positioning competency con-
ceptualised in this study is about being able to perform an extensive range of supply chain and logistics activities using
innovative approaches. An appropriate recruitment and selection process to engage the ‘right’ talent would thus have the
potential to increase a firm’s positioning competency. We, therefore, posit that:

Hypothesis 1a (H1a): Recruitment and selection has a positive effect on positioning competency of LSPs.

This study defines distribution support competency as a superior ability to conduct freight distribution and delivery
activities across an extensive geographic area cost-effectively. Acquiring such an ability generally requires the LSP to
2892 M.J. Ding et al.

have not only extensive knowledge of the range of transport options available but also the means to access these options
in a timely manner. Recruiting experienced logistics professionals capable of leveraging their relationships with external
partners to organise freight transport logistics in a cost-efficient manner thus becomes paramount. Given that no trans-
port company in China possesses a nationwide network that covers all cities and villages (Li & Fung Research Centre
2012), this is all the more critical. Other than poaching or employing informal means to identify and recruit suitable
personnel, a formal recruitment and selection process is an obvious avenue to get the appropriate candidates. Thus we
contend that:

Hypothesis 1b (H1b): Recruitment and selection has a positive effect on distribution support competency of LSPs.

This study defines agility competence as being able to accommodate customer demands speedily. While the achieve-
ment of this competency would require the availability of a well-developed logistics support system, rapid decision-
making is mandatory. Like the case of positioning and distribution support competencies, the development of agility
competency demands experienced and knowledgeable professionals capable of making quick decisions to respond to
unexpected and unpredictable changes and events to meet customer requirements. Nijssen and Paauwe (2012) also con-
tended that there is a link between workforce and organisational agility in a dynamically competitive environment,
which befits China’s logistics industry. Given this, we propose a positive relationship between recruitment and selection
of experienced and knowledgeable professionals and the agility competence, leading to the following hypothesis, which
is compatible with H1a and H1b:

Hypothesis 1c (H1c): Recruitment and selection has a positive effect on agility competency of LSPs.

Logistics capabilities, and hence competencies, are essentially infrastructure-based (Mentzer and Williams 2001) and
process-centric (Ding, Kam, and Lalwani 2012). To a large extent, these capabilities are embedded in the work culture
of LSPs (Kam, Tsahuridu, and Ding 2010). While individual skills are critical contributors of L&SC competencies, they
also need to be weaved into the operational routines, which form part of the work culture of LSPs. Training helps create
a shared understanding among employees of the relative importance of logistics activities to the firm, and hence a com-
mon platform from which to build capabilities and competencies. Job-related training, as such, is critical in building
L&SC competencies.
Career development offers employees the opportunity to progress their career within the organisation. In a burgeon-
ing market where logistics knowledge is in short supply, the absence of career development opportunities would make it
difficult for LSPs to retain their valuable human assets, i.e. professionals with the domain-specific knowledge. Therefore,
we view training and development as a vital contributor to the building of all three of the L&SC competencies
examined:

Hypothesis 2a (H2a): Training and development has a positive effect on positioning competency of LSPs.

Hypothesis 2b (H2b): Training and development has a positive effect on distribution support competency of LSPs.

Hypothesis 2c (H2c): Training and development has a positive effect on agility competency of LSPs.

Performance management has been considered an effective system for translating organisational intention and ambition
into action for driving change and achieving strategic organisational goals (Cheng, Dainty, and Moore 2007). It is an
important tool for communicating priorities and providing feedback to motivate employees to meet new expectation.
According to Equity Theory (Adams 1965), employees are more motivated to work when they perceive equitable treat-
ment. A performance-based appraisal system provides an impartial basis for designing an equitable reward system
(Rubino 1997), enabling employees to perceive that their performance would be fairly rewarded (Adams 1965; Carrell
and Dittrich 1978; Spector 2008). Conversely, without an apportioning performance appraisal system on which to base
equitable reward for staff contribution, set training needs and development targets, employees will be demoralised and
have little incentive to excel. This could potentially demolish a firm’s overall competency, be it positioning, distribution
support or agility competency. For instance, Fong et al. (2011) found that a performance-based appraisal system that
provides a framework for all staff to work towards a common set of objectives has a positive impact on employees’ per-
formance and also a significant positive association with knowledge sharing in the manufacturing and service industry.
Cooke (2005), on the other hand, noted that problematic performance systems and practices have significant negative
impact on firm’s performance in China. In SCM, Menon (2012) found that the use of performance metrics to determine
 International Journal of Production Research 2893

