Acquisition and Retention strategies for Small and
Medium-Sized Enterprises (SMEs) in China
By: Ying Li
Student No.: s1501801 Date: Jan, 2007
Thesis Supervisor: Dr. M.J.Brand
Department: Faculty of Management & Organization, University of Groningen
Preface
I started this master thesis in June, 2006 after two years study in Human Resource Management program. Since I chose to study the up-date
knowledge and management in the Netherlands, and I hoped to apply these new things in my future work in China, I decided this thesis topic to be about finding suitable HR strategies to attract and keep capable employees for Chinese SMEs.
I wish to express my gratitude to Professor Maryse Brand who supervised my thesis. The beginning of the thesis was not very well, and I was confused about what a qualified thesis should be for a quite long time. But Maryse gave her opinions and advices with a lot of patience to help me, even sometimes she had to repeat some advices for one more time. And every time she
corrected my thesis word by word with some little mistakes. I learnt a lot about the attitude and the way to write a good thesis from her, and it made the thesis go well finally. Many thanks!
My gratitude is also to Ms. Inger Stevens who supervised the English problem in my thesis later on. She gave me lots of helpful comments and suggestions to better my English writing. Although she was quite busy with her own work, she was ready to help me whenever I needed the help. Many thanks!
CONTENTS
FRONT PAGE 1
Preface 2
Chapter 1. Introduction
1.1 Introduction & Research questions 5
1.2 Sub-questions 6
1.3 The presentation of the paper 7
Chapter 2. Theoretical framework and the conceptual model
2.1 The importance of the context 8
2.2The concept of SME 11
2.2.1 What is SME 11
2.2.2 The characteristics of SME 12
2.3 The concept of HRM 15
2.3.1 Development and Definition of HRM 15
2.3.2 What is HR strategy? 18
2.3.3 The relationship between HRM & SME 20
2.4 The conceptual model 22
2.5 Methodology 23
2.5.1 Methods of the research 23
2.5.2 Variables of the research 23
Chapter 3. Research in Chinese SMEs
3.1 The Context 25
3.1.1 The government policy’s change 25 3.1.2 The organization forms’ development 26
3.1.3 The labour market changing 27
3.1.4 HRM context development 27
3.2 The characteristics of Chinese SME 30
3.2.1 Definition of Chinese SME 30
3.2.2 Important position in Chinese economy 30 3.2.3 The characteristics of Chinese SMEs & acquisition and retention
difficulties 31
3.2.4 Acquisition and retention strategies to solve problems 33
Chapter 4. Findings from the survey scan and telephone interviews
4.1 Data from the survey scan 39
4.2 Data from telephone interviews 41
Chapter 5.Conclusion& Recommendation 45
List of Tables
Table 1 Division of enterprise size by number of employees 12 Table 2 The list of SMEs’ characteristics 14 Table 3 Activities of the major human resource functions 17 Table 4 Classification of large, medium and small enterprises 30
Table 5 Questions for managers 41
Table 6 Questions for employees 41
List of Figures
Figure 1 Human resource management practices 18
Figure 2 The conceptual model 22
Chapter 1---- Introduction
1.1 Introduction & Research Question
Today’s increasingly global, competitive marketplace has driven considerable changes in labor markets, and has transformed the practice of Human
Resource Management (HRM) (Wright et al, 2005). HRM practices have a long history in Western countries. Before the mid-1980s, traditional HRM practices had focused on the low level, routine tasks such as recruiting, record-keeping, rewards and wages (Storey, 1992). These old practices treated workers as they were not more valuable than a piece of machinery, and emphasized command and control over workers. It is believed that Fombrun et al (1984) pioneered the development of the concept of HRM and started linking HRM functions with the organizational overall strategy. HRM becomes mainly focus on activities to manage and develop human resources, such as training system, performance appraisals, profit-sharing plans, etc (Osterman, 1987; Sonnenfeld & Peiperl, 1988; Storey, 1992). It perceives people as critical organizational investment, strategic resources and competitive advantages which determine the success and failure of an organization (Barney, 1991; Ulrich, 1997; Pfeffer, 1998; Becker et al.,2001). Therefore, HRM has gone through the transition from task-oriented HRM to people-oriented HRM.
China, which is one of the economically most important nations in the world, has experienced a transition process, and the Chinese economy has been recognized to be increasing interdependence with the world economy. While Chinese SMEs play a crucial role in Chinese economy, making a major contribution to private sector output and employment, they still have a lot of learning to do to develop their competitiveness, for example in the field of human resource management. Trying to manage employees properly and to make companies themselves to be more successful, it becomes important to use HRM system for Chinese SMEs. Among several key areas of HRM, such as selection, training etc, the basic problem is how to attract and keep capable people working for them because although China has one of the largest labor forces with a population of more than 1.3 billion in the world, SMEs can not be successful without capable employees or without the way to keep capable employees. However, Chinese managers are facing some difficulties when they try to use HRM to attract and keep capable employees.
In Western countries there is a lot of history, development and expertise on HRM field. Many effective strategies for acquisition and retention have been developed there. Could Chinese SMEs benefit from the results of this
development? If not, which specific properties of China, the Chinese economy and Chinese SMEs should be taken into account?
strategies focusing on large organizations in Chinese marketplace today, for instance the research of HR strategies in Microsoft China or IBM China, the existing literatures lack the using of HR strategies for Chinese SMEs and therefore, to deeply investigate it, the main question of this paper is:
What kind of HR strategies are suitable for Chinese SMEs to acquire and retain capable employees to work for them?
1.2 Sub-questions
Three sub questions support the main question. The first one is What is the
context in China? As China has experienced a different economy transition,
from a ‘close door’ country to an ‘open door’ country, it is important to understand the change of government’s policy. Because the government’s policy has changed, the forms of organizations became various instead of SOEs(state-owned enterprise) only, and SMEs began to act in the Chinese business environment.
The labor market has changed as well according to the change of the policy. There are five features about how Chinese labor market is nowadays. These features will be described in detail later.
After the policy’s change, many things from overseas came to influence Chinese business environment, one of which was the emergence of HRM. Since the research focuses on the using of HRM for Chinese SMEs, it needs to analyze how HRM was and is in China.
The second one is What is the main problem of HRM for Chinese SMEs?
The research aims to find out the suitable HR strategies for Chinese SMEs, firstly, it is necessary to learn what SME is in China since the definition of SME is different in different countries. After that, the importance of SMEs in Chinese economy will be presented.
Because of the different business environment, Chinese SMEs must have their own characteristics. By analysis these characteristics, the key HRM problem will be found out.
