Academic journal article Indian Journal of Industrial Relations

Human Resource Practices in Indian SMEs-An Exploratory Study

Academic journal article Indian Journal of Industrial Relations

Human Resource Practices in Indian SMEs-An Exploratory Study

Article excerpt


SME's occupy an important place in the economy of most countries. Globally considered as the nurseries for entrepreneurship and innovation, SMEs produce a diverse range of products to meet the needs of the local and global markets and the national and international value chains (Marlow, Patton & Ram, 2013). SMEs also contribute significantly to the nations' gross domestic product (GDP) and provide employment to a large number of people. It is forecasted that the future will be dominated by SMEs in terms of job creation, innovation and new patterns of work (Atkinson, 2007).

Demonstrating the importance of SMEs, it is cautioned that failure of SME's could lead to a situation of unemployment and the consequent social tensions (Saini & Budhwar, 2008).In recent times increasing market-related competition along with reduction of 'governmental patronage' (Frumkin& AndreClark, 2000;) has resulted in additional pressures on SME's to demonstrate effectiveness, efficiency, accountability and meet performance requirements (Salamon, 2002; Anheier & Seibel, 2001).

The role of human resources in enhancing firm efficiency and effectiveness (Guo et al., 2011) is well established. According to the resource based view of management (Barney, 1992), irrespective of the firm size, employees are a strategically important, indispensable resource to achieving an organization's objective. Despite the critical role the human resource practices play in enhancing organizational efficiency, mainstream management has focused on investing the role of HRP in larger firms research, ignoring them in SME sector (Purcell & Kinnie, 2007). Commenting on the paucity of research of HR policies and practices in SME's, Huselid (2003: 297) wrote, "We actually know very little about the science and practice of HR in (small firms)".

Given the uniqueness and importance of SMEs to national economies and local communities as source of employment, wealth and other social and relational benefits, examining the state of HRP within small firms is crucial and will enhance our understanding of managing the sector effectively (Barrett and Mayson 2007; Baron 2003). The objective of this paper is to explore the human resource policies and practices in the Indian SMEs.

Literature Review

In the last 20 years, research has shown that the strategic use of human resource management (HRM) is likely to be one of the most important determinants of organizational performance. Researchers have built the evidence that links HRM practices with corporate performance (Wright, Snell & Dyer, 2005). Likewise, the well managed human resource practices can have a significant impact in performance of small firms. However lack of emphasis on human resources in SMEs has been found to be one of the main reasons for business failures (McEvoy, 1984). A recent study by Puplampu (2005) suggested that human resource efficiency and performance were the most significant reasons of any SME to be unsuccessful.

The deficiency of systematic HRM research in SMEs may be a consequence of the two assumptions. First, that the small firms are essentially the same as the large firms but on a smaller scale (Welsh & White, 1981) and that what is good for the large firm is good for the small firms too (Hendry et al, 1995). Thus, the large firms are often considered as the 'model' that small firms should seek to emulate. Secondly, the success of SMEs largely depends upon the enthusiasm, competency, resources and commitment of a single person (owner) around whom the enterprise revolves. Since the owners often involve themselves in doing manual work and taking responsibility for employment matters including the determination of pay (Wilkinson, 1999), people issues are often taken for granted and managed informally (Matlay, 1999).

However, a brief look at the literature on small businesses reveals a variety of factors associated with being small that are likely to impact directly upon HRM policies and practices (e. …

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