Impact of human resource management practices on organizational performance in small and medium enterprises in thai nguyen city

iii This is to certify that the research work / dissertation entitled “Impact of Human Resource Management Practices on the Organizational Performance of the Small and Medium Enterprise

i

MEDIUM ENTERPRISES IN THAI NGUYEN CITY

_

A DISSERTATION Presented to the Faculty of the Graduate School Southern Luzon State University, Lucban, Quezon, Philippines

in Collaboration with Thai Nguyen University, Socialist Republic of Vietnam

Submitted in Partial Fulfilment of the Requirements for the Degree

DOCTOR OF BUSINESS ADMINISTRATION

A program offered by Southern Luzon State University,

Republic of the Philippines in collaboration with

Thai Nguyen University, Socialist Republic of Vietnam

has been approved by Oral Examination Committee

MELCHOR MELO O PLACINO, PhD WALBERTO A MACARAAN, EdD

CONRADO L ABRAHAM, PhD EDWIN P BERNAL, DBA

CECILIA N GASCON, PhD

Chairman

ALICE T VALERIO, PhD APOLONIA A ESPINOSA, PhD

Accepted in Partial Fulfilment of the Requirements for the Degree

Doctor of Business Administration

Date Vice President for Academic Affairs

iii

This is to certify that the research work / dissertation entitled “Impact

of Human Resource Management Practices on the Organizational Performance of the Small and Medium Enterprises in Thai Nguyen Province”, orally defended/ presented under the DBA Program jointly offered

by Southern Luzon State University of the Republic of the Philippines and Thai Nguyen University of the Socialist Republic of Vietnam, embodies the result of original and scholarly work carried out by the undersigned

This dissertation does not contain words or ideas taken from published sources or written works by other persons which have been accepted as basis for the award of any degree from other higher education institutions, except where proper referencing and acknowledgement were made

_

Researcher/Candidate

Date Orally Defended:

Dr Dang Kim Vui President of Thai Nguyen University in the Socialist Republic of Vietnam, for his untiring effort and belief that this collaboration is possible thus enabling us to pursue the DBA degree;

Dr Alice T Valerio, for her support and supervision during my study; her kindness and daily instructions in the last three years are highly appreciated and this dissertation is as much her work as mine;

Prof Nordelina Ilano, Director, Office for International Affairs for her support to DBA1 students;

Dr Tran Thanh Van, the Dean of Graduate School; Dr Dang Xuan Binh, Director of International Training Center; and Dr Nguyen Thanh Hai, Vice Director of International Training Center of Thai Nguyen University, for their assistance and encouragement to pursue this study;

All the SLSU and TNU Professors, for their support and guidance throughout the study in Thai Nguyen University, Vietnam;

My dearest friends for their kindness and remarkable support; and

My family, for their support and encouragement – my source of greatest inspiration for my success;

Le Kim Anh

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This research is wholeheartedly dedicated with all sincerity and love to

my FAMILY…

To my Mom and my son who provided me with love and care

To ALL OF THEM…I humbly dedicate my work and success in life

Le Kim Anh

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PAGE

TITLE PAGE ……… i

APPROVAL SHEET ……… ii

CERTIFICATE OF ORIGINALITY ……… iii

ACKNOWLEDGEMENT ……… iv

DEDICATION ……… vi

TABLE OF CONTENTS ……… vii

LIST OF TABLES ……… ix

LIST OF FIGURES ……… x

LIST OF APPENDICES ……… xi

ABSTRACT ……… xiii

CHAPTER I INTRODUCTION ……… 1

Background of the Study ……… 3

Objectives of the Study ……… 6

Hypotheses of the Study ……… ………… 7

Significance of the Study ……… 7

Scope and Limitations of the Study ……… 8

Definition of Terms ……… 8

II REVIEW OF LITERATURE ……… 12

Conceptual Framework ……….… 66

III METHODOLOGY Locale of the Study ……… 69

Research Instrument ……… 69

Populations, Sample Size & Sampling Technique …… 70

Data Gathering Procedure ……… 70

Statistical Treatment ……… …….…… 71

IV RESULTS AND DISCUSSIONS ……… 74

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V SUMMARY, FINDINGS, CONCLUSIONS AND

RECOMMENDATION

Summary……….……… 97

Conclusions ……… 101

Recommendations ……… 102

REFERENCES ……… ……… 107

APPENDICES ……… 114

CURRICULUM VITAE ……… 122

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1 Numerical and Adjectival Ratings for Organizational

2 Percentage Distribution of Respondents’ Profile in Terms

3 Percentage Distribution of Respondents’ Profile in Terms of

4 The Assessment of Respondents on HRM in Terms of

5 The Assessment of Respondents on HRM in Terms of Training

8 The Assessment of Respondents on HRM in Terms of

9 The Assessment of Respondent on HRM in Terms of

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1 The Category of Micro, Small and Medium-Sized