The last sub question is What are suitable acquisition and retention
strategies for Chinese SMEs? After knowing the status quo of Chinese
1.3 The presentation of the paper
Chapter 2. Theoretical framework, conceptual model and methodology
This chapter provides the background for the research question stated earlier. The theories about the national context, SME and HRM provide the important foundation to this research. Therefore, this chapter begins with a selection of some of the theories about these three areas. This selection is based on the research subject and is not an exhaustive overview, but merely a list to get some general ideas about those research areas. The selection is also based on the research variables included in those research areas, and the reasons why these variables have been chosen are explained during the chapter. After that, a conceptual model is giver which will make it clear to define the process of the research. Methodology is presented at the end of this chapter.
2.1 The importance of the context
When employers from Western countries have been slow to adopt the “best” practices which widely discussed in organizations as being the most effective, commentators have suggested that the contextual nature is part of the problem (Jackson & Schuler, 1995). They suggested that the new HRM research needed to take the context more seriously. Later on, Carrel et al (2000)
examined and compared the human resource management systems of several different countries, including USA, Japan, France and Germany, etc. Pudelko (2006) wrote the article about the comparison of HRM systems in the USA, Japan and Germany in their socio-economic context. If the best practices can help all companies to be more productive, why are these kinds of comparison still necessary? Why could companies just imitate those practices to solve their human resource problems?
That’s because the imitation does not always work so well. How do different countries manage their people? How do they balance the needs of workers and employers in order to compete in dynamic, global markets? Will HR strategies that succeed in North America hold true in Asia or Europe? It has been recognized that the national context plays a crucial role in the question whether a HRM system can be used successfully, since for different countries, the HRM systems need to be congruent with the social, political, and economic context in which they evolve. For example, in the United States and United Kingdom, they treat their employees by using more individualistic systems since there are individualist cultures in these two countries, which means that people are autonomous and independent from their in-groups (family, tribe, nation, etc.) (Triandis, 2001). While more collectivist systems are used in Germany since there is collectivist culture in this country, which means that people are interdependent within their in-groups (Triandis, 2001).
organizations invest in their people to a greater extent than most other nations. They emphasize on building teamwork and problem solving, and later it tends to create a workforce that is loyal and flexible and adaptable. The rate of staff flow is very low. The use of performance appraisals is widespread in Japan, but it has different meaning in Japan then the United States. They add other elements into the measure including educational attainment, communication skill, cooperativeness, and sense of responsibility rather than being based solely on work results. Japanese organizations encourage HRM systems that support lifetime employment, seniority-base promotions, housing allowances, consensus decision making, and enterprise unionism.
The importance of national context was also emphasized by Tyson (1997, p12), “…In view of the societal impact on policies we need to understand how variables at country level affect these treads through international comparisons of HRM. What is important to understand how different histories, cultures and traditions are shaping management theories and actions in different
countries…” Recently, Budhar & Sparrow (2002) indicated that HRM is presented as being context-specific. With the growth of new markets
world-wide, increased level of competition and globalization of business, there is a strong need for more cross-national HRM studies. Pichault & Schoenaers (2003) pointed out that HRM do not only depend on organizational
configurations, other contextual factors must be taken into consideration, such as the labor market, social regulation policy in force, etc. Only when managers and policymakers know how human resources are managed in different
regions, they can effectively make better choices of HR strategies for their organizations in different regional and national settings.
With many HR specialists’ analysis, it has been recognized and
emphasized the important relationship between the national context and HRM. HRM is an approach to managing people, but managing people causes great differences and difficulties. It is because people’s thinking and activities are constrained by a series of context factors, change in such environment have major consequences for people themselves and the way they are managed. To be more practical, for example, the policies and actions of government will influence the educational level and the training level of people. The managing ways must be different between well-educated people and poor-educated people. Another example is the economy factor which is affecting business growth and subsequent demand for and availability of employees, the
managing ways must be changed when it is a labor-intensive period or there is an ample of work force. It can thus be said that without the analysis of the national context, the research of HRM in SMEs can not be continued
organizations’ forms. With different forms of organizations emergence, the labor market will change to meet the different needs of different kinds of companies. In the last, HRM system needs to be developed to manage different types and levels of employees.
2.2 The concept of SME
When analyzing the situation of SMEs in a country, there must be many things to be focused on, such as the amount of capital, involving in different industries, etc. This research is going to find out suitable HR strategies for Chinese SMEs, the research variables in the SME part are the definition of SME, the economy position of SME and the characteristics of SME because these three variables support reasons of this research to focus on SMEs and HRM for SMEs in China.
2.2.1 What is SME
Rigorously defining SME has always been difficult, even controversial. What exactly SME means is difficult to know and it becomes one of the greatest difficulties to define what SME is in SME research (Julien 1998). In the earlier time, Amoboise & Muldowney (1988) observed that the term “SME” covered a variety of firms and most writers used it rather loosely. And the definition which was widely used during that time described SME as the one which was
independently owned and operated, and was not dominant in its field of operation.
This definition seems to be very unclear and confused when using it in today’s business environment, since there have been a large number of big companies which are independently owned and operated, and they are not always dominant in their fields of operation. Therefore, many other kinds of new definitions came up, for example, Odaka & Sawai (1999, p1) said,” SME is a generic concept. Being the antonym of big business, its social significance becomes clearer when placed in the historical context when the latter first appeared in the world economy.” They found that different countries or areas would have different definitions of SME because it should compare to the definition of big business. Another example is that Kubr (2002) concluded many Western management consultants’ point of views as: SME is taken as one in which the administrative and operational management is in the hands of one or two people, who also make the important decisions in the enterprise.
However, these judgments are also obscure for defining SME because on the one hand, it needs to make clear about the definition of big enterprises when using the comparison definition, and defining a big enterprise is as difficult as defining SME. On the other hand, when using the number of top manager as the definition, some large family companies which are controlled by few members from those families should not be classified as SMEs.
To make it much clearer and easier, many Western countries prefer using the number of employment to definite SME, Julien (1998) defined SME by using this kind of criterion, but with another name----quantitative typology. He said (Julien 1998, p 5),” …it is still true that the best-known and most
employees, which used by the OECD to differentiate companies in the industrial and service sectors.
