Determinants of quality management practices: An empirical study of New Zealand manufacturing firms Renu Agarwal a,n , Roy Green b , Paul J. Brown c , Hao Tan d , Krithika Randhawa a a Management Discipline Group, UTS Business School, University of Technology Sydney, PO Box 123, Broadway, Sydney, NSW 2007, Australia b UTS Business School, University of Technology Sydney, PO Box 123, Broadway, Sydney NSW 2007, Australia c Accounting Discipline Group, UTS Business School, University of Technology Sydney, PO Box 123, Broadway Sydney NSW 2007, Australia d Newcastle Business School, Faculty of Business and Law, University of Newcastle, Australia Callaghan NSW 2308, Australia article info Article history: Received 13 May 2011 Accepted 25 September 2012 Available online 10 November 2012 Keywords: Management practices Productivity Performance Econometric analysis Policy making abstract A large body of research in recent years has resulted in the accumulation of knowledge about better (worse) management practices for manufacturing firms. Given the wide dissemination of knowledge about practices such as Lean Manufacturing, the importance of goal-setting, performance management systems, employee promotion and reward structures, it is unclear why some firms do not adopt these broad-based management practices. If there are management practices that have the potential to universally increase productivity of manufacturing firms, their lack of adoption by all firms in such markets remains a pertinent question. New Zealand is a small open economy facing competitive pressure from both its geographical distance from large markets and its minimum wage, which is above key international competitors. In this context we use a novel survey tool designed by Bloom and Van Reenen (2007) and McKinsey & Co. to construct a Management Practices Score (MPS) based on 18 management practices from 152 medium- and large-sized New Zealand manufacturing firms. We find that the MPS is positively associated with various firm productivity performance indicators, particularly profit per employee and firm sales, indicating that the MPS captures relevant information about management practices. We find that firm size, ownership structure, and the level of education among both managers and non-managers positively impacts management performance. Unlike the findings in earlier international research, we find that competition does not have an association with management practices. The findings here contribute to understanding why best management practices are not universally adopted by manufacturing firms. & 2012 Elsevier B.V. All rights reserved. 1. Introduction This paper investigates the determinants of best management practices for manufacturing firms operating in a small open economy facing competitive pressure through its geographic dis- tance from large markets and from having a minimum wage above key international competitors. We also investigate the association between management practices and firm productivity and perfor- mance to assess the validity of the Management Practices Score (MPS) utilized in this study. Examining the causes and implications of variation in productivity across firms is an important theme in many fields of economics, including production (e.g., Cua et al., 2001) trade (e.g., Melitz, 2003), labour (e.g., Van Reenen, 1996), industrial organization (e.g., Hopenhayn, 1992), and macro- economics (e.g., Atkeson and Kehoe, 2005). It has been suggested that the level of management capability within firms is a driver of organizational performance and productivity, in turn contributing to economic growth and competitiveness (UK Work Foundation, 2003, 2005). A recent study by Alexopoulos and Tombe (2009) also suggests that the development of intangible processes and manage- ment techniques improve productivity. Supporting this view, a number of management practices have been investigated and found to positively affect performance for the average firm which adopts them. For example, Cua et al. (2001) find that the joint implementa- tion of Total Quality Management (TQM), Just-In-Time (JIT) and Total Productive Maintenance (TPM) are generally compatible and associated with manufacturing performance. Given that there is variation in management practices adopted by firms, the question of why firms choose practices that are demonstrably less effective than others is pertinent. To assess the reasons why firms adopt best management practices it is necessary to define and measure them through an empirical proxy which has a sufficient level of content reliability. Contents lists available at SciVerse ScienceDirect journal homepage: www.elsevier.com/locate/ijpe Int. J. Production Economics 0925-5273/$ - see front matter & 2012 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.ijpe.2012.09.024 n Corresponding author. Tel.: þ61 419463953. E-mail addresses: renu.agarwal@uts.edu.au (R. Agarwal), roy.green@uts.edu.au (R. Green), paul.j.brown@uts.edu.au (P.J. Brown), hao.tan@newcastle.edu.au (H. Tan), krithika.randhawa@uts.edu.au (K. Randhawa). Int. J. Production Economics 142 (2013) 130–145