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Antecedents of Service Climate: Local vs. Foreign Service Firms in an Emerging Market Context A thesis submitted in fulfilment of the requirements for the degree of Doctor of Philosophy in Business Hung Trong Hoang B. Management (Monash University) The University of Adelaide Business School Adelaide, Australia 2014 Abstract Service climate has attracted attention from both academics and practitioners in recent years. However, there exist two major research gaps in this literature domain.

First, service climate research to date has predominantly focused on its outcomes, with few studies investigating its antecedents. These few studies have primarily relied on a resource-based approach and have focused on certain organisational resources and practices that can enhance service climate. Second, there is limited knowledge of how service firms foster a service climate in emerging markets where much of the economic growth is currently occurring. Therefore, this study seeks to gain a more comprehensive understanding of (1) the antecedents of service climate and (2) the extent to which service firms, both local and foreign-owned, create a favourable service climate in an emerging market.

The broad research problem investigated in this study is: How do service firms, local and foreign-owned, create a favourable service climate in an emerging market context? To examine the broad research problem, this study draws upon the resource-based view, social exchange theory and the eclectic paradigm to address the following two research questions: Research question 1: What are the antecedents of service climate in an emerging market context? How do the antecedents interact and influence service climate? Research question 2: How do service climate and its antecedents differ between local and foreign service firms in an emerging market context? How do the antecedents influence service climate differently across the ownership types? i To address these research questions, this study was conducted in two phases: exploratory and explanatory. The exploratory phase yielded new insights into the antecedents of service climate of local and foreign service firms in an emerging market context. It also helped clarify the antecedents of service climate and the potential relationships among them. Based on the findings of this exploratory phase, a conceptual framework was developed and hypotheses were derived.

The conceptual framework and hypotheses were then tested in the second phase of the study using Structural Equation Modelling (SEM). Survey data from a total of 549 usable responses from service employees in both local and foreign service firms in Vietnam allowed the researcher to test the proposed hypotheses. Findings for the first research question suggested that three groups of antecedents contribute to creating a favourable service climate in an emerging market context: firm- based, market-based and culture-based. In terms of firm-based antecedents, the study identified five antecedents positively related to service climate: (1) leadership commitment to service quality, (2) internal customer service, (3) internal processes and service standards, (4) service-oriented human resource management (HRM) and (5) work facilitation resources.

In addition, there are significant inter-relationships among these firm-based antecedents in fostering a service climate. The data analysis also demonstrated that competitive intensity in emerging markets and employees’ cultural orientation moderate the impacts of the firm-based antecedents on service climate. Findings for the second research question showed that there are significant differences in the antecedents and service climate between local and foreign firms. Foreign-owned service firms outperformed local firms on all firm-based antecedents and in service ii climate.

In addition, the influence of leadership commitment to service quality and service-oriented HRM on service climate was found to be greater in foreign firms than that in local firms. In contrast, the influence of internal customer service on service climate in local firms was greater than that in foreign firms. This study contributes in several ways to our knowledge concerning service climate. First, it proposes and tests an integrated model of the antecedents of service climate in an emerging market context, which have not been fully examined in prior literature.

Second, the study contributes to knowledge about the antecedents of service climate from a market perspective by suggesting the impact of competitive intensity in emerging markets. Third, it extends the literature on the antecedents of service climate from a cultural perspective by investigating the impact of employees’ cultural orientation on their perception of service climate. Fourth, this study enriches international services research by investigating the factors associated with service climate in internationalised service firms (versus those of domestic ones) from an Asian emerging market perspective. Finally, this study has practical implications because it provides a framework that enables managers of service firms to take action and invest resources to improve their service climate and enhance their competitive advantage in the global marketplace.

iii TABLE OF CONTENTS Abstract. i Statement of declaration. xv CHAPTER 1: INTRODUCTION. Broad research problem and research questions.

Objectives of the research. Intended contributions of the study. Outline of the thesis. 11 CHAPTER 2: LITERATURE REVIEW.

The resource-based view of competitive advantage. The eclectic paradigm. Social exchange theory. The nature of services.

The concept of service climate. Dimensions of service climate. The importance of service climate. Antecedents of service climate.

Human resource management practices. Inter-departmental service. Work facilitation resources. Creating service climate in emerging markets.

The importance of emerging markets. Creating service climate across cultures. 67 iv CHAPTER 3: RESEARCH DESIGN AND CONTEXT. Overall research design.

Overall research design. Phase One: exploratory research. Phase Two: explanatory research. Vietnam as the context.

The liberalisation of the Vietnamese economy. Economic growth in Vietnam. FDI inflows into Vietnam. The importance of service sectors in Vietnam.

85 CHAPTER 4: EXPLORATORY STUDY OF ANTECEDENTS OF SERVICE CLIMATE IN AN EMERGING MARKET CONTEXT. Qualitative research methods. Justification for selecting in-depth interviewing for the exploratory phase. Issues of reliability and validity.

Firm-based antecedents. Market-based antecedents. Culture-based antecedent. Summary of findings.

Conceptual framework and research hypotheses. 119 CHAPTER 5: SURVEY METHODOLOGY. Justification of the survey methodology. Questionnaire design and administration.

Specification of the data needed. Operationalisation of constructs. Selection of the format of responses. Drafting of the questionnaire.

Pre-testing of questionnaire. Selection of participating firms and individual respondents. Data analysis strategy. 156 CHAPTER 6: ANALYSIS OF SURVEY DATA – TESTING THE ANTECEDENTS OF SERVICE CLIMATE IN VIETNAM.