Table 1 Division of enterprise size by number of employees
Micro Very small Small Medium Number of
employees
1 to 4 5 to 19 20 to 99 100 to 499 Source: Julien (1998)
However, Julien (1998) also pointed out that size in terms of number of employees differs by countries as well. This idea has been agreed with by other authors as well. Ayyagari et al (2005, p3) said, “Efforts to compile data on the size of the SME sector across countries have been plagued by several problems of comparability and consistency….Even the definition of an SME on the basis of a specific criterion is not uniform across countries.” In the UK, for example, manufacturing enterprises within 200 employees are defined as SMEs, while the upper limit for SME is 300 employees in both Japan and Korea. When analyzing the Dutch economy, it defines the SME category as firms with 1 to 100 employees1. According to this definition, there are 99 percent of all private firms in the Netherlands that belong to this category.
Besides the number of employees which has been popularly used to define SME, many literatures neglect some important qualifications, which might confuse the definition in some cases. Suppose IBM is going to open a new and small company in Hu Zhou, a small city in China, and they need fewer
employees to run it. However, even there are only two people working for that, we can not judge it as a SME since actually it belongs to IBM. Therefore, we need some qualifications for this kind of definition. To qualify as SME, a business should employ fewer than a certain number of employees, and it should not be part of another business. It means that this business must be independently owned and managed. For many franchises to be qualified as SME, the true boss should be the franchisee, not franchisor. It means that the investor who buys a franchise must execute his/her responsibilities such as keeping open hours, paying monthly fees to the franchisor, etc.
It is important to make clear on what is SME in China because all the management, especially HRM, must be different from a 10-employees company and a 100-employees company, although they could be both SMEs. The Chinese SME’s definition that this research uses will be discussed later.
2.2.2 The characteristics of SME
SMEs are important to all European economies (Hitchens et al 2005). They create jobs, build effective networks and make a positive contribution towards social inclusion. They are a source of innovation and competition, create a dynamic, healthy market economy and preserve a stable economic base (Gray
2000; Morris & Brennan 2000). In USA, SMEs have been showed to
outperform their larger counterparts across a variety of innovation measures, including patent counts, rates of new product launch, and research and
development productivity (Bagchi-Sen & Macpherson 1999). It thus seems that SMEs can make a significant contribution to regional economic development. Although SMEs have small size and limited capital, there must be some special advantages to attract people’s attentions and efforts.
According to Norman & Thomas (2000), SMEs have three competitive advantages. First of all, there is an opportunity to do what people enjoy doing: people are willing to join SMEs because they have an interest in the work and it is important to them. Whether SMEs provide low-cost cleaning service for normal families or high-profit financial service to professional customers, employees can find ways to combine what they concern for social issues and what they desire to earn for a good living. In other words, working in SMEs provides people the independence and the opportunity to achieve what is important to them.
Second, there is an opportunity to reach employees’ full potential. It is usual to hear many people complain about their work being boring,
unchallenging and unexciting. People can not work effectively and efficiently under these kinds of mood. SMEs become the instrument for self-expression and self-actualization. They will challenge all of your skills, abilities, and determination.
Third, there is an opportunity to contribute to society and to be recognized for your efforts. It means that every employee in SMEs plays a vital role in their businesses and work they do have a significant impact on how smoothly the firm’s function is.
Besides, Pil & Holweg (2003) considered another three advantages of SMEs. They believe that it is possible for SMEs to obtain competitive
advantage by the promotion of intangible factors and capabilities as large firms do since they can implement specialization, reduction in costs, and flexibility. Specialization and reduction in costs can be explained by two of Porter’s (1985) generic types of competitive advantage: specialization refers to the
differentiation advantage, and reduction in costs refers to cost leadership advantage. Besides, flexibility is defined as one of the primary competitive priorities for SMEs (Kuratko et al 2001), since SMEs are small enough to rapidly adjust their ability in order to meet the change of the environment.
competition, they have their own advantages to attract and retent people. However, in contrast to many chances to be successful, the unsuccessful rates for SMEs are relatively high, with nearly half going out of business within the first four years (Martin & Staines 1994). When asked about the principal challenges facing SMEs as they grow their firms, SMEs pointed to human resource concerns (Hoover & Hoover 1999). According to Fuller-Love (2005), the failure of SME is related to the management development which actually took place very little in SMEs. One of those management weaknesses which he concerned is human resource management. Many empirical researches also confirm that in general, SMEs make less use of HRM than large firms. But why did SME not pay more attention on HRM development as large firms did?
Norman & Thomas (2000) explained why SMEs always ignore HRM factor in two ways: on the one hand, many SMEs owners encounter serious
personnel problem. They complain about poor worker-ship, absenteeism, long breaks, and the failure of employees to follow directions. Experience shows that malcontent workers not only waste time and materials but also tend to drive away customers. Some 70 percent of all customer losses can be attributed to poor service and employee indifference. On the other hand, the firms’ size is a major limitation of practicing HRM system. SMEs are less likely to spend much of time on solving personnel problems except on a crisis basis. Too many people pay attention to worrying about production, sales, and
finance.
It has been believed that the size of SME is not a main disadvantage for their growth. But the way how SMEs are managed is the important factor to determine the performance of SMEs. HRM, as a management for
organizations, is believed that its primary goal is to facilitate organizational performance (Byars & Rue, 2000). Although HRM has limited impact on the capital or materials for SMEs, it has great impact on the labor component. By affecting the commitment of employees, HRM can improve the productivity of SMEs and hence their organizational performance.
These general characteristics of SME, which are concluded in Table 2, indicate that SME can be more successful with a suitable managing way, especially the suitable HRM. Therefore, the research will analyze suitable HRM, especially HR strategies, to develop Chinese SMEs’ competitiveness.
Table 2 The list of SMEs’ characteristics
Employees can enjoy working, and work by their full potentials Every employee is recognized their importance.
SMEs can implement specialization, reduce costs and be flexible. SMEs can use the social network within the company.
Advantages
SMEs can be more market-oriented.
2.3 The concept of HRM
In this chapter, the definition of HRM and HR strategies will be introduced. Of course, it is necessary to explain the relationship between HRM and SME. Is HRM so important for SME as well? The answer will be given later.
It is significant to indicate that because both the United States and Europe are called Western countries by Chinese people. Although there are lots of differences in HRM systems in these two areas, the research is going to pick up the big general idea about HRM from their systems.
2.3.1 Development and Definition of HRM
HRM is a modern term for what has traditionally been referred to as personnel administration or personnel management that emerged during the 1970s (Cherrington 1995; Byars & Rue 2000). But changing the name from personnel management to human resource management was more than a simple name change. According to Cherrington (1995), the primarily responsibility of
personnel management was for employee selection, training, recording keeping and collective bargaining. Carrell et al (2000) observed that the
personnel management was conceived in cultures emphasizing command and control on employees. In recent years, HRM has developed rapidly in Western countries. It continues those activities such as selection, training, etc, other activities have been added as part of it as well, for instance, job analysis and work design, career development, etc. Nowadays, HRM in many organizations have come to assume a central role to help them adapt to an ever-changing business environment. But how did HRM develop and become so important for a company’s success?