rewards is significantly related to customer satisfaction with supply chain performance. Jaw and Liu (2003) also
revealed that organisations that put emphasis on staff performance have a higher chance of creating positive learning
attitudes among employees, promoting a climate of organisational self-renewal in the process. Thus, we argue that effec-
tive performance management could enhance Chinese LSPs’ ability to develop innovative supply chain solutions for
clients (positioning competence), to find cost-effective means to support customer’s distribution needs (distribution
support competence) and to respond speedily to unexpected client’s logistical requirements (agility competence).
Accordingly, we hypothesise that:

Hypothesis 3a (H3a): Performance management has a positive effect on positioning competency of LSPs.

Hypothesis 3b (H3b): Performance management has a positive effect on distribution support competency of LSPs.

Hypothesis 3c (H3c): Performance management has a positive effect on agility competency of LSPs.

Reward management is widely acknowledged as one of the important HRM practices and has been found to bear a posi-
tive relationship to firm performance (Delaney and Huselid 1996; Islam and Siengthai 2010). Primarily, this is because
rewards, both extrinsic (e.g. pay, working conditions and housing benefits) and intrinsic (e.g. job security, empower-
ment, participation and increases in task significance and task identity) are key incentives to attract and retain highly
skilled talents (Ahlstrom, Bruton, and Chan 2001; Harel and Tzafrir 1999; Wilkinson et al. 2005). The shortage of qual-
ified professionals in a fast-growing L&SC market in China has further heightened the importance of competitive salary
and welfare package in attracting and retaining high-quality people, a dominant ingredient in building L&SC competen-
cies, be it positioning, distribution support or agility. Consequently, we posit that:

Hypothesis 4a (H4a): Reward management has a positive effect on positioning competency of LSPs.

Hypothesis 4b (H4b): Reward management has a positive effect on distribution support competency of LSPs.

Hypothesis 4c (H4c): Reward management has a positive effect on agility competency of LSPs.

The above hypothesized relationships are depicted diagrammatically in Figure 1.

HRM practices L&SC competencies

Recruitment & H1a

selection
H1b Positioning
H1c Control
variables

Training & H2a

development H2b Company
Size
H2c
Distribution Geographic
support coverage
H3a H3b
Performance Logistics
management experience
H3c
ICT resource

H4a H4b Agility

Reward
management H4c

Figure 1. Model of HRM practices and L&SC Competency.

2894 M.J. Ding et al.

3. Methodology
3.1 Construct operationalisation and content validity of scale items
We conducted a broad literature review across multidisciplinary areas, including international marketing, HRM and
L&SC management, to operationalise the constructs of HRM practices and L&SC competencies. A set of items from
pre-validated measurements were employed to develop the three dependent variables (i.e. positioning, distribution sup-
port and agility), four control variables (i.e. company size, geographical coverage, logistics experience and ICT
resources), and four independent variables (i.e. recruitment and selection, training and development, performance man-
agement and reward management). Table 1 presents the measurement items of all the constructs used in the study.
The content validity of these items was assessed in three ways to ensure high level of correspondence between items
and construct. First, the majority of the items in this study are drawn from established scales that have already been
tested for content validity (e.g. Ahlstrom, Bruton, and Chan 2001; Cho, Ozment, and Sink 2008; Hong, Chin, and Liu
2007; Huo and Von Glinow 1995; Shang and Marlow 2007;Stank and Lackey 1997; Wang et al. 2008; Warner 2008).
Second, following all items were reviewed by the investigators to make sure that they cover the main domain of the
construct. Third, industry experts confirmed the acceptability of the items in the pilot test stage.

