At Small and Medium Enterprises level in the Republic of Mauritius
This chapter provide an overview of the practices of Human Resources at the Small and Medium Enterprises level in the Republic of Mauritius. The layout of this chapter is as follows:
‘ Section 2.0 – Introduction
‘ Section 2.1 – Definition of SMEs
‘ Section 2.2 – Characteristics of SMEs
‘ Section 2.3 – SME in the new Global Economic Climate
‘ Section 2.4 – SME in Mauritius
‘ Section 2.5 – What is Human Resources Management?
‘ Section 2.6 – Human Resource Management in Small and Medium Enterprises
2.0 – Introduction
In addressing the Human Resource challenges facing the SMEs sector in Mauritius, it is important to briefly describe what SMEs is, its background, and the economic context in which it operates. Such a contextual approach will enable us to identify the appropriate HR challenges and make recommendations.
This chapter serves as primer for the analysis of the benefits from and challenges of introducing sound human resources management (HRM) practices in small and medium enterprises. It identifies central themes in this area and serves as an introduction to the more intensive chapters.
HRM receives less attention at SME level than that devoted to large organization. This is ironic since there are significantly more SMEs than large organisations. SMEs employ more people, SME exist in every country, SMEs seems to be weathering economic recessions better, and some SMEs eventually become large organisations. More individuals are now in SMEs with the downsizing of large organisations, and the frustration many people feel, particularly women, with their careers in large organisations. In a nutshell, the economic performance of an economy is extricable linked to the SME sector, and SMEs rely heavily on their people and their HRM practices for success (Brand & Bax, 2002, Way, 2002).
Why HRM in SMEs for entrepreneurs and managers and for the development of management skills the typical ventures starts small. For it to survive, prosper and grow, a number of skills are required, one of which is managing people and using HRM practices that support high performance. This dissertation has several objectives.
First assesses the actual practices of HRM at SME level. Second it identify the obstacles that prevent SMEs to have a world class Human Resources Management. Third questions ‘ does informal HR practices influences the performance of SMEs.
For any business to operate successfully in the global highly competitive economy market, there is a need to look at the deeper and more human aspect of management. People set the main objectives for any organisation, and it is their behaviour that decides whether the organisation will reach its target or not. Consequently it is argued that the starting point of Management should primarily be the management of people. (Su and He 2001).
Unfortunately entrepreneurs sometimes fails to see the importance of sound HRM practices or if they believe HRM practices to be critical for success, lack the time, patience, and skill to fully utilize these practices. Entrepreneurs are typically men and women of actions, they get things done. They often lack the time to train, develop and create the conditions that motivate staff by knowing their individual employees. HRM is often given low priority than manufacturing and/or marketing. In addition, many entrepreneurs believe that HRM is common sense and being good with people (being liked). SMEs historically have not incorporated new development in HRM.
SMEs are now facing significant challenges on several fronts. These include skills shortages and gaps in available and needed skills, low labour force growth, high levels of absenteeism, and high levels of employee turnover. HRM processes are important in addressing these real needs.
2.1 – Definition of SMEs
Term / concept of SME has not been clearly defined. Most often, when defining small business, economists go from legally determined provisions relating to small business in in specific countries. There are many such definitions, and therefore there is no unique/position in defining of the concept of small business. Entrepreneurship, even narrowly defined as the economic act of starting one’s own business (Global Entrepreneurship monitor). Entrepreneurs are made not born. Entrepreneurialism is not an innate trait, but rather something that can be fostered with the right mix of learned skills, access to opportunities and confidence.
Beside considerable number of factors taken into consideration in different countries in defining SME, the following three are common in most countries.
‘ Total annual income/revenue
‘ Number of employees
‘ Shareholders sum (invested capital by shareholders in establishing of the enterprise)
In Mauritius Small enterprise is qualified as small if its annual turnover does not exceed MUR 10 million. Whereas a Medium enterprise is qualified medium if its annual turnover is more than MUR10 million but does not exceed MUR 50 million. SME in Mauritius may include not only a manufacturing concern or workshop but also a retail shop, an advertising or real estate or employment agency, a service centre or franchising operation such as fast food outlet. Many freelancers and professionals in their specialist field run their own enterprises.