Armstrong (1992) explained its rise and development to be related to environmental changes arising outside and within organizations.
From the external environment, the most important factor is increased competition. The search for competitive advantage and added value has led to the belief that people must be treated more as assets than as costs and all managers in the organization are equally concerned in gaining the greatest return possible from investment in those assets.
From the internal environment, since the competitive pressure influenced organizations to be more responsive to external events, it resulted in a greater emphasis on operational flexibility and decentralization. A flexible firm needs teamwork of core employees which consists of managers, technicians, knowledge worker, etc. HRM is needed to create, develop and control these teams of workers.
and the economy. The internal environment includes the firm’s mission, policies, corporate culture, management style, employees, the informal organization, and the labor-management agreement. Each factor, either separately or in combination with others, has a major impact on determining how HRM becomes. For example, the labor force is taken as an external factor because it is always changing, and it causes changes in the workforce of the organization. In turn, changes in individuals within the organization affect the way management must deal with its workforce. Shareholders are considered as an external factor because they have invested money in the firm, they may consider the way of management to be beneficial to the firm. As an internal factor, employees differ in many ways including capabilities or personalities. It challenges the way of management to consider both individual and group differences.
Carrell et al (2000) argued the development of HRM in two different aspects: First is the emergence of scientific management. The techniques of scientific management was the first radical change in what most owners and managers of the early 1900s generally considered the most effective means of managing employees. Instead of simply relying on the use of fear and
intimidation on employees, this new management showed managers that they should take a scientific and objective approach in studying how work can be efficiently designed. Employers began to view workers as something more than machines.
Second, during the 1930s and 1940s, human relations began to attract managers’ attention. The Hawthorne studies demonstrated that employee productivity was affected not only by the way the job was designed and the manner in which employees were rewarded economically, but also by certain social and psychological factors. It was asserted that treating employees with dignity would both enhance employee satisfaction and enable the achievement of higher productivity.
Although there are different explanations for the development of HRM from different authors, there are two significant reasons for HRM development: an increase in organizational effectiveness and the satisfaction of each
employee’s needs. Employees are believed to be firm’s most important asset instead of a piece of machinery (Carrell et al 2000). The utilization of each employee directly results in achieving the organizational objectives.
HRM has been developed from how to command and control workers to do more towards how to let employees be commitment, cooperation and
communication. But what is HRM indeed? Price (1997) explained HRM as a philosophy of people management based on the belief that human resources are uniquely important to sustained business success. An organization gains competitive advantage by using its people effectively, drawing on their
their performance and developing key competencies. Mondy et al (2002) defined HRM as the utilization of individuals to achieve organizational objectives. The definition from Noe et al (2003, p5) is,” HRM refers to the policies, practices, and systems that influence employees’ behavior, attitudes, and performance.”
Nevertheless, these definitions are not straightforward. It is unclear about what HRM is doing. According to Byars & Rue (2000), HRM refers to those activities designed to provide for and coordinate the human resource of an organization. Those activities include human resource planning, recruitment and selection, human resource development, compensation and benefits, employee and labor relations, safety and health, and human resource
research. Table 3 identifies many of these activities by comprising each major human resource function.
Table 3 Activities of the major human resource functions
Conducting job analyses to establish the specific requirements of individual jobs within the organization. Forecasting the human resource requirements the organization needs to achieve its objectives
Developing and implementing a plan to meet these requirements.
Recruiting the human resources the organization requires to achieve its objectives. HR Planning,
Recruitment, and Selection
Selecting and hiring human resources to fill specific jobs within the organizations. Orienting and training employees
Designing and implementing management and organizational development programs. Building effective teams within the organization structure.
Designing systems for appraising the performance of individual employees. HR Development
Assisting employees in developing career plans.
Designing and implementing compensation and benefit systems for all employees. Compensation
and Benefits Ensuring that compensation and benefits are fair and consistent. Serving as an intermediary between the organization and its union(s). Employee and
Labor Relations Designing discipline and grievance handling systems.
Designing and implementing programs to ensure employee health and safety. Safety and Health
Providing assistance to employees with personal problems that influence their work performance. Providing a human resource information base.
HR Research
Designing and implementing employee communication systems. Source: Byars & Rue (2000)
In a similar tone, Mondy et al (2002) emphasized that there is an integrated human resource management system in which five functional areas are associated with effective HRM. They are staffing, HR development, compensation and benefits, safety and health, and employee and labor relations. Although HR research is not included as a distinct HRM function in this system, it is thought that HR research pervades all functional areas.
Figure 1 Human Resource Management Practices
Source: Noe et al (2003)
Figure 1 emphasizes that there are several important HRM practices which include analyzing and designing work, determining human resource needs (HR planning), attracting potential employees (recruiting), choosing employees (selection), teaching employees how to perform their jobs and preparing them for the future (training and development), rewarding employees (compensation), evaluating their performance (performance management), and creating a positive work environment (employee relations).
On the whole, HRM can be viewed as an approach developed from personnel management and considers people as a key resource. In particular, it implies the importance of communicating with employees, involving them in what is going on, and fostering their commitment and identification with the organization.
2.3.2 What is HR strategy?
A key focus within HRM research in the 1990s has been on the analysis of large-scale quantitative data sets to test the relationship between HRM practices and performance. Best practices, strategic synergy, fit and integration are the key concepts running through HRM (Cooke 2001). For example, Pfeffer (1998) puts forward a seven-principal best practices which he believes is universally applicable. The seven best practice HRM elements include: employment security, selective hiring, self-managed teams, high compensation contingent on organizational performance, extensive training, reduction of status difference and sharing information. Other HR theorists question the universality of Pfeffer’s thesis. Assuming best HRM practices always have a positive effect on organizational performance, why are there still so many organizations far from success? Why do they just adopt these
practices? Wood (1999) emphasizes the integration of different HR practices if they are to work effectively. First, different HRM practices should be coherent and complement each other. Second, there should be a fit between the coherent sets of HRM practices and other systems within the organization. Third, the HRM practices should be in line with the business or competitive
strategy of the organization.