3.2 Survey questionnaire development

A self-administered questionnaire survey was used as the instrument for data collection. Considering the possible low
responses rate, the questions were designed to be simple, plain and easy to understand. The number of questions were
kept to a minimum but sufficient to cover the construct to be investigated (Fowler 1993). The questionnaire comprised
two main sections. Section one contained items measuring L&SC competencies and HRM practices adopted by LSPs in
China. Section two sought general information on firm’s characteristics. Both English and Chinese versions of the ques-
tionnaire were made available to respondents to ensure understandability. Given the conceptual nature of the questions,
a 7-point Likert Scale was employed to measure the perceptions of respondents.

3.3 Data collection and sample profile

The data for our analysis came from a survey of Chinese L&SC enterprises conducted in July 2010. We invited a senior
executive of each of the 1147 logistics firms identified from the Business Directory of Global Supply Chain Council
(2009) and Business Directory of A–Z Worldwide Airfreight (2009) as operating in China in 2009 to participate in an
online survey housed at Zoomerange (www.zoomerange.com). To reduce response bias due to the use of single infor-
mant, we requested the senior executive to either complete the survey, if they were confident of their knowledge on the
questions asked, or nominate a staff member most conversant with the information requested to respond to the survey,
as per the process used by Kaufmann and Carter (2006).
Of the 1147 email invitations sent out, 311 were returned due to invalid or non-existing email address. The initial
email invitation, together with two follow-up reminders to the 836 valid email addresses, netted a total of 126 responses
(i.e. 15% response rate). Upon screening, nine of the surveys with missing data were removed, resulting in an effective
sample of 117, which contained both Chinese LSPs as well as foreign-owned, or joint-venture, logistics companies oper-
ating in China. Given that our focus was to examine the effects of HRM practices on L&SC competencies of Chinese
LSPs, we excluded the foreign-owned or joint-venture logistics companies, totalling 41, from our analysis.
The final sample of 76 Chinese LSPs used in this study comprised 19 (25%) state-owned enterprises and 57 (75%)
private logistics companies. The 76 companies were relatively uniformly distributed in terms of years of operations and
sales revenue. Over half of the responding companies had less than 100 employees, with less than 2% having more than
1000 staff. Freight forwarding, transportation, warehousing and distribution were the four major logistics services
offered by these companies (Table 2).

3.4 Data analysis

3.4.1 Non-response bias test
Non-response bias is a major issue in surveys with returns coming in at different waves (Lambert and Harrington 1990).
We checked for non-response bias by spliting the sample into two groups based on whether their time of return is before
or after the first follow-up reminder and testing the differences between the means of all items used to develop the con-
structs in this study. The result of the two-sample t-tests revealed no significant differences (all p > 0.05) between the
two groups of responding companies for all items examined.
 International Journal of Production Research 2895

Table 2. Profile of responding companies.

Firm characteristics Category Percentage (%)

Ownership status State-owned 25.0

Private 75.0
Years of operation 0−5 26.3
6–10 34.2
11−15 27.6
>15 11.9
Number of full time employees <100 52.6
100–499 36.8
500–999 9.2
>1000 1.3
Logistics services offereda Freight forwarding 96.1
Transportation 90.8
Warehousing 84.2
Distribution 75.0
Inventory replenishment and control 35.5
Logistics information systems 26.3
Logistics system design 21.1
Others 17.1
Total revenue in 2008 (US$) Less than $500K 15.8
$500K–$1.0M 25.0
$1.1M–$10.0M 31.6
$10.1M–$50.0M 10.5
>$50.0M 17.1
a
Percentages in this item do not sum to 100%. Responding companies were asked to indicate all categories applicable to their
operations.