2 General Features of the SMEs Organization System 16

3 The Impact of the Factors of SMEs’s HR Practices on the

4 Distribution of Respondents’ Profile by Type of Industry 75

5 Distribution of Respondents’ Profile by Type of Ownership 76

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Title of Research : IMPACT OF HUMAN RESOURCE MANAGEMENT

PRACTICES ON ORGANIZATIONAL PERFORMANCE IN SMALL ANDMEDIUM ENTERPRISES IN THAI NGUYEN CITY

Researcher : LE KIM ANH (MAY)

Degree Conferred : DOCTOR OF BUSINESS ADMINISTRATION

Name and Address

of Institution

: Southern Luzon State University Lucban, Quezon, Philippines and Thai Nguyen University, Socialist Republic of Vietnam

Adviser : Dr Alice T Valerio

Year Written : 2013

The study was conducted to assess impact of human resource management practices on the organizational performance of the small and medium enterprises in Thai Nguyen Province A total of 290 managers of the small and medium-sized enterprises in Thai Nguyen City was selected to be the respondents of the study It specifically explored on the profile of the respondents in terms of types of enterprise; form of ownership; time of operation; and number of employees The study was limited to determine the perception of the respondents on the human resource practices of the small and medium enterprises in Thai Nguyen City which are classified in various aspects, namely: Recruitment and Selection; Training and development; Career planning System; Participation and Involvement; Compensation and Benefit; and Performance appraisal

The 290 selected respondents were asked to complete a self-designed questionnaire after being explained and instructed by the researcher The

xii

validated by her advisor in June 2013

Using standardized test, recruitment and selection, based on defined merit and unprejudiced system developed through managerial expert opinions, to scrutinize the exact required attitude, skills and knowledge in potential candidates showed notable significant correlation with employee performance and perceived organizational performance which identifies the right candidate with required skills to perform the job for achieving organizational performance Training and development programs in organizations based on training need assessment, performance appraisal, and customization and practically applicable with skills imparting capability are indicating positive correlation with employee performance and perceived organizational performance

well-A perception that the Career Planning System (CPS) is significantly correlated with employee performance and perceived organizational Performance is true if the CPS is based on clear career ladder, aligned goals with organizational vision, used for succession planning, transparent internal hiring, and equal unambiguous employment opportunity Employee

participation related to decision-making process based on opportunities to make company and self-related decisions, suggestion collection for the betterment of organization and employee wellbeing as an appreciation strategy have significant positive correlation with perceived organizational

performance

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comparable with market packages, competency-based, performance-based, profit sharing-based mechanism, covering both financial and non-financial dimensions are positively correlated with perceived organizational performance

There is a significant relationship between perceived organizational performance and performance appraisal system, which are based on focused counselling, employee feedback, transparent disbursement of bonuses, performance-based promotions, training selections, and clarity of objectives

Effective human resource (HR) practices relate to company performance by contributing to employee and customer satisfaction, innovation, productivity, and development of a favorable reputation of the firm

in the industry A number of researchers have reported that HR practices are positively linked with organizational and employee performance

Researchers have argued that human resources may be seen as a source of sustained competitive advantage for organizations (Barney, 1991; Becker & Gerhart, 1996) The underlying assumption is that human resources are unique to the extent that competitors cannot imitate them Research has led to the identification of a number of HRMpractices that contribute to company performance across different organizations (Huselid, 1995) In a literature review, Delery and Doty (1996) identified seven such practices that

have been consistently considered HRM practices They defined HRM practices as those that are theoretically or empirically related to overall organizational performance These practices include internal career opportunities, formal training systems, results-oriented appraisals, employment security, participation, job descriptions, and profit sharing This approach has come to be known as the “best practices” or universalistic approach Within the best practices approach to strategic HRM, the first practice, internal career opportunities, refers to the organizational preference for hiring primarily from within Second, training systems refers to whether organizationsprovide extensive training opportunities for their employees or whether they depend on selection and socialization processes to obtain required skills Third, appraisals are conceptualized in terms of outcome-based performance ratings and the extent to which subordinate views are taken into account in these ratings Fourth, employment security reflects the degree to which employees feel secure about continued employment in their jobs Although formalized employment security is generally on the decline, organizations may have either an implicit or an explicit policy Fifth, employee participation, both in terms of taking part in decision making and having opportunities to communicate suggestions for improvement, has emerged as

a strategic HRM practice Sixth, job description refers to the extent jobs are tightly and clearly defined so that employees know what is expected of them Finally, profit sharing reflects the concern for overall organizational performance on a sustainable basis (Delery & Doty, 1996)