According to the HR strategy theorists (e.g. Salaman 1992; Tyson 1997), “the aim of the HR strategy process are typically concerned with devising ways of managing people which will assist in the achievement of organizational objectives.” (Tyson 1997, p.277) It has been identified that strategy types exist within the relationship between HRM and performance.
So what is HR strategy? Thornhill et al (2000) suggested understanding what the strategy is firstly, since strategy is a difficult concept to characterize and understand in an organizational context. Johnson & Scholes (1993, p10) said, “Strategy is the direction and scope of an organization over the long term: ideally which matches its resources to its changing environment, and in
particular its markets, customers or clients so as to meet stakeholder
expectations.” Price (1997, p157) said, “A strategy is the means by which an organization seeks to meet its objectives. It is a deliberate choice, a decision to take a course of action rather than reacting to circumstances. It focuses on significant, long-term goals rather than day-to-day operating matters.” Besides, there are lots of studies providing different findings of what the strategy is. But it has been emphasized by different researchers that the recognition of internal and external environment, and the process of matching resources are two key factors of the strategy.
According to Thornhill et al (2000), HR strategies are the third level of strategies for the organization. The first level is concerned with the overall or corporate strategy of an organization. The second level concerns the
organizational structures and operating procedures that are put into place to support the strategies of the first level. The third level concerns functional strategies, including those related to HR. All these three levels have
significance since they each affect the long-term direction of an organization and the attainment of its goal.
Armstrong (1992) analyzed HR strategy more specifically,” HR strategy is concerned with those decisions which have a major and long-term effect on the employment and development of people in the organization and on the relationships which exist between its management and staff.” (Armstrong 1992, p25 ) It demonstrates that an HR strategy should express the intentions of the organization about how it managers its human resources. HR strategy also exists to support the achievement of the business strategy as well. In addition, HR strategies are not uniform for organizations since different organizations deal with different groups of employees.
Meanwhile, Armstrong (1992) separated the overall HR strategy into several areas. First one is acquisition and retention strategies, which aim to ensure that on the one hand, the achievement of business objectives will not be inhibited by human resources shortages or inefficiencies and, on the other hand, the impending surpluses can be dealt with in good time and minimum individual hardship and disruption to employee relations.
contribution of members of the organization in achieving its objectives.
Third, human resource development and training strategies are concerned about the longer term programs needed by an organization to improve
operational performance at all levels.
Fourth is organization development strategy, which aims to ensure that an effective organization is maintained which will respond appropriately to
changes in its internal and external environment and make the best use of individual and collective capacities of its members.
Reward strategy is the fifth HR strategy area. The last area is employee relations strategy, which focuses on developing policies, systems and
procedures to maximize the degree to which management and employees will co-operate to their mutual benefit and minimize the causes and effectives of unnecessary conflict.
Among these six strategy areas, this research is going to focus on analyzing the first one---- acquisition and retention strategies, because for many companies, the basic element for success is the people. For example, employees are the most important factor for some high-tech companies, if these companies can not have or keep effective people working for them, the business will go zero. Besides, people factor is also important for companies with simple jobs. Although they do not worry about whether there are available people or not in the labor market since these jobs are simple enough for everyone to handle, they still have to think about how to get these people work for their companies because the wage or the reputation of the job will not be attractive compared to other difficult jobs, and it is also necessary to have some strategies to keep the current employees.
2.3.3 The relationship between HRM & SME
HRM, which is described above, has become an essential function at the heart of a business process. But it has received little attention in SME until now (Julien 1998). It thus seems appropriate to examine the relationship between HRM and SME.
According to Julien (1998), several North American research projects had clearly demonstrated the existence of management problems in small businesses, especially in connection with human resources. Although most entrepreneurs recognize the fundamental necessity and the importance of their workforce, they experience difficulties in managing their employees appropriately. Julien (1998, p332) also said,” According to several investigations, personnel recruitment and training are two of three most important management problems facing small businesses.” Carlson et al
2.4 The conceptual model
The conceptual model is based on the theoretical framework, which is
discussed above. It is to help understand the process the research will follow and all the variables the research will analyze.
Since this chapter introduces the three research areas as the context, the state of current of SME and the importance of HRM, the model follows these three areas as the main clue. The variables in the context area have been chosen as Government’s economic Policy, Organization forms, Labor market and HRM context. As it was explained earlier, the reason why these four have been picked up is that these four factors provide the foundation for what Chinese SMEs become, why SMEs have their specialties and their difficulties.
The variables in the SME area are three, two of which are the definition and the importance of SME. The third variable shows the specific characteristics in China. The combination of these three variables is related to the next variable which presents the difficulties in managing employees for SMEs in China.
In the last HRM area, there will be the final research results: suitable acquisition and retention strategies for Chinese SMEs
Figure 2 The conceptual model:
2.5 Methodology
The main research question is about which acquisition and retention strategies could be used for Chinese SMEs. Here, the methods and variables that this research has been conducted are presented.
2.5.1 Methods of the research
The research starts with the literature studies which are the most important methods for the research. Because firstly, these literatures provide a clear picture of Chinese national context which is a quite different field for Western people to understand, and provide the state of current of Chinese SMEs and Chinese HRM which have been influenced by the change of national context. Secondly, it has been found out that there is a lack of research in the field of HRM for Chinese SMEs. These current literatures did not pay more attention on that field, and it shows the necessity for this research to be undertaken.
After the literature studies, a mail survey and telephone interviews for managers and employees have been conducted among Chinese SMEs. Although it is a simple survey which is showed in Appendix 3, it also gives information about if Chinese SMEs themselves recognize HRM and need acquisition and retention strategies to help them. Telephone interviews provide the real opinions from SMEs’ managers and employees, and they also help test if these recommended strategies will be suitable and practical.
Additional, during the description, my own work experiences that are presented in Appendix 2 are going to provide some practical points of view about Chinese SMEs and their HRM difficulties.
2.5.2 Variables of the research
The research focuses on three main parts which are presented in the conceptual model: the national context, the state of current of SME and difficulties, and HRM suggestions.
In the context part, it is important to understand Chinese context,
especially its economy transition. Because this influences the organizations’ form, employers’ and employees’ characteristics, and the ways people are managed. There are four variables this research will use to explain how the economy transition is: the change of the government policy, the development of the forms of organizations, the change of labor market and the development of HRM context.
In the SME part, there are three variables to describe the status quo of SME in China. First is the definition of SME, as it discussed in the early chapter, it must be different management ways in SMEs with different number of
some difficulties for acquisition and retention will be revealed.
