People First: Formalisation of Hrm in Msmes of Gujarat, India

Abstract

Aim: The aim of this paper is to study the antecedents of formalisation of HRM in Micro, Small and Medium Enterprises (MSME) of Gujarat. MSMEs contribute 80% of global economic growth and are highest employment generators. To keep the cost low, they follow unique human resource management (HRM) practices. Despite these importance and scope of MSMEs, very few studies have focused on studying HR Practices and extent of formalisation of HRM in these units. It is important now to understand unique innovative practices being followed at MSMEs and to develop some supportive literature to help them build their organisational capabilities.

Methodology: The methodology used was descriptive. Primary data was collected through a structured research questionnaire with closed ended questions. Questionnaire was adapted from de Kok, Uhlaner and Thurik’s (2002) study and self designed questions for demographic data   Secondary data was gathered from books, previous research papers, articles, research journals and from the websites related to the study. Total number of MSMEs studies was 223. The data was analysed with SPSS18.0 using multiple regression method.

Findings: Among the three contextual variables studied; namely firm size, labour union and large firm association, it was found that formalisation of HRM is dependent on organisation size and large firm association, but no relation was found between formalisation and labour union. The findings showed absence of formalization and cost associated with organization contributing to the positive relation between organization size and large firm association with formalization of HRM. Precarious employment and culture based control system contributed to the negative relation between labour agreement and formalization of HRM.

Managerial Implications: The study contributed to the body of MSME literature. It was an interesting insight to observe that while MSMEs employ a large number of workers, most do not follow a systematic formalised HR practice. Though there is an increasing body of literature that identifies people as a competitive advantage and advocates investment in formalised HR for competitive advantage. It was found that practitioners do not follow that line of thought.

Originality: This paper explored linkages of organisational contextual variables and formalisation of human resource management practices. This is an original empirical work.

Limitations: This study can be extended encompassing various other states of India. There are other contextual variables which can also be studied. Time acted as a major limitation for exploring other variables in this paper.

Keywords: Formalisation of HRM, MSME, HRM practices, contextual variables, firm size, large firm association, labour union.