2.2 – Characteristics of SMEs
We cannot attribute proper characteristics to SMEs as there deterrence across countries. SMEs are more frequently differentiated from large organisation in terms of their size scale and type of operations, ownership, and management structure, financial situation etc’ The Bolton committee (1971) identifies SMEs as those which are independent, where owners manage the business and act more locally and sometimes regionally.
Fisher and Reuber (2000) Cardon and stevens (2004) note that while SMEs differ from large firms in many ways, they indicate two important potential ‘liabilities’ being both newness (age) and smallness (size). Storey and Cressy (1995) assign characteristics of perfect competition to SME i.e. they hardly influence the market price, have a small market share, and other business can entry and leave the market easily. According to the OCDE (2005), European Union SMEs are considered as Small or Medium if it has less than 250 employees and less than ‘ 50 million turnover. The UNIDO (1999) describes Small and Medium enterprises for developing countries as 5-19 workers for small and 20-99 as Medium enterprises.
Fisher and Reuber (2000) explain that most SMEs are owned and managed by one person and the workers are the family of the owner who are more frequently unpaid. Fisher and Reuber (2000) have demonstrates that there are an increasing number of females entrepreneurs and that most SMEs are female-owned and are home-based business. Kayanula & Quartey (2000) state that SMEs are more labour intensive as compared to larger firms that is more labour is employed per unit of capital. In European countries more than 45% of SMEs have difficulties in employing and retaining qualified workers (Observatory of European SMEs 2007). They might also find it difficult to comply with employment legislations. According to Stripe at al (2008), SMEs seem to give low importance in applying high performance work practices.
SMEs are mostly involved in retaining, trading, or manufacturing (Fisher and Reuber 2000). In reference to Carson et al (1995), SMEs operate mainly in local and regional markets and trade very little with international markets. They usually have a restricted share of the market and serve mainly small customers. Wong and Aspinwall (2004) add that SMEs do not usually provide their customers with large variety of products however that have good proximity with customers and build up loyalty more easily.
SMEs owners often play the role of manager and decision maker (Supyuenyong et al; 2009), Fashoyin et al, 2006) Carson (1995) highlights that SMEs do not have to employ one person to do specific jobs as in large Companies, this is what makers SMEs independent. There is no division of labour; all the task on the people owning and managing the business. Owners do not have to depend on others to complete a work.
According to Jenkins (2004), on an organisational context, SMEs have relatively less resources as compared to larger enterprises. A noticeable fact about SMEs is that there is a much lower amount of finance which is involved in the Company (Carson; 1995). Some may eventually succeed in their business but most of SMEs become short of cash putting at stake the financial situation of the business and more dramatically personal and family assets. SMEs are less likely to invest in capital, which can impact on productivity.
SMEs are more flexible to change and can adjust to a variable environment (levy and Powell 1998). Cunha (2010), points out that this put in danger competitors as it is more costly for large companies to adjust for charges as compared to small business. Adaptability remains a weapon to SMEs to survive against competitors. Kayanula and uartey (2000) also add that it is less difficult for SMEs to adopt to customers needs and wants. Danset et al (2001) say that SMEs are often faced with unexpected events and uncertainly. They as such need to be operationally and financially flexible to encounter the unexpected opportunities and shocks of the market.
2.3 – SME in the new Global Economic Climate
There is growing recognition of the role that SMEs paly in sustained global and regional economic recovery. The World Bank Group to the development of the Small and Medium Enterprise (SME) is fully aware of the role SME plays to foster economic growth, employment and poverty. However there is little systematic research in this area lacking the various policies in support of SMEs, primarily because of the lack of data. Hallberg (2001) actually suggests that scale based enterprise promotion is driven by social and political considerations rather than by economic reasoning.
Countries with a higher level of GDP per capital have larger SME sectors in terms of their contribution to total employment and GDP. According to the World Bank research, as income increases in a comity, the share of the informal sector decreases and that of the formal SME Sector increases.
SMEs play a significant role in Nation development through high contribution to Domestic Production, Significant Export Earnings, low investment requirements, operational flexibility Location Wise Mobility, and capacities to develop appropriate indigenous technology, competitiveness in Domestic and export market.