Over the years, researchers have suggested many HRM practices that have the potential to improve and sustain organizational performance These

practices include emphasis on employee selection based on fit with the company’s culture, emphasis on behavior, attitude, and necessary technical skills required by the job, compensation contingent on performance, and employee empowerment to foster team work, among others Purcell et al., (2003) pointed out that the most successful companies had 'the big idea’; they had a clear vision and a set of integrated values They were concerned with sustaining performance and flexibility which reveals a clear evidence of positive attitudes towards HR policies and practices, level of satisfaction, motivation and commitment, as well as overall operational performance

Background of the Study

Small and Medium Enterprises (SMEs) have been recognized as important factor of the economy of many countries, and Vietnam is not an exception According to the data from the Ministry of Planning and Investment

of Vietnam, SMEs occupied nearly 85% of the total enterprises in Vietnam and contribute nearly 45% of annual GDP of the nation There is no single theory, which can sufficiently explain growth of SMEs The aim of this thesis is

to investigate the effect as well as the ration between the growth of business

of SMEs and the policies, orientation, create advance condition for the development of SMEs issued by the Government and local authority of Thai Nguyen province The research was conducted with the objective of describing the role of the HRM practices in helping SMEs in their business

Based on a report by Thai Nguyen Office of Planning and Investment,

at the end of June, 2012, there were more than 2,090 enterprises currently doing their business in Thai Nguyen City, more than 98% of which are

belonging to SMEs It is believed that SMEs play an important role in the economic growth of Thai Nguyen and they are currently using around 50% of workforce and contribute more than 40% of GDP Amongst them, only 50% are relatively stable and capable of development, 30% are operating in moderation, and the remainders are loss-making or have given up business

According to statistics from the Department of Planning and Investment

of Thai Nguyen province, there were 114 SMEs established while the number

of dissolved businesses is 117 and 20 companies had to temporarily stop their businesses during the first four months of 2012 Many key businesses did not achieve the expected growth, production and business revenue only reached 50-70% that of the same period last year

Prior research suggests that HRM systems as a resource can lead to competitive advantage (Wright, Dunford,& Snell, 2001) A number of studies have demonstrated relationships between different bundles of HR practices or philosophies and firms performance in larger firm (Wright et al., 2005) In spite

of the significant research in the area of HRM in large firms, little has been done to test similar relationship in small businesses (Heneman, Tansky, & Camp, 2000)

Employees and employee management practices appear to be one way that companies are able to improve their performance HRM scholars have argued that an organization’s success is at least partially depends on its employees and their behaviors in carrying out the strategies of the business (Becker & Gerhart, 1996; Delery & Doty, 1996) Organization that can effectively influence the behaviors and motivation of their employee through HRM system will be to increase their performance and viability (Huselid,

1995) Small firms should also be able to leverage their employees through HRM to improve their performance, but very little research has addressed the role of HRM in SME Therefore, in this research, the researcher addressed the relationship between HRM and firm performance of SME for the study of strategic human resource management (SHRM)

A significant amount of research has been conducted examining the relationship between HRM and firm performance In a recent review of the literature, Wright et al., (2005) found a total of 68 empirical studies looking at relationship between HRM and some aspects of firm performance The review focused specifically on published, empirical studies testing a relationship between an HRM system and performance Notably, all of the review studies reported at least one significant relationship between HRM system and performance Clearly from this review of the literature, there is an increasing agreement that a relationship does exist between HRM and firm performance

While it is clear that past research on strategic human resource management (SHRM) has consistently shown a positive relationship between various conceptualization of HRM and firm performance (Wright et al., 2005), this research has focused almost exclusively on large multidivisional, multiproduct, and Multinational Corporation Very little research has examined the generalizability of these findings to SME (Cardon & Stevens, 2004)

The companies are in SMEs, they are mostly lacking of capital to run the business Most of the companies use capital in bank to run the business and there are a few valued assets to deposit to the bank to borrow Lacking capital forces the company reducing and saving the cost including the salary,

so in a small and medium companies, there are not good people to work for a

long time because of low income, low bonus Good and skilled employees work for a short period, and then they move to other bigger companies or foreign companies to have higher income

For all the reasons above, the researcher would like to conduct the study: “Impact of Human Resource Management Practices on Organizational Performance in Small and Medium Enterprises in Thai Nguyen City”

Objectives of the Study

This study aimed to analyze the impact of HRM practices on organizational performance in SMEs in Thai Nguyen City Specifically, it sought to answer the following questions:

