How Do Human Resource Management Practices Affect Innovation?
A study of Small- and Medium-sized Enterprises in a Transition Economy
Small- and medium-sized enterprises (SMEs) are one of the engines for inclusive economic growth. Yet little is known about the contribution of human resource management (HRM) practices to the success of SMEs. SMEs include micro, small, and medium-sized enterprises.
No existing literature distinguishes effects of HRM practices on different categories of innovation. This study fills the gap by empirically analysing causal links by utilising a large dataset from five rounds of biannual SME surveys conducted in Vietnam.
Before 1986, when the reform policies were implemented in Vietnam, the private sector and private enterprises had been prohibited. During the transition period, in addition to restructuring the state sector, the government has been greatly promoting the private sector (World Bank and Ministry of Planning and Investment of Vietnam, 2016). As SMEs have been constituting the majority of enterprises in the private sector, playing an increasingly important role in creating employment and generating higher and more stable income and becoming one of the engines for economic growth, policies to support the development of SMEs have been among the top priorities in the development agenda of Vietnam (MPI, 2016).
Wright et al. (1994) argue that HRM practices are the organisational activities to manage the pool of human capital. HRM practices determine the development of human capital pool, which contributes to sustained competitive advantages. They emphasise that in an ever fast changing environment enterprises with higher levels of human capital are more dynamic to sense the need for change and efficiently develop and implement strategies to change. HRM practices, moderate the relationship between human capital pool and sustained competitive advantages by affecting human resource behaviour.
Findings of this study show that providing rewards and benefits to workers, determine the quality of employed human and physical capital assets of SMEs. Moreover, the study reveals that HRM practices really influence some certain categories of innovation of SMEs. The SMEs that adopt more HRM practices are more likely to release new products and improve the existing ones. The study further confirms that HRM practices are an important factor that positively determine the performance of SMEs as measured by the expansion of operation size and enhancement in labour productivity. practices are a strategic resource for sophisticated innovation and development of SMEs in transition economies. It is, therefore, warranted that promotion of adoption of HRM practices among SMEs is essential for enhancing their innovation and development.
This study contributes to literature by closing the gap in understanding effects of HRM practices on entrepreneurship of small enterprises in transition economies, where SMEs have been revitalised during the transition period and started to grow from small household-type businesses. The study also provides important evidence for policy makers in transition economies to support innovation and development of SMEs by promoting adoption of appropriate HRM practices, which could be first focused on providing rewards and benefits to workers.
The study uncovers that HRM practices positively affect the quality of employed human and physical capital assets of SMEs. More importantly, it finds that that HRM practices significantly contribute to the launch of new products and improvement of existing products.
Article details:
How Do Human Resource Management Practices Affect Innovation of Small- and Medium-sized Enterprises in a Transition Economy?
Vu Hoang Nam, Hiep Ngoc Luu
First Published August 3, 2021 Research Article
DOI: 10.1177/02601079211032119
Journal of Interdisciplinary Economics