Purpose – The purpose of this paper is to attempt to investigate the relationship between human resource management (HRM) competency and firm performance. Drawn upon the resource-based view and alignment theory, HRM competency is expected to be related to the adoption of high performance work systems (HPWS) and the achievement of external fit in HRM, which in turn contribute to firm performance. Design/methodology/approach – The data for this study were collected via a survey of in 157 Chinese enterprises located in the high technology development zone of three large cities. Two different respondents from each firm provided information about organizational characteristics, HRM policy and practices, and firm performance. Multiple regressions were used to test the hypotheses. Findings – Results indicate that HRM competency has a significant and positive effect on firm performance. Such an effect is found to be mediated by the achievement of external fit, but not the adoption of HPWS. Research limitations/implications – Limitations of the study include cross-sectional data, perceptual measure of firm performance, omission of external variables, and restricted sample. This study highlights the importance of HRM competency in strategic HRM, and provides evidence about how this construct is linked to firm performance. Originality/value – This is the first study that explores the effect of HRM competency on the adoption of HPWS and the achievement of external fit. It further reveals that the achievement of external fit mediates the relationship between HRM competency and firm performance, and hence contributes to the HRM literature.