Employment relationships and firm performance: evidence from an emerging economy

Defining employment relationships from the employer's perspective and based on the inducement-contribution framework, this study examined the link between employment relationships and firm performance in a heterogeneous sample of firms in the largest emerging economy in the world, i.e., the People's Republic of China. It also analyzed the contingent role of both the firm's strategic orientation and its ownership structure. The results demonstrated that it is the combination of a high level of expected contributions coupled with a high level of provided inducements (i.e., organization-focused employment relationship approach) rather than a high level of either expected contributions or provided inducements alone that is critical for firm performance. Further, we found that it is not the organization-focused but the under-investment employment relationship approach that offers a competitive advantage if the firm pursues the prospector strategy or if the firm is a domestic privately owned enterprise. In particular, the domestic privately owned enterprises reported the highest firm performance when they used the under-investment approach with their middle managers, in contrast to the state-owned or foreign-invested enterprises. These results support both the universalistic and the contingency perspectives on the relationship between employment relationships and firm performance. They also contribute to our understanding of employment relationships in the global context. Copyright (C) 2003 John Wiley Sons, Ltd