3.4.2 Item analysis and construct validity

Correlation, reliability test and confirmatory factor analysis (CFA) were conducted to test unidimensionality, reliability,
convergent validity and discriminant validity of the items and constructs (Hair et al. 2006). Gerbing and Anderson (1988)
suggested that unidimensionality, i.e. the existence of one construct underlying a set of items (Anderson, Gerbing, and
Hunter 1987), should be assessed before reliability. In this study, unidimensionality was assessed first by checking the
correlation coefficient among items measuring each construct, followed by using five goodness of fit indices: normed
chi-square (χ2/df ), adjusted goodness-of-fit index, comparative fit index, normed fit index, and root mean-squared error of
approximation (Hair et al. 2006). The correlation among the items for each construct satisfied the minimum standard of
r > 0.3, with the lowest correlation coefficient being 0.43. The CFA results further confirmed that all constructs have unidi-
mensional characteristics. The reliability test showed that all Cronbach’s α were greater than 0.728, indicating acceptable
level of internal consistency between items. All items also loaded significantly (t > 1.96) on their respective construct,
indicating convergent validity of each construct (Anderson and Gerbing 1991). Another rule of thumb suggesting adequate
convergence is that the average variance extracted (AVE) for all constructs should be greater than 0.5 (Fornell and Larcker
1981; Hair et al. 2006). In this study, the AVE of Recruitment and Selection was found to be less than 0.5 (0.367), suggest-
ing that the variance due to measurement error is greater than the variance explained by this construct. Since AVE is a more
conservative measure than relaibility, Fornell and Larcker (1981) reasoned that on the strength of the relaibility measure
alone, ‘the researcher may conclude that the convergent validity of the construct is adequate, even though more than 50%
of the variance is due to error’ (46). Nonetheless, we acknowledge that this is a limitation of the study.
Discriminant validity for the measurement constructs were tested following Fornell and Larcker’s (1981) recommenda-
tion. Table 3 presents the correlations of the variables used in the study and the square roots of AVE value (on the diago-
nal) of the derived constructs. None of the correlations between two constructs were higher than the square root of the
AVEs of the concerned constructs, indicating discriminant validity. The discriminant validity of each construct was further
confirmed by the CFA, as items measuring a particular factor all loaded lowly (<0.3) on other factors (Hair et al. 2006).

3.4.3 Hierarchical regression analysis

Prior to carrying out the hierarchical regression analysis, all independent variables were checked to confirm that they
did not violate the assumptions of outlier, multicollinearity, normality, linearity and homoscedasticity (Hair et al. 2006).
2896 M.J. Ding et al.

Table 3. Correlation matrix.

1 2 3 4 5 6 7 8 9 10 11

(1) Positioning 0.762

(2) Distribution support 0.756** 0.877
(3) Agility 0.699** 0.714** 0.887
(4) Company size 0.092 0.052 −0.034 –
(5) Geographical 0.197 0.170 0.195 0.534** –
coverage
(6) Logistics 0.162 0.124 0.079 0.528** 0.498** –
experience
(7) ICT resource 0.340** 0.267* 0.323** 0.098 0.130 0.093 0.889
(8) Recruitment and 0.195 0.205 0.164 −0.044 −0.131 −0.200 −0.125 0.606
selection
(9) Training and 0.549** 0.431** 0.376** 0.117 0.103 −0.090 0.453** 0.177 0.795
development
(10) Performance 0.297** 0.235* 0.256* 0.076 0.025 −0.094 0.492** −0.048 0.634** 0.799
management
(11) Reward 0.183 0.244* 0.132 −0.047 0.03 −0.113 0.082 0.13 0.424** 0.489** 0.860
management

Notes: Diagonal elements are square roots of AVE.