Chapter 3. Research in Chinese SMEs
This chapter mainly concludes the results from literature studies. According to the conceptual model, it begins with the description of Chinese context. Then, it comes to discuss about Chinese SMEs, and finds out the difficulties of acquisition and retention. In the end, on the basic of Chinese context and SMEs’ characteristics, some recommended strategies are provided and explained.
It has to be mentioned that firstly, the HRM analysis from Ms. Cooke’s which is introduced in Appendix 1 gave this research a lot of help. It is authoritative about Chinese HRM development with deeply investigation in Chinese political, social and economic development. Secondly, my work experiences which are introduced in Appendix 2 help describe the situation of Chinese SMEs, and support to explain those recommended strategies..
3.1 The context
3.1.1 The government policy’s change
China was liberated as a socialist country in 1949 (Budhwar & Debrah, 2001). For the first three decades until the end of the Cultural Revolution in 1976, the personnel management system was highly centralized by the state under the planned economy regime (Cooke 2005). According to Cooke’s research, this system during that period exhibited two major features in terms of its
governance structure and the content of personnel policy. First, personnel policy and practice of organizations were strictly under the control of the state through regional/local labor departments. This centralized control included that the state determined the number of people to be employed and sources of recruitment. For instance, the recruitment of any person needed a pre-planned quota that was granted by the state. Neither the employees nor the employers (enterprises) had freedom to choose according to their preferences (Budhwar & Debrah, 2001; Budhwar 2004). It also included that the state determined pay scales for different categories of workers. Budhwar & Debrah (2001) and Budhwar (2004) respectively found out that wages and salaries were not determined by management, but fixed according to pre-determined grades based on seniority. Moreover, the Party Secretary’s organization maintained tight control of personnel within an enterprise. A manager’s political attitudes towards the Party were an important criterion in his/her appointment and promotion.
period were typically low, but with a broad range welfares compensated people’s daily lives. Those included housing, pensions, health care, children’s schooling, transportation to and from work, and employment for spouses and school-leaving children. Warner (1996) described those welfares as part of the responsibility of the “nanny” employer.
The situation of state dominance began to be changed in the late 1970s, following the country’s adoption of an “open door” policy to attract foreign investments and domestic private funds in order to revitalize the nation’s economy (Cooke 2005). In parallel to this economic policy, the Economic Reforms and the Enterprise Reforms begun in the early 1980s. One of the major changes has been the rolling back of direct state control and the consequent increase of autonomy and responsibility at enterprise level in major aspects of their personnel management systems. This change was accompanied by a series of state-driven personnel initiatives which sent shock waves to individual employees as well as to the country’s economy as a whole. The objective of these initiatives was to bring to an end the planned state economy characterized by “high employment”, “high welfare”, “low wage” and “low productivity” and to introduce the market economy “with Chinese
characteristics” in which competition and incentive were two major ingredients.
3.1.2 The organization forms’ development
Although China is the world’s oldest state, there have been radical ideological and practical changes in state attitudes to enterprise and ownership recently (Tam & Redding, 1993). As described above, China was under the
state-controlled centralist command economy before 1980, the state planned everything centrally based on the control of inputs and outputs. It arranged everything from daily food, cloth, and even jobs for people. After they calculated the population and planned how many things should be used for every different people, the SOE2s produced those things for people’s daily lives. Therefore, on the one hand, there was no much need for privately owned businesses to exist. On the other hand, as a socialistic country, privately owned businesses were thought as part of capitalism and were forbidden by the state.
Because of the “open door” policy, the Economic Reform begun at the 1980s, the rapid growth of domestic private business in China has been one of the most notable phenomena (Cooke 2005). Once existing as a marginal and marginalized economic force in the country (because its capitalist ideology was seen as undermining socialist values), the sector was gradually given more freedom to grow, and full legal rights were granted in 2000 (Zhang & Ming 1999). In the past of three decades, this sector has been growing steadily in terms of the number of entities, size of the workforce and industrial input. Today, this sector which comprises urban collectives, town and village industries, JVs, wholly foreign-funded firms and privately owned enterprises
now accounts for the largest part of China’s industrial output and employs more workers than the SOEs. According to Cooke (2005), while the growth of this sector is country-wide, the East and South coastal areas have been its key area of growth and small business remain central.
3.1.3 The labor market changing
The economic policy changing has a close relationship with the labor market changing in China (Cooke 2005), which exhibits a number of features as below.
First, there are growing employment opportunities in the non-state sectors in parallel with the rising number of unemployed. It also increased the
mismatch of skills available and sought between the supply and demand sides. Among the unemployed, laid-off workers (42.7% in 2002) and university
graduates (21% in 2002) make up the largest proportion (China Statistics Yearbook 2003).
Second, for those who are in employment, they are likely to experience reduced job security, shortening duration of employment contract, and more frequent job changes.
Third, wage gaps are widening in the context of a universal real wage increase. There is a rising level, albeit a moderate one, of employment-related social insurance in the private sector vis-à-vis decreases in the state sector, with an overall increase of insurance for the whole workforce.
Fourth, the quality of the labor force, in terms of skill and educational levels, is rising steadily with growing productivity and labor costs.
Fifth, there appears to be a decreasing level of job qualities, with fewer career opportunities in the state sector, lengthening average working hours and the rapid expansion of informal sector employment such as hourly paid work (Cooke 2003).
These features caused SMEs some problems in managing employees, but also provided some advantages for SMEs. These will be discussed in the SME part.
3.1.4 HRM context development
Since it is described above, for decades, China has been using the same set of personnel management system, which was established during the early years of Socialist China. Most personnel issues were controlled by planning authorities, such as government personnel and labor bureaucrats (Budhwar & Debrah, 2001; Budhwar 2004).
a company that exercised to maintain authority over its employees, which means that this department did not make any critical decisions but supervised employees’ working. The specialists in the Personnel Department only deal with the issues that relevant to employees, such as personal file, job interview, etc (Budhwar & Debrah, 2001; Budhwar 2004). In terms of recruiting new employees, they only unilaterally considered whether employees’ personal skills and job experiences accorded with the works that company offered to. In other words, there were chances that they would hire a computer proficient person to enter data into spreadsheet everyday.
Generally, Chinese personnel management system neither encouraged nor had interest in employees’ personal skill enhancement unless required by work. It was not well structured and slow in productive. It created a
non-progressive and unmotivated work environment for employees who worked there.
Under the government policy changing, rapid and fundamental changes in Chinese HRM have taken place during the 1980s and especially 1990s (Easterby-Smith, 1995).