1 What is the profile of the enterprises in terms of:

1.1 Types of enterprise;

1.2 Form of owner ship;

1.3 Time of operated; and

1.4 Number of employees?

2 What is the SMEs’s HR practices as to:

2.1 Recruitment and Selection;

2.2 Training and Development;

2.3 Career Planning System;

2.4 Participation and Involvement;

2.5 Compensation and benefits; and

2.6 Performance Appraisal?

3 What are the perceptions of SMEs’s managers on organizational performances?

4 What are the effects of these HR practices on the financial performance of SMEs?

Hypotheses of the Study

H1 Recruitment and selection positively affects SME’s performance H2 Training and development positively affects SME’s performance H3 Career planning system positively affects SME’s performance H4 Participation and involvement positively affects SME’s

performance

H5 Compensation and benefits positively affects SME’s performance H6 Performance appraisal positively affects SME’s performance

Significance of the Study

Completing this study brings together aspects of theory and practice For theory, this study is an expansion of previous studies on HRM practices of SMEs by focusing on examining the simultaneous impacts of HRM practices

on SME’s performance In addition, utilizing data from Thai Nguyen city, one

of the emerging economies, contributes to the literature of SME HRM

In practice, this study is significant for HRM practices in Thai Nguyen SMEs Results will indicate relationships between HRM practices and SME performance will assist owner manager and HR managers to improve performance and profitability of their businesses by managing human resource matters efficiently and effectively

Scope and Limitations of the Study

The study was conducted to assess the impact of HRM practices on the organizational performance of the SMEs in Thai Nguyen Province A total of

290 managers of the SMEs in Thai Nguyen City were selected to be the respondents of the study It specifically explored on the profile of the respondents in terms of types of enterprise; form of ownership; ttime of operation; and number of employees.The study was limited to determine the perception of the respondents on the human resource practices of the SMEs

in Thai Nguyen City which are classified in aspects namely: Recruitment and Selection; Training and development; Career planning System; Participation and Involvement; Compensation and Benefit; and Performance appraisal The 290 selected respondents were given a self-developed questionnaire and completed the questionnaires after being explained and instructed by the researcher The researcher floated the questionnaire to the respondents after

it had been validated in June 2013

Definition of Terms

For clarity and better understanding of this study, the following terms were hereby defined conceptually and operationally:

Compensation refers to the total cash and non-cash payment offered by the

SMEs to an employee in return for the services rendered to the enterprises Apart from salary and wages, compensation also includes: Sales commission;overtime pay;bonuses;profit sharing;recognition checks and rewards; non-cash benefits such as company-paid accommodations, certain stock options, a company-financed car; and

other non-cash taxable items The value of compensation received by

an employee depends on a number of factors such as the availability of relevant skills, the employer’s desire to retain the employee, the profitability of the enterprises, and salaries for comparable jobs in the marketplace

Financial capital refers to the money used by the SMEs to buy what they

need to make their products or provide their services or to that sector of the economy based on its operation, that is, retail, corporate, investment banking, and others

Form of ownership refers to the method of owning real estate, which affects

income tax, estate tax, continuity, liability, survivorship, transferability, disposition at death, and at bankruptcy Ownership forms include corporation; joint tenancy; limited partnership; partnership; corporation; limited liability company; limited liability partnership; tenancy by the entireties; tenancy in common; and tenancy in severalty

Number of employees refers to the number of people the SMEs employ at

the time of joining, including any part-time workers

Performance appraisal refers to a review and discussion of an employee's

performance of assigned duties and responsibilities The appraisal is based on results obtained by the employee in his/her job, not on the employee's personality characteristics The appraisal measures skills and accomplishments with reasonable accuracy and uniformity It provides a way to help identify areas for performance enhancement and to help promote professional growth

Promotion refers to the primary elements used in the marketing mix Thus,

promotional efforts should work in harmony with product marketing, pricing, and distribution actions that target prospects and customers When assembling a promotional plan, marketers typically employ one

or more of the following five promotional subcategories: personal selling, advertising, sales promotion, direct marketing, and publicity (or public relations) These communication tools serve as tactics within the promotional plan to accomplish objectives such as: increasing sales; launching new products; creating and building brand equity; establishing market positioning; retaliating against competition; and

strengthening brand image

Recruitment refers to the process of finding and hiring the best-qualified

candidate (from within or outside of an organization) for a job opening,

in a timely and cost effective manner The recruitment process includes analyzing the requirements of a job, attracting employees to that job, screening and selecting applicants, hiring, and integrating the new employee to the organization After the job description has been approved, the recruitment begins Each organization has a different recruitment process, but it typically includes posting the job opening internally and externally Jobs are posted on the organization's Internet site, Internet job boards, newspapers and industry professional organizations Recruiting can also include representatives from the organization attending college and career fairs