Assessment of data normality. Goodness-of-fit indices. Measurement model of service climate. Measurement model of leadership commitment to service quality.

Measurement model of internal processes and service standards. Measurement model of work facilitation resources. Measurement model of internal customer service. Measurement model of service-oriented HRM.

Measurement model of competitive intensity. Measurement model of individual level power distance. Measurement model of collectivism cultural orientation. Test for normality of new constructs.

Common method bias. Testing the hypotheses – Antecedents of service climate in local vs. foreign service firms in Vietnam. Structural model for the whole sample.

Structural model for local versus foreign data. Testing the difference of antecedents and service climate levels between local and foreign service firms. Tests of moderating effects. Competitive intensity as a moderator.

Employees’ cultural orientation as a moderator. 199 CHAPTER 7: DISCUSSION OF FINDINGS AND CONCLUSION. Summary and discussion of research findings. Limitations of the study and future research.

263 Appendix 1: Interview instruments. 264 Appendix 1a: Information sheet for managers (English and Vietnamese). 264 Appendix 1b: Information sheet for employees (English and Vietnamese). 266 Appendix 1c: Interview protocol for managers (English and Vietnamese).

268 Appendix 1d: Interview protocol for employees (English and Vietnamese). 272 Appendix 2: Ethics approval. 276 Appendix 3: Participant details. 278 Appendix 4: Survey questionnaire instruments.

279 Appendix 4a: Cover sheet (English and Vietnamese). 279 Appendix 4b: Survey questionnaire (English and Vietnamese). 281 Appendix 5: Test for non-response bias. 291 Appendix 6: Legend to the labelling items.

293 Appendix 7: Descriptive statistics of measurement items to assess data normality. 296 Appendix 8: Correlation matrix. 299 Appendix 9: Moderating effect of competitive intensity and employees’ cultural orientation on the relationship between firm-based antecedents and service climate 300 Appendix 9a: Moderating effect of competitive intensity. 300 Appendix 9b: Moderating effect of power distance.

302 Appendix 9c: Moderating effect of collectivism. 305 vii LIST OF TABLES Table 2.1: Service climate dimensions – a summary from various authors between 1980 - 2014 .2: A summary of literature review of service climate’s outcomes 1980-2013 .3: A summary of literature review of antecedents of service climate 1980-2014 .4: Key differences among advanced, developing and emerging markets .5: Top 20 emerging markets until 2020 .2: Exploratory versus explanatory research .3: Vietnam’s top foreign direct investors (up to 31/12/2012).1: Interview protocol for managers and service employees .2: Strategies to enhance the reliability and validity of qualitative research.3: Glossary of selected key terms .4: Summary of the findings .1: Comparison of survey approaches .2: Measures for the service climate construct .3: Measures for the leadership commitment to service quality construct .4: Measures for the internal processes and service standards construct .5: Measures for the work facilitation resources construct .6: Measures for the service-oriented HRM construct .7: Measures for the internal customer service construct .8: Measures for the competitive intensity construct .9: Measures for the employees’ cultural orientation construct .10: Basic scales of measurement .11: Questionnaire structure and content.1: Summary of selected fit indices used for this study .2: Assessment of the hypothesised model of service climate .3: Assessment of the hypothesised model of leadership commitment to service quality.4: Assessment of the hypothesised model of internal processes and service standards.5: Assessment of the hypothesised model of work facilitation resources.6: Assessment of the hypothesised model of internal customer service .7: Assessment of the hypothesised model of service-oriented HRM .8: Assessment of the hypothesised model of competitive intensity.9: Assessment of the hypothesised model of individual level power distance 175 Table 6.10: Assessment of the hypothesised model of collectivism cultural orientation .11: Descriptive statistics of new constructs .12: Reliability checks for all hypothesised constructs .13: Assessment for discriminant validity – squared correlations between constructs and average variance extracted .14: Goodness-of-fit measures for the resulting model .15: Direct, indirect and total effects of antecedents on service climate .16: Direct effects of intra-antecedent relationships .17: Measurement invariance between local and foreign groups .18: Standardised coefficients of the direct impacts of the antecedents on service climate between local and foreign groups .19: T-test results of the antecedents and service climate across ownership types .20: Moderating effect of competitive intensity on the relationships between the firm-based antecedents and service climate .21: Moderating effect of employees’ cultural orientation on the relationships between the firm-based antecedents and service climate. 198 x LIST OF FIGURES Figure 2.1: Structure of Chapter 2 .2: Theoretical underpinnings of this study .3: The relationship between organisational climate and service climate .1: Structure of Chapter 3 .2: Research design for this study .3: Vietnam’s GDP growth rate in 2000-2012 (%) .4: FDI inflows into Vietnam (US$ million) .5: Growth rate of Vietnam’s services sector in compared to other sectors, 2008- 2012 .1: Structure of Chapter 4 .2: A conceptual framework of antecedents of service climate in smaller Asian emerging markets .1: Structure of Chapter 5 .2: The questionnaire design and administration process used in this study .1: Structure of Chapter 6 .2: One-factor congeneric model of service climate .3: One-factor congeneric model of leadership commitment to service quality .4: One-factor congeneric model of internal processes and service standards 166 Figure 6.5: Higher-order factor CFA model of work facilitation resources .6: Higher-order factor CFA model of internal customer service .7: Higher-order factor CFA model of service-oriented HRM .8: One-factor congeneric model of competitive intensity .9: One-factor congeneric model of individual level power distance .10: One-factor congeneric model of collectivist cultural orientation .1: Structure of Chapter 7 .