Despite their high enthusiasm and inherent capabilities to grow, SME are also facing a number of problems within the new global economic climate like sub-optimal scale of operation (they are dominated by multinationals) technological obsolescence, supply chain inefficiencies, increasing global completion, working capital shortages, not getting trade receivables from large and multinational companies on time, insufficient skilled manpower, turbulent and uncertain market scenario.
2.4 – SME in Mauritius
Small business have been the engines of continued economic expansion in both develop and transition countries like the Republic of Mauritius during the last few decades. In the 1970, the Government was responsible for providing a ‘job for everyone’. This is no more
the case and such situation has created significant unemployment uncertainly. In that situation SME has emerged as an important sector for creating new jobs. The SME has provided about 300,000 of the total employment.
Start small, think big, act fast. Every businessman knows that this receipt has proven right. Most of the enterprises in Mauritius (same as in the world) have begun very small. Let’s take the example of the Currimjee Jeewanjee Group started in the year 1890 by one person as a sole trader, now is a group that employs over 2,000 persons highly diversified with a turnover of over”””’.. The Group Food & Allied Industries (FAIL) started by Michel de Speville in his Garage by producing a dozen of Chicken. The Innodis Group started by the Seeyave family in the year ”””’ was only a producer of ””’. now is a multinational with overseas business. The very first processing factory was set up in 1874. A tobacco processing plant. In 1877 a first general retailers shop of tobacco was opened, and a wholesale wine, boot and shoe manufacturer were established.
The Economic history of Mauritius are supportive of family business. Prior to ””’. Mauritius was dominated by the ”””’. for nearly ”””. The main activities were agriculture and small family business ”””. The influence of the Chinese under the period of ”””.. were very influential to small business. Immigration of the Chinese population help to strengthen and decentralize general retail shops around the island. This family network dominates much of the business practices of these small firms. These close personal ties with family members reduce the likelihood that firms will adopt formal HR practices to manage employee relationships. Rather appeals to family loyalty and the good of the family business will take precedent over individual. The most common perception of job seekers is to look at SME sector as poor job options because they are deemed unstable, unable to offer job security and without career development and training opportunities. Job seekers would prefer to work for larger more established firms.
These large firms tend to provide better pay, formal system for hiring, firing and evaluating performance and opportunities for advancement. Consequently, SMEs feel pressure to provide some of these same services for their employees to compete for good employees. The need to create both pressures and incentives for SME to adopt formal professional Management practices is on agenda.
We define HRM as the strategic integration of HR practices into Management and development of employees. This elevates the role of Management of such aspects of the employment relationships as compensation, evaluation, hiring, firing and reward system above the traditional motion of personnel Management. This identifies HR practices as strategic to the success of the firms. Although many firms do not fully integrate these HR practices into a strategic HR plan, larger firms tend to have more of the individual practices that are considered part of an HR system.
HR practices in SMEs have not received significant attention in comparison to other Management functions, such as Accounting, Marketing and Production. As HRM emerges as an important function for SME, people competitive advantage is a critical factor to remain in business, further research on this topic is needed.
Despite the fact that a large percentage of employees are working in SMEs nearly all research on HR practices has focused on large firms. SMEs are therefore underrepresented in the mainstream literature in this field. Since SMEs are not simply at scaled down version of larger firms, findings and prescriptions of studies of HR practices in larger firms do not readily generalize to SMEs. Thus instead of reviewing the general HRM literature, I limited my focus to previous studies of HRM in SMEs. Though very limited in number, these studies have suggested several important dimensions for studying HR in SMEs.
Empirical research in HR in SMEs is sparse. SMEs provide important topics that merit empirical testing.
Problem of HRM is very sensitive issue in SMEs. In big business companies there are entire teams of agencies or consultants that are hired for selection and education of new employees. Whereas in SMEs this work is done by owner or manager. HR is very peripheral activities at the SME sector. While at the same time most countries expect from entrepreneurs solutions for one of the greatest challenge of all governments.