Time of operation refers to the duration of time that the enterprises

have been run since their foundation

Training and development refers to the official and ongoing educational

activities within an organization designed to enhance the fulfillment and performance of employees.Training and development programs offered by a business might include a variety of educational techniques and programs that can be attended on a compulsory or voluntary basis by staff Training and development is one of the key HR functions

Types of enterprise refer to specialization field that an enterprise is focusing

on

Chapter II REVIEW OF LITERATURE

This chapter presents in summary the review of literature, which the researcher found closely related to the study being conducted These are incorporated in order to present background with regards to the impact of HRM practices on the organizational performance of the SMEs in Thai Nguyen Province

SMEs Definition

A business (also known as enterprise or firm) is defined as an organization engaged in the trade of goods, services, or both to consumers ( O'Sullivan& Sheffrin, 2003) Business can be distinguished by its legal ownership, scale, or industry of investment

With reference to classifying businesses by scale, they are regularly divided into large enterprises, small enterprises, medium enterprises, and microenterprises based on these categories: number of employees, turnover, assets or net profits However, what constitutes a small business varies widely around the world

In Europe countries, as extracted from Article 2 of the Annex of Recommendation 2003/361/EC, “The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than

250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million Euros”

Figure 1 The Category of Micro, Small and Medium-Sized Enterprises

These definitions are important when assessing which enterprises may benefit from European Union funding programs aimed at promoting SMEs, as well as in relation to certain policies such as SME-specific competition rules European Commission policy in relation to SMEs is mainly concentrated in five priority areas, covering: (a) The promotion of entrepreneurship and skills; (b) The improvement of SMEs' access to markets; (c) Cutting red tape; (d) The improvement of SMEs' growth potential, and (e) Strengthening dialogue and consultation with SME stakeholders

A special SME envoy has been set up in the European Commission Directorate - General for Enterprise and Industry with the objective of better integrating the SME dimension into EU policies

In the United States, the Small Business Administration established small business size standards on an industry-by-industry basis, but generally specifies a small business as having fewer than 500 employees for manufacturing businesses and less than $7 million in annual receipts for most non-manufacturing businesses Size guidelines define the maximum size that

a firm (including its affiliates) can be to qualify as a small business for most SBA (Small Business Administration) programs Size standards usually are a measure of a business's number of employees or its average annual receipts Based on those criteria, the SBA has established the following common standards for a small business, depending on its North American Industry Classification System (NAICS) code:500 employees for most manufacturing and mining industries, and$7 million in average annual receipts for most non-manufacturing industries.There are many exceptions, but these are the primary size standards for most industries

The Vietnamese government, defines SMEs by Decree

56/2009/ND-CP as follows: SMEs are business establishments that have registered their business according to law and are divided into three levels: very small, small and medium according to the sizes of their total capital (equivalent to the total assets identified in an enterprise’s accounting balance sheet) or the average annual number of laborers (total capital is the priority criterion), concretely as follows:

Typical Features of SMEs

Due to the difference in investment capital, employees and revenue, SMEs have some typical features to distinguish them from other kinds of businesses as follows:

1 SMEs’ primary competitive advantage is its flexibility; they are often better able to quickly meet customer requests and needs (Galloway et al., 2004; Kumar et al., 2005; Delbridge et al., 2005; Murphy & Ledwith, 2007)

2 Innovation through a research and development program is vital to the existence of a typical SME However, SMEs tend to focus more on incremental innovation, as opposed to radical innovation (Galloway et al., 2004; Burke et al., 2007)

3 Rapid decision-execution in order to mitigate external threats and capitalize on opportunities (Kumar et al., 2005; Murphy & Ledwith, 2007)

4 SMEs are less

fewer layers of management and bureaucracy This helps SMEs simplify their management, but also brings the disadvantages that most SMEs focus on operational matters, rather than

Figure 2 General Features of the SMEs Organization S

less vertically-integrated than their counterparts, as there are fewer layers of management and bureaucracy This helps SMEs simplify their management, but also brings the disadvantages that most SMEs focus on operational matters, rather than planning (

et al., 2006; Keogh et al., 2007)

personality of an SME’s chief executive officer or managing director is often a key element in the direction, growth, and success of the company; in this way, SMEs are often people-oriented (

In SMEs, the working relationship is often lose and

process is often absent of standardization (Kumar et al

making procedures and resource utilization that are appropriate for large companies are not necessarily appropriate for SMEs (Welsh

Yusof et al., 2006)

Features of the SMEs Organization System

than their counterparts, as there are fewer layers of management and bureaucracy This helps SMEs simplify their management, but also brings the disadvantages that most

planning (Kumar et al.,

of an SME’s chief executive officer or managing director is often a key element in the direction, growth, and success of

In his investigation, Nicolescu(2009)also found 10 main features of SMEs’ organization system as stated in Figure 2

