The Effect of Human Resource Practices Towards Organizational Competitive Advantage

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1.0 Introduction This chapter describes a brief background of the research. It explores the problem statement, objectives of the study, research questions, scope of the study and the significance of the study. Definition of key terms and outline of the thesis is also provided at the end of the chapter. 1.1 Background of the study The increasing pressures from the rapid changes that are occurring in the business environment have led to a variety of responses among industrial organizations. Globalization of production and markets, the rate of technological innovation and fluctuation in consumer demand are among the factors that have increased the dynamism of the competitive environment to which organizations must respond (Fisher, Schoenfeldt, & Shaw, 2006). In 2011, Malaysia’s labor market continues to need more workers. The number of unfilled job positions, as collected by the government, rose sharply over 2008 and 2009. In 2010 it was at over 1.7 million significantly more than the numbers who enter the workforce annually. This means there are more vacancies currently than there are employees to fill them. The manufacturing, agriculture and construction industries make up the majority of this demand.

( As at 2009, 11,585,000 out of the 27 million people in Malaysia are employed. Unemployment rate had increased slightly from 3.3% to 3.9% in 2009


as a result of the world economic crisis, and it is forecasted that it the employment rate will maintained at 3.9% in 2010. In 2009, GDP of Malaysia suffered from a deficit of 3% as a result of worldwide economic collapse, however, it is forecasted that by 2010, with the global economic recovery on the way, Malaysia’s forecasted economic growth would be back on track with GDP growth of 2-3% (MIDA, 2009). The importance of Human Resource had been acknowledged by Malaysian government, where in 1991, the Malaysian government has included Human Resource Development in the 6th Malaysian Plan. Besides that, Malaysian Government has also introduced several other incentives for private sector to develop their human resources. These include establishing industrial training institutes to develop employees for job entry level, setting up Human Resource Development Fund in 1993 that are based on a levy/grant system that provide training costs subsidies for employers who have paid the levy, which had been set at 1 percent of the employees’ monthly wages for manufacturing firms (MIDA, 2009). In relations to benefits and compensation, organizations in Malaysia are moving towards performance based system. As shown by a survey conducted by Malaysia Employer Federation. In the survey, 86.3% of the 233 organizations surveyed stated that their organizations linked salaries of their executives to performance (MEF, 2007). For Malaysian firms to survive in a global economy in the new millennium, they need to exploit all the available resources as a means of achieving competitive advantage. One resource recently recognized as providing a 2

source of competitive advantage is the human resources of the firm and it is widely accepted that people in organizations are an important source of competitive advantage for firms (Pfeffer, 1994). Many scholars have reiterated that the increasing interest in human resources is due to the assumptions that employees and the way they are managed are critical to the success of a firm (Kamoche, 1996; Lado & Wilson, 1994; Mueller, 1996; Wright, McMahan & McWilliams, 1994). Since firm performance is considered as one of the major organizational goals, much of the recent human resource management (HRM) research has been directed at understanding the relationship between HRM practices and firm performance. An effective and competitive human resource is the key to the strength of organizations in facing the challenges of business today. The importance of having a competitive human resource is synonymous with the...
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