2.4.1 – Job creation/reducing high unemployment rate
Every owner of SME aspires to have successfully organized enterprise which is competitive on the market and realized high profits with employees that have high level of motivation, and the same entrepreneurship spirit as the owner. Difference in competitiveness between SMEs today are significantly different compared to period twenty years ago. The importance of factors such as technology, finances, production, process and similar is diminished. Whereas more important sources of additional and newly created value of SMEs are their employees and their intellectual capital/assets, skills creativity and information. What differ SMEs more and more are their employees i.e. their relation to clients. The way they solve problematic situations, speed of their reaction/response, motivation, ability to learn etc’ Human element because the single element which the competition could not copy. Human Resource Management has more important role in planning and realisation of SMEs success compared to the pass period. Strategy of HRM has gained importance since the employees now are the most important factor of development.
Intellectual capital knowledge and competences of employees are the basic element of success or failure of SME in dynamic environment. Because of sudden changes, and concrete conditions human resource management is perceived as strategic factor influencing not only the success of SME but also of nations.
However the challenges are great when issues such as hiring, evaluating and rewarding of SME employees and provision of safe, ethically acceptable and just/fair work environment for them need to be addressed. Improving work efficiency/output of employees in strategic, ethical and socially responsible way are deferring factors. Result of successful human resource management increase profit, productivity, market share, increase the satisfaction of clients and employees and improvement of the SME reputation and influence.
2.5 – What is Human Resources Management?
The History of human resource management started with providing welfare measures to apprentices and the putting out system. The first personnel department came in the early 20th century. Human Resource Management has evolved through the ages and gained importance with each passing age.
The earliest forms of human resource management were the working arrangements stuck between craft men and their apprentices during the pre-industrial cottage based guild system. The apprentice lived in the workshop or home of his master and the master took care of his health and welfare.
The industrial revolution of the mid-eighteenth century led to the emergence of large factories and the displacement of cottage ‘ based guild manufacturing. The unhygienic and arduous work in factories led to many labour riots, and the government stepped in to provide basic rights and protections to workers. The need to comply with such statutory regulations forced factory owners to set up formal mechanism to redress issues concerning labour.
In the aftermath of a bitter strike and lockout in 1901 in UK the first personnel management department was established at the National Cash Register Company (NCR) in UK to look into issues such as grievances, safety, dismissals, court cases and also record keeping & wage Management. Many other factories soon set up similar personnel departments.
By the early 1900’s increased competition and pressing demands to fulfil orders made factory owners take serious note of productivity, and issues such as employee absenteeism and high turnover came into focus. The dominant philosophy during this time was that employees would accept rigid standards and work harder if provided training and more wages. This approach led to Frederic W. Taylor’s scientific management theory that involved time studies in an attempt to establish the most productive way to undertake process.
The personnel department during this time was an instrument in the hand of the employer to ensure maximum productivity, broke strikes by blacklisting union members.
Personnel Management gained a more professional role in the aftermath of World War I and the great depression of the early 1930s the Demand of wartime production had led to enactment of several provisions to ensure that issues related to wages or working conditions did not hinder production.
During this same period, Elton Mayo, the father of human relations, had conducted his famous Hawthorne studies (1924 ‘ 1932) and concluded that human factors or non -monetary rewards were more important than physical factors or monetary reward in motivating employees. Base on Taylor’s scientific management theories trade union forced employers to take more behavioural ‘ oriented approach and demand new benefits such as sick benefits, holidays, housing allowances.
World War II increased the importance of keeping factories running, and with most workers away in war, this situation put new challenges on the personnel department the post ‘ World War II marked a distinct change in human resource management history. This era witnessed well educated baby boomers influences by ideas such as human rights and self-actualisation, taking the various behavioural oriented management philosophies to heart and adopting management philosophies that encouraged incorporation of worker ideas and initiatives. During this same period, a number of legislation were enacted such as the Civil Rights Act (1964). The Equal Pay Act (1963), thus increased the importance of the human resource function.
The Michigan Model or ‘Hard HRM’ proposed by Fombrun Tichy and Devanna in 1984 encapsulated the spirit of age and become the basic for a traditional human resource approach. This model held employees as a valuable resource.