Company size, geographical coverage and Logistics experience is measured by a single item, therefore no AVEs are computed for
these variables.
**Correlation is significant at the 0.01 level (2-tailed).
*Correlation is significant at the 0.05 level (2-tailed).

One univariate outlier (standardised residual > 3.3) was found by inspecting case-wise diagnostics but was kept in the
analyses considering its small number (Pallant 2001). No multivariate outliers were detected according to the value of
Mahalanobis distance (critical value ≥ 13.82). Multicollinearity was checked by examining the Tolerance value obtained
as part of the regression programme. The Tolerance values for the four independent variables were all respectable
(>0.7), indicating no evidence of multicollinearity or singularity. This result was further confirmed by checking the cor-
relation matrix, which indicated that the correlation coefficients between the four independent variables (ranged between
0.048 and 0.634 – see Table 3) were all lower than the maximum accepted level of 0.70 (Pallant 2001). Normality was
checked by locating points in the Normal Probability Plot. All points were scattered along a reasonably straight diagonal
line, suggesting no major deviations from normality. Linearity and homoscedasticity of residuals were checked using
Residuals Scatter Plots. Most scores concentrated in the centre along the 0 point in a roughly rectangle shape indicating
no clear relationship between residuals and the predicted values. This demonstrated consistency with linearity and homo-
scedasticity assumption. Ratio of cases to independent variables was 19 in this study, very close to the generally
accepted criteria (20) (Coakes and Steed 2003). The above tests indicate that the collected data met the assumptions of
regression analysis.
Three separate hierarchical regression analyses were conducted to test the hypotheses using, separately, positioning,
distribution support and agility as the dependent variable. First, the four control variables, company size, geographical
coverage, logistics experience and ICT resources were brought into the regression. The four independent variables
(i.e. recruitment and selection, training and development, performance management and reward management) were
entered subsequently into the three regression equations in Step 2.

4. Results
The hierarchical regression results (Table 4) show that the control variable of company size has a significant negative
effect on agility, as the independent variables were entered into the regression in Step 2. Geographical coverage has
significant positive relationships with agility in both steps. Logistics experience has a significant positive effect on
positioning, when the independent variables were entered into the equation in Step 2. It is noted that ICT resources has
a significant positive effect on all three L&SC competency variables in Step 1, but does not in Step 2.
For the independent variables, the results show that recruitment and selection bears a significant positive relationship
with all three L&SC competency variables, thus supporting hypotheses H1a, H1b and H1c. The results also show that
training and development have a significant positive effect on all three L&SC competencies, suggesting that hypothe-
sis H2a, H2b and H2c are also supported. However, the results indicate that performance management and reward
 International Journal of Production Research 2897

Table 4. Result of hierarchical multiple regression analysis.

Positioning Distribution Support Agility

Step 1 Step 2 Step 1 Step 2 Step 1 Step 2

Control variables
Company size −0.067 −0.173 −0.092 0.161 −0.221 −0.301**
Geographical coverage 0.143 0.114 0.150 0.119 0.252* 0.251*
Logistics experience 0.097 0.262** 0.074 0.213 0.042 0.160
ICT resource 0.319*** 0.118 0.250** 0.134 0.308** 0.182
Independent variables
Recruitment and selection 0.178* 0.192* 0.203*
Training and development 0.538*** 0.365** 0.262*
Performance management −0.038 −0.074 0.071
Reward management −0.042 0.102 −0.059
R2 0.146 0.401 0.097 0.278 0.160 0.273
Adjusted R2 0.098 0.329 0.046 0.192 0.112 0.186
F 3.040*** 5.601*** 1.900*** 3.225*** 3.370*** 3.142***
N 76 76 76 76 76 76

Notes: Figures shown are standardised coefficients (i.e. beta values).

*p < 0.10; **p < 0.05; ***p < 0.01.

management have no significant relationships with L&SC competencies, which implies that the hypotheses H3a, H3b,
H3c as well as H4a, H4b and H4c are not supported.