(1) Low size and complexity The low size of the microenterprises

and small companies is directly reflected in the low size of their organization systems The situation is similar for the medium enterprises, corresponding to their organization systems of middle size The low size is always associated,

at the level of the organization system, a low complexity The small size and complexity of the SMEs represent an important advantage for their management Because of these features, the necessary working volume for the construction and assurance of the functionality of the SMEs organizational systems are relatively low

(2) High typological diversity.The fact that the SMEs are set up and

operational everywhere within each country, in all the fields of activity and in a great number, is reflected in their high typological diversity A certain type of organizational system corresponds to each type of SMEs It is important to note that eachtype of organizational system presents certain constructive and functional features reflecting the specificity of the type of involved company The knowledge of the company’s type and, respectively, organizational system enables the design and assurance of an efficacious functionality of the organization and, implicitly, the management of the companies in question

(3) Intensive human size.In case of the SMEs, the intensity is,

however, very high, the small number of involved persons, the direct and frequent relationships between them, on one hand, and between them and the entrepreneur, on the other hand, explains the intensity of the human dimension The intensely human dimension of the SMEs presents in the

same time advantages – a higher working ethics, a better working climate, more intense consulting and cooperation – and disadvantages – insufficient rigor in designing and carrying out the activities, reducing of the responsibility, partial negligence of the economic aspects in favor of the social ones

(4) Low degree of formalization.The need of organization systems

formalization is amplified with the companies’ size The larger is a company, the more intense must be the formalization Among the SMEs, it is the case of the medium enterprises As within the SMEs, the microenterprises represent 99%, the formalization need is lower

(5) Strong interconnection of the formal and informal elements.This feature is a consequence of the previous two The strong

human dimension of the SMEs, together with the low degree of their formalization is naturally associated with a strong presence of the informal organizational elements

(6) Relative procedural and structural simplicity.The small size of

a company means in the same time a small volume of labor processes involved The low complexity of a company is reflected in a low diversity of the working processes For this reason, the small size and complexity of the company presents a low procedural organization In other words, only one or

a few activities shall be carried out within it, and they are not differentiated in numerous tasks and assignments A low volume of working processes, homogenous or having a low degree of diversification requires, in order to be modeled, a simple structural system

(7) High flexibility.In a functional plan, the previously mentioned

features – all with structural and constructive nature – are reflected in a high capacity of the SMEs, of adjustment to the needs and requirements

(8) Entrepreneurial customization.The system customization is

very large at the microenterprises It is reduced proportionally with the growth

of the company’s size and complexity For example, in the medium size enterprises, the impact of the entrepreneur’ influence is lower, as the activities growth and complexity require, in order to obtain business performances, the implementation of certain organizational principles and criteria

(9) Intense decisional centralization.The small companies that are

performing, as a rule, amplify their size and are developed on many plans The activities become more complex, the personnel more different and numerous, other jobs of managers may appear in the company Under these conditions, especially in the cases of the medium and small to medium companies, the requirement may appear and, not rarely, the possibility of delegating some managerial decisions Thus, it is maintained a high decisional centralization blocking or delaying certain problems from the company

(10) Relatively frequent use of the authoritarian and, respectively, participative approach

Roles of SMEs in the Economy

European Commission stated in the Recommendation 2003/361/EC in

2003 that SMEs play a central role in the European economy They are a major source of entrepreneurial skills, innovation and employment In the enlarged European Union of 25 countries, some 23 million SMEs provide

around 75 million jobs and represent 99% of all enterprises SMEs are the engine of the European economy They are an essential source of jobs, create entrepreneurial spirit and innovation in the EU and are thus crucial for fostering competitiveness and employment

In the “Impact of Small and Medium Enterprises on Economic Growth and Development”in 2012,Taiwo also expressed that the role of SMEs in the

national economy cannot be underestimated These enterprises are being given increasing policy attention in recent years, particularly in third world countries partly because of growing disappointment with results of development strategies focusing on large scale capital-intensive and high import dependent industrial plants The impact of SMEs is felt in the following ways: Greater utilization of local raw materials, employment generation, encouragement of rural development, development of entrepreneurship, mobilization of local savings, linkages with bigger industries, provision of regional balance by spreading investments more evenly, provision of avenue for self-employment and provision of opportunity for training managers and semi-skilled workers SMEs advocates; firstly, endurance competition and entrepreneurship and, hence, have external benefits on economy wide efficient, and productivity growth Secondly, SMEs are generally more productive than large firms but financial market and other institutional improvements, direct government financial support to SMEs can boost economic growth and development

Dao Duy Huan (2012) stressed in his article on “Business Development

in the direction of Reorganization” that Vietnam has more than 500,000

SMEs, accounting for 98% of the number of enterprises with registered capital

of nearly US$121 SMEs are a tremendous force which create value-added (GDP) for the economy, and especially play an important role in stabilizing the socioeconomic development in the global economic recession

