Human Resource Practices in Sme Sector: an Exploratory Case Study of Pakistan

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EuroEconomica
Issue 3(31)/2012 ISSN: 1582-8859

Human Resource Practices in SME Sector: An Exploratory Case Study of Pakistan Naveed R. Khan
Faculty of Management and Economics Sciences, Universiti Pendidikan Sultan Idris, 35900, Malaysia naveed.r.khan@gmail.com

Mustafa Rehman Khan
Faculty of Management Sciences, Institute of Business and Technology, 75190, Pakistan mustafarehmankhan11@ymail.com

Abstract
The role of human resource practices (HRP) at its significance in small and medium enterprises (SME) become an emerging topic, especially in developing countries. This study aims to gauge the level of HR practice being exercise in SME. Quantitative approach has been followed and data was collected from 195 SMEs through a structure questionnaire. Findings suggested that SME are performing moderate level of HR practices and owner/managers are aware with the importance of HR practices in their organizations. Moreover, compensation is the most significant factor of HR practices followed by employee performance, recruitment and selection and training and development. HR function has been substantially implemented and HR practices are being carried out in number of SME and is contributes at all phases of organization’s functions. The globalization and dynamic milieu is forcing the SME sector to switch informal functions to formal manner. However more coherent approach is required to replace the traditional way of practicing HR functions. This study validates the implementation of HR practices in SME as documented in the literature. It further provides a reference for academicians and practitioner to build upon a contention for future research.

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Keywords: recruitment and selection, training and development, employee performance, compensation.

COUNTRY CASE STUDIES

Electronic copy available at: http://ssrn.com/abstract=2155840

EuroEconomica
Issue 3(31)/2012 1. Introduction
In the era of globalization, business environment becomes highly dynamic with high risk and uncertainty. This uncertainty decreases market share and increases organizational inefficiency. As elsewhere, Pakistani SMEs too are affected by the recent global economic meltdown. Escalating inflation in Pakistan further compounded the situation for SME growth. Human resource working in SME sector plays a vital role in economic growth without any space for their personal growth. It is therefore observed that retention is one of the major problems in small and medium size industries. Slightly better emoluments provide good reasons to an employee to switch over from one organization to another organization. Growth in salary in SME sector is far behind the growth in inflation which is a source of depression and made them less productive at their workplace (Khan, 2011). SMEs are identified as the leading employment generation sector, nation wide. In context of the Karachi city which contributes 30% in manufacturing sector of Pakistan and 90% in Sindh’s GDP and around 20% of the total GDP of Pakistan. These figures indicate the potential and further growth in this sector further it prove the argument that SME sector shall plays pivotal role and have potential to grow. Moreover, extensive economics activities at sea ports and industrial zones increase the significance of Karachi city, hence is called the financial and business hub of Pakistan, providing millions of economic opportunities (Ghouri et al., 2011). This study has been conducted to measure the gap between philosophies and practices of HR practices. HR scholars have argued that SMEs are insignificantly practicing the HR function in Pakistan. It may be consider that the owner / managers are not able to utilize their human resource strategically and coherently. Perhaps this is due to the shortage of HR professional in SME sector. Further, fragile structure and substandard formalization intends management to ignore organization’s most valued assets, that is, 8 the workforce. This...
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