5. Discussion
5.1 Effects of control variables
One of the notable findings regarding the effects of the control variable is the statistically significant negative relation-
ship that company size has with agility. This negative relationship implies that the larger the firm size, the less agile are
the LSPs. Given that the asset-rich, over-staff, large state-owned enterprises are generally less customer responsive than
the smaller private LSPs (Hong and Liu 2007), this finding reinforces the typical distinction between state-owned and
private LSPs in China.
Second, the results reveal that geographical coverage is a statistically significant positive predictor for agility. This
finding confirms that having wide spread or global distribution coverage is a key component of L&SC competencies in
the Chinese market (Hong, Chin, and Liu 2007) and explains why foreign LSPs invest heavily to expand their transport
and distribution network in partnerships with domestic LSPs in China (Bolton and Wei 2003; Fung et al. 2005). Kuehne
and Nagel’s, one of the world’s largest LSPs, expansion into southwest China with the opening a new branch in
Chongqing is a case in point (Anonymous 2009). Another example is DHL’s tripling its number of regional transport
hubs in China to 15 in 2009 (Hannon 2009).
Third, the results also reveal that logistics experience is a significant predictor for positioning. The longer LSPs
operate in the logistics service industry, the more capable they would be in providing integrated, value-added logistics
services and innovative supply chain solutions to clients in the Chinese market. This finding supports those of Mothilal
et al. (2012) and Trentin (2011), suggesting that established Chinese LSPs are more capable than their recently formed
counterparts in providing customers with high-end integrated services to deal with a diverse range of L&SC issues.
Fourth, it is interesting to note that ICT resources have significant positive relationships with all three L&SC compe-
tency variables tested. This finding confirms those of several earlier studies (Lai, Zhao, and Wang 2007; Lai et al. 2008;
Lin and Ho 2007), which observed that the majority of Chinese LSPs did not make heavy investment on ICT systems
due to their small scale operations. The large state-owned LSPs also lack ICT expertise, such as logistics information
system design, to provide customers with high-end supply chain services (Hong and Liu 2007). However, LSPs with
ICT resources are more able to increase the efficiency of their operations processes (Lai 2004).

5.2 Relationships between HRM practices and competencies

Findings in this study support hypotheses H1a, H1b, H1c and H2a, H2b, H2c, but reject hypothesis H3a, H3b, H3c and
H4a, H4b, H4c. This reveals that L&SC competencies of Chinese LSPs are significantly and positively related to
2898 M.J. Ding et al.