The new business environment of the post-cold ‘ war – age, combined with the widespread use of computers and internet for commercial applications, radically altered ways of doing business, and workforce management was not immune to the change. The increase of service ‘ oriented firms, the infusion of more and more women into the workforce, and other changes all made obsolete the traditional paradigms of people management.
In the sharp contrast to the attitude of the attitude of the early 1900s when workers were cogs in the industrial machine, the highly skilled knowledgeable workers of today control the machines, and with technology freely available, the skill of such workers becomes the major source of competitive advantage for firms. The human resource department tries to retain such knowledgeable workers by facilitating a conducive work environment, enriching the work, communicating objectives clearly, encouraging innovation, and many other behavioural interventions.
The ‘Harvard Mode’ of Beer et al. (1984) or Soft HRM advocates leading people through communication and motivation rather than managing them; it underlines the strategic human resource management approach. This approach considers employees as assets, far more valuable than resources.
The shift from traditional human resource management to strategic human resource management remains the current trend. Unfortunately although there is unanimous approach that business get competitive advantage when making best use of their human capital, a vast majority of SMEs do not spent time and resources in this direction. There is constant firefighting and time spent in operational issues. The handling of employees at SME Sector has remain at the preliminary stage of just administrative. We have a very far way ahead for SME to move from the traditional human resource management to Strategic Human Resource Management.
Reference: Michael Losey. ‘HR comes of age ‘ history of human resource management’ HR Magazine 2010.
2.6 – Human Resources Management in Small and medium
It is widely recognised that the success and survival of small firms depends to a large extent on their human resources, which is why & number of studies have addressed the human resources practices in small firms (e.g., Torcher & Rutherford, 2009). In general these studies indicate that the human resources practices of small and new firms are less sophisticated and more informal than those employed by larger enterprises (Cordon & Stevens, 2004).
HRM has historically been viewed as a peripheral functions in Small and Medium Enterprises. Mc Evoy (1984) found that accounting finance, production, and marketing were seen as more important than HRM. In SMEs, the Owner/CEO likely handles HR matters, and full-time HR professionals are not employed.
Though similar notions had probably been around for centuries, the concept of ‘human capital’ was popularized by Backer (1964). Accordingly, the education, training, experience, and health of the workforce affect worker productivity and economic performance. Government and businesses can invest in human capital just as they invest in other resources through the resulting performance gains.
It is known worldwide that in most countries, small businesses employ roughly half of the private sector workforce and create most new jobs in the country. Thus the economic benefits of human capital investment envisioned by Becker and other economist cannot be significant unless they accrue to the small business sector.
Business may be small because they are new and have not yet had time to grow or because there are no advantages to growth like scale or scope economies as in Mauritius. Investment on human capital contributes to economic development primarily in the former case because new businesses tend to have more growth potential than established ones.
Though definitions and measures vary across authors and studies, human capital is define here as the knowledge, skill, and experience that top management brings to a venture which influences venture success.
Employee’s management practices appear to be one way that companies are able to improve their performance. Strategic human resource management (SHRM) scholars have argued that an organization’s success is at least partially dependent on its employees and their behaviours in carrying out the strategies of the business. Organisation that can effectively influence the behaviours and motivation of their employees through human resource management systems will be able to increase their performance and viability (Collins & smith, 2006). Like other organisations, entrepreneurial firms should also be able to leverage their employees through human resource management (HRM) to improve their performance.
HRM systems as a resource can lead to competitive advantage (Becker & Huselid, 2006), and there is a growing body of empirical studies that have demonstrated relationships between bundles of HR practices and firm performance in larger firms. Researches working in the area of SHRM have argued that an organisations human resource management system can lead to improved organisational performance and provide a source of competitive advantage when successfully aligned with the strategic needs of the organisation (Dyer 1984). Specially, when a human resource management system elicits the workforce.
Characteristics leading to organisational competencies that drive competitive advantage in the Market, firm performance will be positively affected (Collins & smith 2006). Consequently, SHRM scholars have called for research to identify the specific competencies required for success in different strategic contexts and to determine the human resource management approaches that will elicit and support these competencies within organisation.
