RESEARCH PROJECT (BMBR5103) FACTORS AFFECTING EMPLOYEES’ LOYALTY IN BUSINESSES IN HO CHI MINH CITY STUDENT’S FULL NAME STUDENT ID INTAKE ADVISOR’S NAME & TITLE : QUACH THAI HANG : CGS00018494 : SEPT 2014 : ASSOC.PROF PHAN DINH NGUYEN December, 2015 Advisor’s assessment Advisor’s signature Advisor’s assessment Advisor’s signature Table of contents Chapter 1: Introduction 1.1 Problem statement 1.2 Research objectives 1.3 Research questions 1.4 Research scope 1.5 Research methodology 1.6 Research structure Chapter 2: Literature Review 2.1 Theoretical literature 2.1.1 Approaches in the study of the loyalty of employees 2.1.2 Benefits of building and maintaining the loyalty of employees 2.2 Empirical literature 10 Chapter 3: Research Methodology 12 3.1 Data sources-Quantitative study 12 3.2 Variables 12 3.3 Research model 15 3.4 Method of estimation 21 3.5 Method of testing 22 Chapter 4: Research Results 24 4.1 Synthesis of the survey result 24 4.2 Descriptive statistics 27 4.3 Adjustment of scale 29 4.4 Factor analysis 30 4.5 Adjusted model 34 4.6 Testing of the adjusted model 35 4.7 Result of testing hypothesis 39 4.8 Testing the loyalty rate between male and female 41 4.9 Testing the loyalty among employees at different levels 42 4.10 Testing the loyalty among employees at different positions 44 4.11 Testing the loyalty among employees in different business types 46 Chapter 5: Conclusion, Recommendation and Limitation 48 5.1 Conclusion 49 5.2 Recommendation 50 5.3 Limitation and recommendation for coming studies 53 References 56 CHAPTER 1: INTRODUCTION 1.1 Problem statement: In the recently years, the problem of employees resigning from one company only after a few months of working to seek for another jobs, happens to most of companies in HCM City According to a recent research of a Vietnamese company, forty- one percent of employees who work under months would resign or be fired by companies In line with this research, Labor Magazine’s had shown that among the 445 employees who are now looking for the job, there are 39% of employees resigned after working for one company from to years, 26% resigned after years of working That is known as the unsolvable problem that made many companies faced a difficult situation in order to remain their daily operation and cost management since they have to recruit new employees many times Businesses have to pay very high when employees resign: they lose not only the experienced employees but also high sales revenue The study showed that 70% of customers stop buying companies’ products because of the leave of key staff It is also a trend to leave for all remaining staff The problem of how to retain employees is a big problems for business owners and managers of enterprises in Vietnam Especially after Vietnam joined the WTO and the coming TTP Agreement, the domestic enterprises need to expand production and business; hire quality of human resources, retain qualified employees So, the business must identify, consider and evaluate accurate factors that affect the loyalty of employees And So far, there are many studies on employees’ loyalty, but most previous studies only focused on a general way to a certain extent, such as organizational culture, leadership style, etc There is now no study has ever addressed the specific factors affecting the loyalty of employees Therefore in this study each specific factor such as salary, working conditions, the appropriate target, etc will be examined to find out how each of them will affect the loyalty of employees in businesses That's why I chose the topic “Factors affecting employees’ loyalty in companies in Ho Chi Minh City” The paper purpose is to identify the most important factors affecting the loyalty of employees of businesses in Ho Chi Minh City and to provide recommendation to improve current problem from identified factors 1.2 Research objectives: The general objective of this study is to identify factors which affect the loyalty of employees in businesses in Ho Chi Minh city To achieve the general objective, the study is designed to meet the following specific objectives: (1) Find out the factors affecting employees’ loyalty in businesses in HCM city (2) Provide some recommendations to improve the employees’ loyalty in businesses in HCM city 1.3 Research questions: The research aims to address the following questions: (1) What are the factors affecting the loyalty of employees in businesses in HCM city? (2) What recommendations should be done to improve the loyalty of employees in businesses in HCM city? 1.4 Research scope: Research objects who are currently working in the economic organizations; including Limited Liability Company, Joint Stock Company, State-owned Company, Joint Venture Company, Private enterprise and Enterprise 100% foreign capital Due to time limitation, the study focuses on investigating the objects who are currently working in businesses in HCM city in positions of staff, team leaders, supervisors and middle managers 1.5 Research methodology: The research is launched by using quantitative research methods, using the measured variables in qualitative research phase to determine the