He mentioned that in 2011, SMEs contributed more than 40% of Vietnam GDP, 30% of the total industrial output value, nearly 80% of total retail sales, 64% of freight and 100% of the value of output of goods This section contributed up to 60% of GDP if counting 133,000 cooperatives, farms and individual business households In 2011, SMEs not only contributed significantly to the economic development of the country but also helped to create more than a million new jobs per year (more than 50% of the workforce); contributed to poverty reduction and strengthened social welfare

The Resource-Based View of the Firm

In recent years, human resources have been recognized as an important source of sustained competitive advantage Much of the empirical and theoretical works on human resources have been grounded in the Resource-Based View (RBV) of the firm This theory maintains that in order to develop a sustainable competitive advantage, organization must create resources in a manner that is valuable, rare, inimitable, and non-substitutable Barney (1991) has argued that because the resources that have historically provided organizations with competitive advantage are easily and rapidly imitated, the human resources of the organization may be an extremely important source of sustained competitive advantage The RBV of the firm is a theoretical paradigm originating in the field of strategic management The RBV assumes that resources and attributes of the firm are more importantto sustainedcompetitive advantagethan industry structure and competitors’

actions Resources have been defined as “the tangible and intangible assets

a firm uses to choose and implement its strategies” (Barney, 1995) This broad definition includes human, organizational, financial, and physical resources

According to Barney (1995), competitive advantage arises when firms within an industry are heterogeneous with respect to the strategic resources they control, and when these resources are not perfectly mobile across firms, and thus, heterogeneity can be long lasting Technology, natural resources and economies of scale can create value, RBV argued that these sources of value are increasingly available to almost anyone anywhere and they are easy to copy, whilst human resources as defined by Wright & McMahon (1999), as the pool of employees under the firm’s control in a direct employment relationship, can provide the firm with a source of competitive advantage with respect to its competitors The first of these criteria is the value added to the company’s production processes, the contribution made by each employee having its effect on the results obtained

by the organization as a whole Also, since employees are not all the same, their characteristics are in limited supply in the market In addition, these human resources are difficult to imitate Since it is not easy to identify the exact source of the competitive advantage and reproduce the basic conditions necessary for it to occur Finally, this human resources is not easily replaced, though short-term substitutes may be found, it is unlikely that they will result in

a sustainable competitive advantage like the one provided by humans Barney (1995) argued that organizations may not obtain the maximum utility from their employees because the employees are not contributing to their fullest

potential It was argued that organizations, through the effects of their HRM practices could maximize the knowledge, skills, and abilities of employees From a strategic perspective, Resource-Based View (RBW), suggests that resource advantage of valuable knowledge, unique skill sets, and decision-making capability result in a firm's competitive advantage within the market place (Offstein et al., 2005) The RBW was originally proposed as a shift from

an organizational product perspective to a resource perspective in order to better explain strategic management of business From a resource-based view, an appropriate HR system creates and develops organizational capabilities that become sources of competitive advantage (Lau & Ngo, 2004) Intensive competition, shorter product life cycles and volatile product and market environments have contributed to the complexity faced by businesses These emerging changes in global economic environment will present some interesting challenges and opportunities to organizations Some organizations will go under, while some will continue to exist, and some will not only continue but flourish As a result, firms constantly search for newer sources of competitive advantage, and one of the most important being human resource management HRM has the potential to improve and sustain organizational performance by determining the organization's fate (Terpstra, 1994)

The resource-based view of the firm (RBV) has served as the principle theoretical rationale for understanding HR’s role as a strategic asset of the firm (Boselie et al., 2006; Wright & McMahan, 1998; Wright et al., 2001) The RBV stands in contrast to economic and industry-based models that assume homogenous and perfectly mobile resources amongst competing firms and,

therefore, ignores firm level characteristics in examining performance differences Instead, the RBV is grounded in the assumption that competitive advantage is a product of idiosyncratic attributes internal to the firm Therefore, the RBV focuses very specifically on variability in firm level characteristics This is consistent with research suggesting that the variance

in firm performance, as measured by rate of return, is best explained at the firm level rather than industry level (Rumelt, 1991) In this firm level focus, the RBV attempts to explore the ‘black box’ of the firm by identifying those resources and capabilities unique to the firm that account for variance in performance across firms (Amit & Shoemaker, 1993; Barney, 1991) This perspective places an emphasis on factors under the control and direction of the managers (Carmeli & Tishler, 2004) Firm managers capable of developing and evolving these processes and resources can develop competitive advantage When these resources rise to the definition of being valuable, rare, and not easily imitated or substituted, this advantage can be sustained (Barney, 1991, 2001)