recruitment and selection, and training and development, but not to performance management and reward management.
These results trigger several interesting points that deserve elaboration.
First, the significant relationships between recruitment and selection and the three L&SC competencies imply that
effective recruitment and selection policies and procedures can help improve Chinese LSPs competencies. This finding
confirms earlier empirical studies. Fey et al. (2009) suggest that effective recruitment and selection practices can help
firms establish a highly desirable work force, which can provide a unique source of competency advantage for firms.
Chand and Katou (2007), who investigated the relationship between HRM practices and organisational performance in
the Indian hotel industry, also revealed a positive relationship between recruitment & selection and performance
(measured by profitability).
Second, the significant positive relationship training and development has with all three L&SC competencies exam-
ined suggests that conducting effective training programmes to enhance the skills of staff and having in place career
development opportunities for employees would contribute to building L&SC competencies in China. This finding is
consistent with earlier studies on the Chinese logistics industry, such as Bookbinder and Tan (2003), Lin (2007), Lieb
(2008) and Kam, Tsahuridu, and Ding (2010). Given that lack of talents is identified as one of the key challenges facing
Chinese LSPs (Bolton and Wei 2003; Hong, Chin, and Liu 2004; Kerr 2005; Zhou et al. 2008), this finding indicates
that when desirable workforce is not readily available to firms, training and development system should be put in place
to upgrade the skill levels of employees. Lieb (2008) argued that LSPs in China can improve their innovative abilities
in logistics technologies by training and educating their employees to become high-quality human resources. When
internal training is not readily available, external training and development opportunities should be considered. A nota-
ble example is TNT’s initiative to establish a TNT University in China in collaboration with Shanghai Jiaotong Univer-
sity to run training courses for TNT employees (Kong 2006).
Third, the surprising insignificant relationships between performance management and the three L&SC competencies
contradict those of previous research. A further look into the nature of performance management and the commonly
implemented practices by Chinese firms may provide useful explanation. Performance management is considered a rigid
management tool in highly dynamic markets, like the logistics service industry in China (Kam, Tsahuridu, and Ding
2010). Such a rigid system is not considered adequate to reward high-performing employees, who are career-mobile in
the keenly contested Chinese logistics market. Moreover, performance management is also a formalised transparent sys-
tem designed for measuring individual progress against set targets and identifying necessary training, education as well
as deciding reward and disciplinary actions (Cakar, Bititci, and MacBryde 2003). The Chinese business market also
makes it difficult for firms to implement standard performance measurement systems, as Cooke (2005) had found. Sys-
tems design problems, ambiguous criteria and insufficient feedback mechanism have been identified as major impedi-
ments (Cooke 2005). Not surprising, most Chinese firms prefer to use non-systematic performance appraisal (Ahlstrom,
Bruton, and Chan 2001; Wilkinson et al. 2005).
Finally, reward management, like performance management, shows no significant relationship with the three
L&SC competencies. Again, this finding is not in line with the majority of past research in this area, such as
Delaney and Huselid (1996) and Islam and Siengthai (2010), who both reported a positive and significant relationship
between reward management practices and organisational performance. This may be explained from two perspectives.
First, the three L&SC competencies are strategic in nature, making the outcomes of which less visible. Given that
the degree of competencies is commonly assessed by the extent to which ex ante objectives are realised in ex post
results (McGrath, MacMillan, and Venkataraman 1995), appraisal and reward systems formulated on performance
indicators would align well with visible outcomes. Reward management practices designed to retain and reward high-
performing staff would thus be more effective in nurturing competencies reflected in visible outcomes. Second, the
attainment of competency in the logistics industry heavily relies on the joint contribution of many team members
within the firm as well as parties external to the firm. For example, agility competency, which requires capabilities
like delivering expedited shipments to meet customer needs, providing rapid response to customer requests, and
arranging flexible delivery schedules to fit with customers’ agendas, demands strong team efforts and external collab-
oration. Such competency is hard to accomplish based on the efforts of one or two capable individuals. This high-
lights the importance of team based reward management system for logistics firms, which is also the contention of
Kam, Tsahuridu, and Ding (2010).
Equity Theory (Adams 1965) argues that employees are more motivated to contribute to collaborative tasks when
they perceive equitable reward treatment being exercised. According to the theory, when a firm does not have an
equitably apportioning system to reward team members for team-based work, it is difficult to maximise individual’s
contribution and spur team’s motivation towards work, which, in turn, will reduce the competency of the firm. Since
the items used to measure performance management and reward management in this study have not been designed
to measure team-based reward management and performance management systems, it is little surprise to see that both
 International Journal of Production Research 2899

performance management and reward management systems do not lead to significant effects on L&SC competencies
in the regression models. While this is one of the limitations of the current investigation, it also signals the need for
team-based performance and reward management items to be developed when examining their effects on LSPs’ com-
petencies or performance in future studies. The non-significant effects of performance and reward management on
L&SC competencies found in this study thus echo Hampel’s (2001) call for further investigation on these two HRM
practices, because they are less-well researched in comparison with recruitment and selection, and training and
development.
It is interesting to note that an earlier empirical study (Kam, Tsahuridu, and Ding 2010) also examined the
HRM-performance relationship on Chinese logistics firms. Although they used L&SC capabilities to represent perfor-
mance, their study parallels the current one in terms of HRM practices as all the four HRM practices in this study are
examined in theirs. The difference, as pointed out in the Introduction, is that the four variables denoting HRM practices
were measured using single item in Kam, Tsahuridu, and Ding (2010). While an overall significant relationship is
reported between HRM practices and various capabilities in their study, it should be noted that Kam, Tsahuridu, and
Ding (2010) also found results contradictory to findings in mainstream HRM research, as exemplified by the negative
relationship between recruitment and selection and a couple of L&SC capabilities. The findings of this study and Kam,
Tsahuridu, and Ding’s (2010) work indicate that research in this area is still inconclusive, which calls for more research
in the HRM-capability-competency link.