Following research on contingency theory, SHRM researches have argued that organisations can drive competitive advantage and higher performance by implementing systems of HR practices that create and reinforce the workforce characteristics consistent with a particular organisational strategy studies have used theoretical frameworks to explain how HRM should relate to business performance. A majority of these studies relied on the Resource ‘ Based View (RBV) of the firm (e.g., Barett & Mayson, 2007) which assumes that firms generate a competitive advantage by resources that are rare, valuable, inimitable, and non-sustainable (Barney 1991) Traditional resources, such as financial capital and access to technology, are less important because they are easier to imitate than human resources (Neal & Hesketh, 2002). Thus, in order to achieve a competitive advantage and success new firms should generate firm ‘ specific resources by implementing specific HRM practices.
Empirical studies addressing the relationship between HRM and performance in small enterprise use a number of different ways to assess performance. A distinction is usually drawn between financial and operational performance includes factors like sales growth and return on investments. With regard to financial performance, there is often a low convergence between different indicators (Murphy at al., 1996). Operational performances address a broad category of non ‘ financial performance criteria that may lead to financial performance, for example new product development and product quality. In the context of this review, one could categorise human resources outcomes (employee turnover, complaints, sales per employee) as being part of operational performance, because HR outcomes are concerned with efficiency, which may improve the financial performance of business firms.
International Journal of Academic Research in Economics and Management Services. March 2013 Vol.2, No 2 ISSN ‘ 2226 ‘ 3624.
2.7 An assessment of actual practices of HRM at SME level.
Good people practices counter a performance advantage. This finding is especially important today. HR practices are ‘A set of distinct but distinct but interrelated activities, functions and processes that are directed at attracting, developing, and maintaining (or disposing of) a firm’s human resources (Lado & Wilson 1994). HR practices have been proposed to have both a technical/functional and a strategic role in the operation and performance of firms of all sizes (Huselid st al. 1997). While SME HR practices do not rise to the level of functionality and formalisation found in larger firms, studies have found that Small firms do not engage a mix of HR practices that include recruiting, selection, training, and compensation (Hornsby & Kurato, 2003, Kotey & Slade, 2005). Futhermore, there is evidence that SMEs have seen improved performance levels resulting from the effective implementation of these HR practices. HR practices in recruiting, selection, training, and compensation, play a pivotal role in the performance and growth of firms.
Researches indicates that HRM practices are less important in small firms as compared with larger firms, because their scarce resources make it more difficult for them to invest in human resources management. Most studies investigating HRM practices focus on large firms. However several special issues of well-recognised journals have called for more research on HRM in small enterprises. (e.g. Entrepreneurship Theory and Practices, 2000, Vol.25 isskel, Human Resource Management Review, 2003 Vol.13). HRM practices of small and new firms differ from those in large firms (e.g. Cardon & Stevens, 2004), which makes it necessary combine knowledge in the areas of HRM and entrepreneurship. Small firms do not have even a human resource subunits. Small and new firms face unique challenges caused by liabilities of size and newness, and their human resources practices can help them deal with these liabilities and gain legitimacy. Employees in Small enterprises are paid less than employees in larger enterprises, which mean that they have to be motivated in other ways.
Also, employees in small enterprises are less specialised than employees in bigger companies. They have to accept multiple roles and remain flexible to what the business demands. As a result, the human resources practices in small firms are likely to be different from those in larger organisations. (Messersmith & Guthrie, 2010)
Human resources management involves practices that ensure that the human capital (i.e. employees’ knowledge, skills, and abilities) of firms contributes to their business results (Huselid et al, 1997). Why SME need to have HRM practices is because HRM relate to business performance. The resource based view (RBV) concept demonstrate that firms generate a competitive advantage by resources that are rare, valuable, inimitable, and non-substitutable (Barney, 1990) Traditional resources, such as financial capital, and access to technology are less important because they are easier to imitate than human resources (Neal & Hesketh, 2002).
HRM practices do exist at SME level, but they are not formalised and are very diverse and flexible in nature. Limited time and resources play a role in keeping HRM at SME level informal; HR practices become formal as the size of the firm increases. HRM in small and entrepreneurial firms (Baron, 2003) has remained a relatively neglected topic for research. The very few studies that have examined HRM in Small and Medium – Sized Companies tend to focus on the differences in HRM practices between small and large firms which mean little is known about which type of HRM practices is correlated with the success of Small and Medium ‘ Sized Enterprises. HRM practices benefit any organisation, Small, Medium or Large; which means HRM Practices is important for enterprises of different sizes. HRM practices enables small firms to become and remain competitive.