A decade on, Chinese people are seeing signs of progressive change, with an increase number of firms becoming more conscious of the need for
effective management of human resource. From the analysis of Cooke (2005), this is a result of the deepening political and economic reforms in the state sector, the influence of multinational corporations and joint ventures with their Western HR practices, and the need to compete internationally and to be “connected to the world”. Many traditional personnel management ways have changed and that there is clear evidence that a more complex and hybrid management model is emerging as the result of an increasing level of marketization and enterprise autonomy (Cooke 2005).
Ding & Akhtar (2001) have found that an increasing number of Chinese enterprises are moving towards the adoption of HRM practices that focus on human capital development. Zhu and Dowling’s survey study (2002) similarly indicated that over half of the enterprises had written job analyses which were used for other HR activities, such as HR planning, recruitment and selection, and performance management. Furthermore, enterprises of different types of ownership all placed an emphasis on job-specific information for selection criteria, which demonstrated a positive correlation with the perceived effective ness of staffing practices (Cooke, 2005).
However, current knowledge has focused on how to use the best
experiences of HRM from Western countries in Chinese business environment. MNC3s are often regarded as a potential source of convergence in
international HRM in that they are expected to use their international
perspective to promote the diffusion of “best practice” HR techniques (Evans et al, 2000; Rubery & Grimshaw 2003). Lasserre & Ching (1997) and Bjorkman &
Lu (2001) have respectively found that this appears to be the case in China as well. In fact, these “best” HR practices are not necessarily embraced with enthusiasm. For example, an earlier study by Child (1994) observed that there had been various attempts to introduce Western tools in JV4s, but never had significantly degrees of success. Although this adoption problem is not such serious in large companies because many of them come from Western countries, such as Phillips China. It could be a big problem when a Chinese SME begins to use HRM but it is not suitable for that company. Therefore, it is important to analyze the suitable HR strategies for Chinese SMEs.
3.2 The characteristics of Chinese SMEs
China has experienced huge changes in its national context, this also
influenced the way Chinese SME has become. Here is to describe the state of current of Chinese SMEs nowadays by three research variables: the definition, the position of the economy, and its special characteristics. The difficulties of acquisition and retention will be found out from those characteristics, and in the end, the recommended strategies will be described.
3.2.1 Definition of Chinese SME
As it is mentioned in the beginning of chapter 2, there is no standard definition of SME across different countries. The research uses the statistical definition. The definition of Large-, Medium- and Small-sized firms applied in this
research, seen in Table 4, is the latest version from 2004, in which
employment, turnover and fixed asset are taken into account as a combined firm-sized indicator (Lundin et al 2006).
Table 4 Classification of Large, Medium and Small Enterprises
Large Medium Small
Employment (Person) 2000+ 300-2000 300-
Turnover (Million Yuan) 300+ 30-300 30-
Fixed assets (Million Yuan) 400+ 40-400 40-
Source: National Bureau of Statistics of China (2004)
It has to be noted that the lack of research on SME in China is largely because of a number of inherent difficulties, one of which is the definitional problem. For example, Cooke (2005) also followed the European Union definitions using employment figures as the sole criteria, which is easy and clear to classify small, medium and large firms in her research on small business in China. Although this research is using the definition which is shown in Table 3, since the term of Turnover and the term of Fixed assets have little or indirect
relationship with the development of HRM, the research will be mainly based on the classification of Employment for choosing the companies to be
questioned and interviewed.
3.2.2 Important position in Chinese economy
It is described the changes in firm ownership since the Chinese government implemented its “open-door” policy in 1978. And most significant among these are the relative decline in SOEs and the marked growth of private sector, especially the increase in the number of SMEs. Although the role of SMEs in creating economic development in Western countries is well documented, do they play the same role in China?
firms, SMEs are important for Chinese economy quantitatively.
However, it does not help economy grow just with the increasing number of SMEs. They must have other important contributions to the nation.
First, Chinese SMEs have increased industrial output in China (Anderson et al 2003). According to Chinese Statistics Bureau (1999), there is a dramatic rise in the relative output of SMEs, from zero percent in 1978 to over 18 percent in 1999.
Second, Chinese SMEs have increased more opportunities for employment (Anderson et al 2003), such as self-employers. Norman & Thomas (2000) observed that the level of education in Chinese society goes higher than before. Graduates from colleges and universities become popular in the labor market. A rapidly growing number of these people see owning a business as an attractive career option. On the one hand, it is easier to start a SME by individual, because normally a SME began with nothing more than an idea, and then assemble the resources necessary to transform that idea into a sustainable business. On the other hand, as Chinese labor market grows more intensive, SMEs can solve part of unemployment problem, they increase more job chances for other people.
Third, a service economy needs SMEs(Norman & Thomas 2000). The service sector now accounts a great number of the jobs and the gross
domestic product (GDP) in Western countries. The service sector is becoming more and more important in Chinese economy as well. Chinese economists pointed out in Tianjin today that at present Chinese economy manifests a very obvious characteristic of heavy and chemical industry. But China will soon divert itself from a large manufacturing country to a large service one5. SMEs
can get more business opportunities when the service sector is booming, from hotel and health care to financial advising and computer services.
Chinese SMEs have contributed a lot to national income and employment. These evidences demonstrate that Chinese SMEs are becoming increasingly important in the Chinese economy.
3.2.3 The characteristics of Chinese SMEs & acquisition and retention difficulties
Geographically, the East and South coastal areas have been the key areas of SMEs’ development within the urban areas (Cooke 2005). SMEs also
developed in rural areas. By 1985, more than 16 million people in China were small business owners in SMEs and of these, more than 70 percent were in rural areas. Although the peasants were often poorly educated, this was not a barrier to entrepreneurial endeavors (Williams & Li 1993).
Besides the geographical characteristic, according to Cooke’s (2005, 2005a) research, there are a number of characteristics in the employment and employment relationship for Chinese SMEs.
On the one hand, generally speaking, there are few layers of management, often with combined operational and ownership rights. To some extent, this facilitates direct control of the business and the workforce by the manager. SMEs tend to have more flexible use of human resources than large enterprises and SOEs.
On the other hand, labor turnover tends to be higher in SMEs than in other companies. Wage levels are generally low. Social and workplace welfare provisions are limited, even though some of the provisions are required by the state. Moreover, there is largely a lack of long-term strategic planning and an absence of HRM.
Employment relations in SMEs are often reported as being informal with firms labeled as either “a big happy family” or “a sweatshop” (Rainnie 1989; Scase, 1995; Wilkinson, 1999). Nevertheless, many of Chinese SMEs are, as perceived by the employees, neither “a big happy family” nor “a sweatshop” (Cooke 2005a). Employers are generally happy with their employees, so that they do not put more effort or implement good practices to develop their human resource; employees tend to accept terms and conditions as a given instead of an outcome of bargaining.