factors and the measurement properties Quantitative survey was conducted in the area of HCM city Sample objects are currently working in businesses in HCM city, conducted by direct interviews with the questionnaires, selecting a random sample of working employees in Business Seminars launched by Dun & Bradstreet in 2015 Measurement model included 29 observed variables, using 5-level Likert scale range (1: totally disagree to 5: completely agree) to quantify; and hypotheses according to minimum rule x = 15 samples for each measurement variables (Bentle & Chou, 1987) From here, the original sample was calculated to be 29 x 15 = 435 Using data processing techniques by SPSS software, testing conducted through the following steps: (1) preliminary assessment of the scale and reliability of variables measured by Cronbach Alpha coefficients, and the values (factor loading) by EFA (Exploratory Factor Analysis); (2) testing the hypothesis and the overall model fit After that, T-Test would be used for testing and ANOVA (Analysis of Variance) would be used for analyzing to find out significant differences of a few specific groups 1.6 Research structure: Chapter 1: Introduction Chapter one presents the reasons why research needs to be conducted, and objectives of this research The core of this chapter is comprised of the following sections: backgrounds, problem statement, objectives, research question and hypotheses, scopes and limitations Chapter 2: Literature review Chapter two reveals the literature review of the independent and dependent variables Chapter 3: Research methodology Chapter three describes how the research was conducted It provides an overview of the methodology, which includes various sections: research design, target population and sample size, survey instrument, operational definitions and measurements, data collection, data analysis, factor analysis Chapter 4: Empirical results and discussion Chapter four presents the results of the study This chapter contains four main sections: the demographic characteristics of employees and descriptive statistics of independent and dependent variables, multiple regression analysis, simple linear regression, and direct and indirect effects on employee loyalty Chapter 5: Conclusion, recommendation and limitation Finally, chapter five discusses the findings of the study and answer questions of this research were raised in chapter one Besides that, it also includes limitations of this research and recommendations for further research CHAPTER 2: LITERATURE REVIEW 2.1 Theoretical literature: 2.1.1 Approaches in the study of the loyalty of employees: Theoretically, we have many approaches in the study of the loyalty of employees in businesses Loyalty can be considered as a component of organizational commitment, or an independent concept Per Allen & Mayer (1990), they focused on three psychological states of employees associated with the organization Employee loyalty to the organization can derive from their true feelings: (1) they will stay with the organization despite elsewhere higher salaries, better working conditions, (2) they can be loyal to their organizations just because they not have the opportunity to earn a better job, and (3) they can be loyal to their organizations because the moral standards of the organizations that they pursue According to Mowday, Steers and Poter (1979), loyalty is the "intention or desire to maintain membership of the organization" Mowday's famous definition of loyalty is similar to the concept of "Maintain" in the research of Aon Consulting Institute for many years in US: employees who intend to stay with the organization in the long term will stay with the organization even though they get more relatively attractive offers from other organizations According to Johnson (2005), today employees are more loyal to their profession than loyal to their employer; and the nature of the relationship between employees and employers has changed fundamentally, and it is necessary to reevaluate the loyalty concepts By the Loyalty Research Center (2004), employee loyalty is as commitment of employees associated with the organization's success, and they believe that working in this organization is the best choice of them In summary, this chapter presents analysis results including the following contents:  Evaluation of reliability of scale through Cronbach’s alpha, there are six factors resulted in analyzing factors after removing variables not meet requirements and a new model is adjusted after naming new variables of factors, they are: high income, favorable working conditions, target suitability and management decisions, fair reward and empowerment  Multi-variables regression analysis and hypothesis testing of the model was confirmed as follows: the loyalty of employees was influenced by the six factors mentioned above  Testing of T-test and ANOVA analysis result as followings: The loyalty of male and female is the same; There are differences in loyalty between group of college level and university level, and groups of college degrees and master degrees; There are differences in loyalty between staff group and leaders / experts group, and staff group and management group; There is no difference in the level of loyalty of employees working in different types of businesses 48 CHAPTER 5: CONCLUSION, RECOMMENDATION AND LIMITATION 5.1 Conclusion Research model originally includes seven factors affecting employees’ loyalty to the organization, they are: high income, favorable working conditions, target suitability, support from management, support from colleagues, fair reward and empowerment with 26 observed variables After evaluation of scale reliability and factor analysis, the results of observed variables are put into the regression analysis of factors group In which, a new factor was created based on the combination of the observed variables of two components: support from management and support from colleagues, and it was named as management decision factor Results of multi-variables regression analysis identified that the employees’ loyalty influenced by six factors, they are: high income, working conditions, target suitability, management decisions, reward and empowerment In which, “management decisions” component has the most important influence on the loyalty of employees, followed by target suitability component, working conditions, empowerment, reward and the last one is high income component Hypothesis testing of the model was confirmed these six factors make employees more loyal to the businesses Testing of T-test and ANOVA showed results as follows: The loyalty of male and female is the same There are differences between group of college level and group of university level, between group of university level and group of master level 49 There are differences between staff group and leaders / experts group, between staff group and managers group The loyalty of employees working in different types of businesses is the same 5.2 Recommendation: The result of regression research shows that the employees’ loyalty depends on: High income, favorable working conditions, target suitability, management decisions, fair reward and empowerment In addition, the study also identifies the importance of the independent variables to dependent variables as follows: management decisions component has the most important influence on the loyalty of employees, followed by target suitability component, favorable working conditions component, empowerment component, fair reward component and the last one is high income component Testing of T-test results show that the loyalty of male and female is the same ANOVA results show that there are differences between group of college level and group of university level, between group of university level and group of master level There are differences between staff group and leaders / experts group, between staff group and managers group The employees’ loyalty working in different types of businesses are the same Also, according to ANOVA results, employees working at different types of businesses have the same loyalty level These results help managers develop HR policies that are suitable for their business conditions Employees who are loyal to the company will make increasing sales and reducing significant costs 50 According to research findings, we have identified the factors that affect employees’ loyalty, they are: high income, favorable working conditions, target suitability, management decisions, fair reward and empowerment On base of these results, we implement a number of solutions aiming at improving the efficiency of the personnel management as follows: Firstly, enterprises have to build a competitive salary system, it depends on type of business in order to plan surveys, analyze and determine the appropriate level of income The distribution of income must be linked to the nature and complexity of the job Salary must be linked to economic development and living standards of labors Every year, enterprises should consider and evaluate for suitable salary adjustments and direct to improve labors’ life.Businesses need to build a system of fair, uniform and clearly salary in order to avoid the existing of two systems of salary in the same company but differences in treatment between new employees and old employees Fair is expressed in fair among groups and among individuals in the same working environment In term of spirit, employees tend to make comparison their performance with other people's income, therefore unfair payment make them feel not satisfied and they will not be loyal to the organization On the other hand, businesses need to make accurate and scientific assessments to their employees; salary must be paid according to their ability and working efficiency associated with specific working conditions and circumstances Secondly, businesses need to provide employees with an ideal working environment as well as appropriate equipment such as: a cool and clean working environment, appropriate temperature and light, equipment for the jobs in order that employees invest more talent for the business Especially enterprises must create a working environment where all employees feel safe at workplaces Thirdly, enterprises must build a specific and clearly development target