6. Conclusions
Though western HRM practices have started to take roots in many Chinese organisations, LSPs continue to experience
difficulties in adapting these practices to the Chinese environment (Cooke 2005). Responding to the lack of logistics
expertise in the Chinese logistics service industry, this research explores whether and how HRM practices nurture
L&SC competencies against the backdrop of a structurally fragmented and highly competitive Chinese logistics service
industry. This study finds that not all HRM practices are equally effective in developing L&SC competencies. While
training and development, and recruitment and selection emerged as vital factors in helping Chinese LSPs improve their
L&SC competencies, HRM practices related to performance management and reward management showed no significant
relationship to these competencies. This research sheds interesting insights indicating how HRM practices help Chinese
LSPs build up their pool of talents through formal and informal recruitment and selection methods. It also reveals HRM
practices contribute little to help LSPs retain and reward capable individuals through formal performance and reward
management systems. It reinforces Kam, Tsahuridu, and Ding’s (2010) contention that the Chinese logistics service mar-
ket is a distinctively unique environment that differs conspicuously from those of the developed economies, despite over
three decades of economic reform and China’s ascension to the World Trade Organisation. From those findings, we con-
clude that designing strategies, policies and processes in the areas of recruitment and selection, and training and devel-
opment should form prime considerations for Chinese LSP managers aiming to move their companies towards
achieving higher positioning, distribution support and agility competencies. Although HRM practices related to perfor-
mance and reward management do not seem to show significant effects on intangible L&SC competencies, like the three
examined in this study, they may prove to be effective in building other forms of more visible competencies, such as
meeting on-time and in-full delivery targets and preventing out-of-stock occurrences. These are areas requiring further
investigation.
Besides not having all AVEs achieving a value exceeding 0.5, this study has a number of other limitations. First, this
study has not examined the possible presence of mediators between the HRM practice-L&SC competency link. Second,
it only focuses on HRM practices that are directly related to the improvement and retention of skilled logistics work
force at the individual level. HRM practices facilitating and building team competencies have not been included in this
study. The third limitation is the exclusion of Guanxi – the Chinese equivalent of social capital or relationship manage-
ment (Wilkinson et al. 2005), which underpins business operations of LSPs in China. Finally, the findings from this
study are limited to the context of the unique Chinese logistics market. Generalisation to other contexts needs to be
made with cautions.
In view of the findings and limitations of this study, we propose several directions for future research in addition to
those already mentioned. First, we suggest future research to include variables (such as HRM outcomes like employee
satisfaction) that may mediate the HRM practice-L&SC competency link. Next, given that the achievement of position-
ing and agility competencies of LSPs requires strong team efforts, we recommend investigating the effects of team-
based HRM practices (such as team building systems) on positioning, agility and other L&SC competencies. Further,
given the importance of Guanxi in doing business in China, exploring the possible moderating effects of Guanxi on the
relationship between HRM practices and L&SC competencies would be a logical extension of the work reported in this
2900 M.J. Ding et al.

paper. Finally, extending the conceptual framework of this study to examine the effects of HRM practices on L&SC
competencies in other developing economies, like India, Vietnam and Brazil, would help build the much-needed
knowledge base on the efficacy of HRM practices on L&SC performance in the developing world, where multinational
corporations in search of low wages would be heading.

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