However, although conceptually we can make the argument that HR practices are vitally important, in practice SME owners and managers do not focus their time and effort on what is critically important to the firm (Tocher & Rutherford, 2009). In practice, again due to resource constraints in the SME, Managers tend to prioritize in triage fashion the elements of the business that need their attention in the moment (Jawahar & Mc Laughlin, 2001). Therefore, until the HR issues reach potentially acute levels in the SME, Managers tend not to devote sufficient time to them. This situation becomes problematic because it plays into the development of the culture of the Organisation overtime. From the survey I conducted with SME records indicates that HR practices are not valued consistently by the leaders of the organisation and are important only in times of crisis, organisational collaborators will also tend to adopt this same approach.
2.8 Obstacles that prevent SMEs in Mauritius to have good HRM practices
The best people can always work for the best Companies, and the best Companies can always attract the best people. SME encounter various obstacles and may have to strive to be able to survive in the market. These obstacles hinder to the growth and success of Small and Medium Enterprises. Brink et al; (2003) found that globally not more than 50% of startup businesses operate beyond 5 years. In Mauritius the situation is more alarming over 60% of startup. Various studies made, conclude that SMEs are prone to many obstacles and challenges (Bannock et al; 2002, Batra and Mahmood, 2001; Batra and Tan, 2003, Beck et al; 2004, Brunetti et al; 1998).
Founder members of SMEs, when asked to identify the biggest challenges facing their firms had 17% of their responses related to HRM (Economist Survey). In Mauritius there are a number of challenges that prevent SME to have good HR practices such as:-
‘ Maintaining work hours and work intensity within reasonable bounds (work life balance)
‘ Work and family synergies and conflicts
‘ Stress management and recovery
‘ Maintaining focus and stamina
‘ Personal and family transitions
‘ Business and strategic planning
‘ Legal issues
‘ Incorporating the latest technology
‘ Safety and health concerns
‘ Recruiting, selection, retaining and motivating employees
‘ The use of work teams
‘ Customer service and product quality
‘ Building the SME brand
‘ Maintaining growth, the economies of scales
‘ Succession planning
‘ The hiring of professional managers
There are three theories, borrowed form large organization literature that have been used/can be used to assess the effects and relevance of HRM in small businesses (see Burke & singh, 2010). First there are ‘universalistic’ theoretical explanations of the use of HRM as bundles of practices. Universalistic explanation state that certain HRM ‘best practices’ can be applied to any firm/across organizations because the effects are similar (see for example, Delaney et al; 1989, Dewar & Derbel, 1979; Moris et al; 2006; ostroff & Bowen; 2000). These HR practices such as careful hiring, training and development of quality employees and performance ‘ base ‘ pay create value for the firm and, given their universal benefits, all organization should adopt them as they provide a competitive advantage. While universalistic explanations have been mainly used to explain the HRM ‘ firm performance relationship in large firms, they can be applied to the SME and entrepreneurial firm environment. Arguably given the general scarcity of recourses and the inherent problems in refining many HR practices the use of ‘best practices’ in small business makes this approach more relevant and appealing for owners and managers.
Second ‘behavioral’ explanations may also be used to assess HRM in SMEs, especially as they affect from outcomes. Behavioral theories suggest that HRM policies and practices influence employee behaviours such as work engagement, organisation commitment, and creativity which in turn, affect productivity and performance. The chain extends to the firm level, that is, HRM practices affect organisation outcomes, including profitability. For instance ‘expectancy theory’ has bee/can be used to explain the motivational impact of pay- for ‘ performance compensation systems and employee benefit of on employee productivity and firm/SMEs performance (Lawler; 2000)
Third ‘economic’ explanation help with a key HRM-related issue- when should formal HR structures, including an HRM department be adopted by an organisation? Several writers have debated whether formal HR practices help or hinder small businesses. A key concerns is the costs versus benefits of such formalisation. Mauritius being a small market, this issues is a serious obstacles to the entrepreneur. Larger organisation benefits from economies of scale, this are more likely to adopt and develop effective practices or to install permanent structures, such as formal HRM unit/department (Bryon, 1999, De kok et al; 2006). Some scholars and practitioners suggest that 100 employees is the critical size/point for implementing such a unit (Cardan & Stevens, 2004). For an SME in Mauritius to reach this critical level of head count and to establish formal HR structure is very difficult.