The role of the firm’s human capital characteristics, broadly defined as the nature and extent of the employee’s potential contribution to the firm (Wright & McMahan, 1992), has been long recognized as a potential value creating ‘resource’ capable of resulting in sustained competitive advantage (Barney, 1991) A resource may be thought of as valuable to the degree that it enables a firm to successfully exploit opportunities and neutralize threats (Amit & Shoemaker, 1993) The capabilities of the firm’s workforce figure centrally in this ability Moreover, these human capital characteristics are embedded in complex social systems and are not readily observed or

replicated (Barney, 1991; Barney, 2001) Given the theorized role of human resource practices in shaping the human capital characteristics of the firm, it

is not surprising that the RBV has become the dominant theoretic basis for the study of SHRM (Boselie et al., 2005; Wright et al., 2001)

Strategic Human Resource Management

Historically, research on HR practices has been conducted primarily at the individual practice level in which HR practices are studied in isolation and their impact limited to the individual outcomes such as employee attitudes and performance (Wright & Boswell, 2002) However, there has been increasing attention to the impact of groups or bundles of practices and their relationship

on the firm level performance These bundles or sets of practices, often referred to as high-commitment or high-performance work practices (Huselid, 1995), are generally thought to influence firm performance through three core mechanisms: (a) enhanced employee commitment and motivation; (b) enhanced human capital pools in terms of employee skills and abilities; and (c) through behavioral outcomes such as information sharing and coordination (e.g Ferris, Hochwarter, Buckley, Harrell- Cook & Frink, 2000; Ostroff & Bowen, 2000; Boxall & Purcell, 2003; Wright et al., 2001)

While the idea of systems of HR practices producing, through selection and training, direct benefits to the firm through the enhanced employee skills and abilities can be readily understood, the mechanisms through which behaviors and attitudes are influenced in support of competitive advantage merit further discussion

A number of frameworks have been offered suggesting a relationship between the HR system and these outcomes The high commitment

systems’ associated with these assumptions includes management practices such as job enrichment, flexibility, participation, team working and minimization of status differences among employees These practices are positioned against the Tayloristic assumptions of narrow task assignment, control and limited discretion and are purported to result in higher levels of employee commitment and, therefore, greater intrinsic motivation (Pfeffer, 2005; Wood & Albanese, 1995)

Consistent with the non-Tayloristic approach, though less reliant on the employee commitment as the central process mechanism, are Lawler’s (1986, 1992) ‘high- involvement management’ and Huselid’s (1995) ‘high performance work practices’ Like the high commitment systems, these practices operate through the intermediary mechanism of enhanced attitudinal and motivation outcomes as well as by providing the opportunity for greater employee contribution (Ostroff & Bowen, 2000; Boselie et al., 2005) Programs such as employee participation, teams, and information-sharing more fully leverage the human capital of the firm by providing opportunities for employees to invest discretionary behavior in a manner supportive of organization success

Finally, HR systems are believed to impact organizational performance through enhanced structural efficiencies, coordinative behavior and enhanced communication (Ichniowski, Kochan, Levine, Olson & Strauss, 1996) These programs include employee participation or voice mechanism, teams and information-sharing (Ostroff & Bowen, 2000; Boxall & Purcell, 2003) Therefore, while the specific HR practices associated with high-commitment, high- involvement or higher performance work practices are slightly variable,

they hold the common assumption that HR practices impact the organization’s employees in a way that produces unique skill, attitudinal and behavioral responses among employees While no consensus exists in SHRM research regarding the specific practices associated with these systems, following Pfeffer (2005), the term “high commitment system” is used throughout the paper and is consistent with and inclusive of those practices associated with both high involvement and high performance work systems

Second assumption inherent in SHRM research is the idea of management of mutuality, or the alignment of interest, as a key objective of the HR system (Boswell, 2006; Boxall & Purcell, 2003) Bowen & Ostroff (2004) invoke the notion of the strong situation in offering a framework for the understanding of the role of the HR system in developing the requisite attitudinal, behavioral, and human capital outcomes important to organizational performance Situational characteristics, in a strong situation, dominate otherwise idiosyncratic perceptions of the environment and serve as the primary determinant of affective and behavioral responses (Ross & Nisbett, 1991) The HR System, according to Bowen & Ostroff (2004), has the capacity to create a strong situation when the practices are salient, consistently applied, and mutually reinforcing When this occurs, an HR System will create uniform aggregate perceptions and behavioral responses

by organizational members These responses can be important to organizational functioning and, when aligned in support of the organizations’ strategic objectives, important to their ability to both develop and sustain competitive advantage For this reason, the presence of HR programs, their application and their salience to employees all become critical dimensions of