and they have to transmit this message to every employee This action has important meaning 51 for employees as well as enterprise to reach goals In addition, enterprises need to implement different ways to guide all employees towards business objectives that were set out Fourthly, managers must look after and support for their employees because these interests are very important A good manager must know how to fully promote all employees’ energy and enthusiasm in working In addition to professional skills, managers must be good at gaining popularity as well as empathizing and grasping their employees’ mentality HR managers should regularly consult employees in solving problems that arise in their work, share your business information with employee in order that they can see the relationship between the work they are doing and the results the company is achieving Thus, employees will feel that they are respected they are making a partly contribution to the enterprise’s development Besides the interests and respects, HR managers should organize activities for relax at the company to mark special occasions and try to create a friendly environment so that everyone can feel comfortable in the office as well as take a short time to learn a little about their family and private life And not only HR employees need to be equipped with knowledge and necessary management skills, but also management people in general and head of departments in particular perform personnel jobs in their managing scope in order to promote his employees to reach common goals Fifthly, enterprises must consider and conclude in a fairly and objectively manner Regarding to whether employees perform their tasks in accordance with the requirements set out or not, since it deserved a reward to best individuals for their efforts on the job Enterprises need to build a system of income distribution and promotion policies in accordance with employees’ wishes; because should the income distribution is based on job requirements, personal skills, and other distribution standards in the community the employees will feel more satisfied In addition, enterprises should offer promotion opportunities for all employees, because if employees recognize that if the promotion decisions in the organization are fair, 52 the employees will feel more satisfied Sixthly, enterprises need to create an environment of mutual trust for both sides Employees need to be recognized and respected from managers through the empowerment for self-determination, opportunity creation for studying and contributing to the common success of the business Managers need to delegate tasks based on the weaknesses and strengths of employees It is required for employees to learn professional knowledge they need If managers understand what requirement the job is, they should empower employees who can take the job well Managers should realize that the job cannot be completed when it done by one person When assigning employees, it is required to understand that an effective empowerment also means that unwanted occurs can be attached and they should accepted them The managers cannot get the results as expected, but they need to accept it and accept occurred errors 5.3 Limitation and recommendation for coming studies: 5.3.1 Limitation: Firstly, the loyalty of employees affected by many factors, but this study only focused on six factors including: high income, favorable working conditions, target suitability and management decisions, fair reward and empowerment Besides, the object of the study is limited to classes in evening in HCM city Secondly, the limitations of the data analysis method, this study used method of multi-variables regression analysis to determine the relationship between the independent variables including: high income, favorable working conditions, target suitability, management decisions, fair reward and empowerment and the dependent variable is the loyalty However, this analysis method does not identify the relationship between this independent variable with the others, so the results may not 53 accurately reflect the relationship between these factors 5.3.2 Direction for coming studies: The purpose of the following studies after measuring the loyalty of employees is to consider in terms of revenue and expense When employees are loyal to the enterprises, employees tend to work more effectively than what customers expect and always have high morale in their best ability Both of these characteristics are very important for the company to retain loyal customers and bring higher revenue to enterprises The loyal employees will stay working for the company in long term and refuse offers from competitors; they not actively look for new jobs and always present their companies as the best workplaces All four of these attitudes have positive impacts to cost column in the balance sheet of the company, then the company can reduce the significant costs for replacement employees The loyalty of employees affected by many factors, but this study only focused on six factors including: high income, favorable working conditions, target suitability, management decisions, fair