As it has been described above, besides good business chances, SMEs can be more competitive when they use suitable HRM for employees’ acquisition and retention. However, according to characteristics of Chinese SMEs, there are some disadvantages to attract and keep capable employees.
First is the problem for recruitment: on the one hand, since the turnover rate is higher and wage levels are lower than other companies, the source and chance for getting capable employees becomes less. On the other hand, because of the old national context, the recruitment and selection policies were, and still are, likely to favor people who have more relationship (guanxi) with top managers, selection criteria were based on nepotism and contacts. This
phenomenon is caused by the government policies before Economy Reform. Secondly, training becomes a problem as well: Brand & Bax (2000) emphasize that SMEs have a higher probability of labor turnover, because they offer less opportunity to career development. As a result, better trained employees will choose for opportunities elsewhere leaving the small firm behind with its less trained employees and a depleted training budget. Since the employment relationships in Chinese SMEs are very loose, employers do not care much more about developing their employees, it is disadvantageous for acquisition and retention. For example, I worked for Scandinavia Shanghai co. Ltd as a secretary, the manager thought I needed to be trained because actually I had no experience for working for a kind of beauty salon.
My idea was that I should take some courses about the main business of the company, such as how to know the type of skin, how to use the machine properly for our clients, etc. As a result, I did not learn a lot from the language course since I was not convinced it would be helpful for my future career. It seems crucial to begin training to decrease labor turnover for Chinese SMEs, as well as to train employees with suitable programs to keep them stay longer.
The third one is lace of performance evaluation: there is a general lack of rigorous performance appraisal systems in place for SMEs. This was caused by the old personal management system which is described in the early of this chapter. Before the Economy Reform, for senior management (cadres), the evaluation criteria included both political behaviours (political consciousness, patriotism) and technical knowledge. The four most commonly used criteria were: good moral practice (de), adequate competence (neng), hard work (qin) and excellent performance record (ji). Most of the promotions in SMEs are based on seniority instead of performance, and other important criteria include political attitudes and relationship (guanxi). These kinds of criteria will not be attractive for capable people to join and work for SMEs.
Last but not the least is the compensation problem: The tradition of strong collectivism and the need to maintain harmonious relations within the
organization have resulted in egalitarian-oriented compensation mechanisms. Like SOEs, SMEs were also influenced by the ‘da guo fan’ (eating from the same big iron pot) policy when setting up compensation policies (Warner, 1994). The low wage level with low or absence compensation can not get or keep people working for SMEs at all.
3.2.4 Suitable Acquisition and retention strategies for Chinese SMEs
Since the reasons why it became difficult for Chinese SMEs to develop their acquisition and retention abilities fell into four main areas: difficulties for recruitment, difficulties for training, difficulties for performance appraisal, and difficulties for compensation. To focus on solving these four problems for acquisition and retention and meanwhile, to avoid the disadvantages of SMEs that has been mentioned earlier, the suitable strategies are given and
described as following.
Strategy for Recruitment
mid-level and higher positions may eliminate infighting by employees jockeying for promotion (Carrell et al 2000).
However, external sources do not mean to hire people who are the family member or best friends of the manager, as Chinese SMEs did that before. The recruitment rule of getting familiar people should be eliminated firstly.
Nowadays, job fairs are becoming a popular recruitment method for
companies to get their external recruitment sources. Nevertheless, SMEs do not have enough time and money to join many big job fairs. It is ideal for them to focus on campus job fairs with two reasons as following:
First, according to the features of the labor market, the education level in China has been higher than before, college and university graduates become a large amount of people who wait on campus for employment. As for SMEs, they can be more focus and easily find a people who has such skill or
technology they want. For example, company A needs an employee who is good at establishing a website and maintaining it, it could join the job fairs which focus on schools famous of computer department. This can be an economical and practical recruitment way for SMEs
Second, there are a lot of capable graduates from the campus and they can produce more than people’s expectation. Although graduates do not have enough real work experiences, these young people have learned enough knowledge from school, and they are full of energy and passion to work for the first jobs in their lives. For instance, when I had my first job before, our
company hired four university graduates at the same time and organized a new department for us. They hoped we could use our own ideas to explore a new business chance or market. It had been proved to be a good idea for this small company. Since we got enough trust and power to develop our own business ideas, we all worked very hard and discussed everyone’s ideas carefully, and finally we established a study website and organized several study courses focusing on certain economic area. During that period, the company got more clients and more profit from our department, at the same time we felt successful because our own values had been recognized by the company and our clients.
Besides, graduates do not have many complicated social relationships. It is vital for SMEs because managers can fairly choose new employees without any relationship pressure, companies can get and keep real capable
employees for them.
Strategy for Training
Training is a management tool used to develop skills and knowledge as a means of increasing an individual’s and ultimately an organization’s current performance in terms of efficiency, effectiveness and productivity (Cooke 2001). According to Pfeffer (1998), a well-trained workforce may cut costs of supervision, as they posses the skills to inspect their own work and become self-managed. For example, employees can minimize the downtime of the machinery since they are able to diagnose faults on machinery and are even able to repair them.
However, Cooke (2005) and other researches pointed out that although Chinese SMEs have began to realize the role of training, they did not
implement it properly largely because they chose training methods or programs without assessing organizations’ needs. Therefore, it should be emphasized that training needs to focus on the skills and abilities which the individual needs to be able to move along with the organization and to pursuer a career in line with its evolving needs.
First of all, training should be started with Needs Assessment (Carrel et al
2000; Mondy et al 2000; Byars & Rue 2002). It is a systematic analysis of the specific training activities the organization requires to achieve its objectives. In general, this analysis includes five methods: interviews, surveys
/questionnaires, observations, focus groups, and document examination. Since SMEs are different from large companies, three of them are
recommended strongly. Interviews with employees can provide employees’ attitude to uncover the real needs for training. They can be conducted by specialists in the HRM or outside experts since some SMEs do not have HR department by themselves. Surveys/questionnaires are necessary after the interview because they will provide more employees’ problems which may not be found out by interviews. Observations should be undertaken as well
because they observe employees’ behavior and translate behavior into
specific training needs. Focus groups are not such necessary since it needs to be conducted with employees from various departments and levels, but SMEs have limited number of employees and do not have many departments.
Document examination is also less necessary since in general, SMEs do not have long records or history, examining organizational records and histories will be less helpful for them.