The SMEs context is fundamentally different (Small and Medium Enterprises versus large organisations), thus it should not be surprising if results of empirical research do not always confirm to expectations. The dynamic of small businesses are quite different than their larger counterparts and consequently, different theory may be needed.
A number of studies have highlighted a range of management and organisational factors associated with SMEs that appear to prevent good HR practices (e.g. Champoux & Bun, 2003, Cheng et al; 2010, Clarke & Flitcroft, 2008 Vassie et al; 2000). The management approach of SMEs has been found to differ significantly in comparison with larger firms Marthay (1999) found that owners-managers of SMEs tended to operate an informal management style: 92 percent in micro-businesses (
A review indicates that SMEs, and particularly small and micro-businesses are especially vulnerable for a number of reasons including: the nature of SMEs (newly formed, short life span, little financial stability, deficiencies in organisational and managerial practices). Furthermore it is also evident that SMEs in many contexts lack support from regulatory authorities to help them establish good practices. The weakness of the association of SMEs reduce the political/lobbying power in comparison with the large organisation which are solidly regroup under the umbrella of the Mauritius Employees Federation MEF and the Joint Economic Council (JEC). Reason (1997) argues that competence, cognizance and commitment at top management level, are needed to ensure the development organisation best practices. The Management style adopted by owner-managers in small business should avoid passive leadership in relation to implementing best HR practices, which has been shown to have direct impact on people happiness, growth and profitability.
2.9 How does the level of good HRM practices (hr formality) influence the performance of SMEs in Mauritius?
In general, information gathered form the present survey indicates that the human resource practices of small and new firms are less sophisticated and more informal than those employed by larger enterprises in Mauritius. The more interesting question however, is whether or not HRM practices of small enterprises are related to their performance. Unfortunately, this is a relationship that has been less frequently in empirical studies. Moreover, some of the baby boomers generation argue that HRM practices are less important in small firms as compared with larger firms, because their scarce resources make it more difficult for them to invest in human resources. The aim of this chapter is to contribute to this debate by trying to understand the relationship between HRM practices and performance of small & medium-sized enterprises in Mauritius.
Human resources management involves practices that ensure that human capital (i.e., employees’ knowledge, skills and abilities) of firms contributes to their business results. Some studies have used theoretical framework to explain how HRM should relate to business performance. A majority of these studies relied on the resource-based view (RBV) of the firm (e.g. Barrett & Mayson, 2007, Way; 2002) which assumes that firms generate a competitive advantage by resources that are rare valuable, inimitable, and non-substitutable. Thus in order to achieve a competitive advantage and success, new firms should generate firm specific resources by implementing specific HRM practices (Lepack & Snell,1999). According to SHRM, firms need to develop internally consistent human resources practices that are adapted to the organisational context and business strategies. SHRM has contributed to stimulating debate about whether or not SME should adopt best HRM practices, HRM practices that ‘best’ fit to a Company strategy of specific configuration of HRM practices that enhance business outcomes. Each of these perspectives seems to provide theoretical as well as empirical evidence that HRM is related to the performance of the firms (Delery & Doty, 1996). Good practices bring fairness, and transparency that help motivates people to apply their superior abilities in their work related activities. Such practices include extensive staffing, group-based pay, job rotation, team work, training, and communication. Most empirical studies that adopted the RBV found evidence in favour of a positive relationship between HRM and venture performance.
From the survey carried out with a sample of SME in Mauritius from various sectors, the respondents confirmed that few SMEs do have established HR practices in (a) recruitment & selection, (b) training & development, (c) reward & compensation, (d) performance management system and (e) employee relation. The level of HR practices in the mentioned field is low. There are numerous hypothetic reasoning why SMEs in Mauritius do have low HR practice.
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