reward and empowerment Besides, the object of the study is limited to some samples at seminars in HCM city only Further studies will be certainly continued, because this is a very important theory tool on human resource management Because regression analysis does not identify the relationship between this independent variable with the others, the results may not accurately reflect the relationship between these factors Therefore, this study repeated with higher quality tools will show more accurate result 54 References Alwin, Duane F and Robert M Hauser (1975) The decomposition of effects in path analysis American Sociological Review 40(Feb.): 37-47 Artz, B., (2010) Fringe benefits and job satisfaction International Journal of Manpower, 31(6), 626-644 Arsić M , Nikolić D , Živković Z , Urošević S & Mihajlović I (2012): The effect of TQM on employee loyalty in transition economy, Serbia, Total Quality Management & Business Excellence, 23:5-6, 719-729 Chang C., Chiu C & Chen A C (2010): The effect of TQM practices on employee satisfaction and loyalty in government, Total Quality Management & Business Excellence,21:12, 1299-1314 Chen, C (2006), “Job satisfaction, organizational commitment, and flight attendants’ turnover intentions: a note”, Journal of Air Transport Management, Vol 12, pp 274 Church, A.H (1995) Linking leadership behaviors to service performance: Do managers make a difference? 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The main purpose of this survey is to know the main factors which affecting employees’ loyalty with business This questionnaire is a very important part of my master study at OUM It only takes a few minutes to complete this survey Your opinion is significant important to me, and all your opinion and information about company will be confidential and using for this study only Kindly access by circling the number of points for each of the following statements, with the conventions of scale as follows: Scale of level of agreement 1: strongly disagree 2: somewhat disagree 3: wondering if agree or not 4: somewhat agree 5: strongly agree I – Factors affecting the loyalty of employees: Level High income / salary My current salary is well-paid with my working capacity My life is totally well with my current salary I think that the company I am working for pay a fair salary 1 2 4 5 Working conditions Equipment at my workplace is very well-furnished Rooms at my workplace are very airy to make me feel very comfortable Temperature, light and noise at my workplace are very suitable for my job I feel safe at my workplace Level 5 5 59 Level Target suitability I feel my capabilities are suitable to organization’s working requirements I commit to implement the goals set by organization I agree with the organization’s business line My development targets are similar to the organization’s targets 5 1 2 3 4 5 Level Support from management I always gain supports from my direct senior in all respects Senior always supports me when the problems have just arisen I often gain supports from my direct senior when the problems become worse 5 Support from colleagues My senior / colleagues always listen to and support me My senior / colleagues are always good understanding persons, friendly and easily accessible Reward I get a fair reward in completing my role I get a fair reward through my job duty I get a fair reward through my spent efforts I get a fair reward when working under high pressure I get a fair reward when I complete well my job Level 5 Level 1 2 3 4 5 1 2 3 4 5 Level Empowerment Senior assign my job and let me implement it by myself Senior empowers me to make decisions Senior believes in my capability of making decisions Senior promotes me to utilize empowerment that he gave me Senior believes in my working performance evaluation 1 2 3 4 5 1 2 3 4 5 Level Loyalty I'm willing to introduce to people about my company as a good working place 60 5 I am proud to introduce to people about the product / service of the company I will stay working with the company in long term although others suggest more attractive salary II – Personal information: Kindly indicate the following personal information: Business types you are working for  Not working  Limited Liability Company  Joint Stock Company  Private enterprise  State-owned  100% foreign capital  Joint Ventures Gender  Male  Female Age  =41 Working position  Staff  Leader / Expert  Manager Education level  High school  Intermediate  College  University  Post-university Your comment: 61 62 ... the loyalty of employees in businesses That''s why I chose the topic ? ?Factors affecting employees? ?? loyalty in companies in Ho Chi Minh City? ?? The paper purpose is to identify the most important factors. .. objectives: (1) Find out the factors affecting employees? ?? loyalty in businesses in HCM city (2) Provide some recommendations to improve the employees? ?? loyalty in businesses in HCM city 1.3 Research questions:... following questions: (1) What are the factors affecting the loyalty of employees in businesses in HCM city? (2) What recommendations should be done to improve the loyalty of employees in businesses