Small and medium enterprises are considered as a great source of economic growth and development of the country. However, in Pakistan the development of these SMEs is very slow because they lack indelivering good performance. Therefore, the present study aims at identifying components that help to increase the SMEs performance in the country. Managing the human resource of any organization is one of the most difficult tasks. However, if they were managed in a better way they yield positive results. Similar is the case with the SMEs operating in the country. This study incorporates certain variables including compensation and benefits, performance appraisal, employee involvement, training and development and job security. The following variables are considered as an important factor for the firm performance.

A survey approach was used in order to collect the data from the respondents. The data was collected from the employees of SMEs of Pakistan. The overall empirical assessment revealed positive results between the hypothesized relationships. However certain implications of the study ensured that while SMEs accepting the human resource practices will help to increase the firm performance.

This study will help to bring in awareness to the SMEs of Pakistan in order to bring proper human resource practices in their firm that will help to increase the firm performance and contributes in the economic growth.

Key words: Small and Medium Enterprises, Human Resource Management, Firm Performance.

 

 

 

 

 

 

 

 

 

 

 

 

    CHAPTER 1

INTRODUCTION

 

 

1INTRODUCTION

The research presented in the present thesis was conducted to examine the relationship between human resource management practices including compensation and benefits, performance appraisal, employee benefit, training and development and job security on performance of small and medium enterprises of Pakistan.  This chapter includes background of the study, problem statement, questions and objectives of research, significance of the study and structure of the thesis.

1.1Background

Small and medium enterprises are considered as one of the major contributor of economic growth and development of the country (Man et al., 2012). These small scale enterprises depend on few critical success factors. With the minimum number of employee the SMEs are considered as an appropriate place for any employee. However, in Pakistan the SMEs are not sharing their part in the country’s economic growth and development (Ayyagari et al., 2007). According to Jasra et al., (2011) the SMEs management in Pakistan are usually unaware of the human resource management practices. Therefore, these companies’ performances lack as compared to those operating in foreign countries. This lack in performance leads to unproductive results.

Human resource management is liable for the implantation of the human resource practices in view of greater interest for the firm performance (Cassell et al., 2002). The functions of HR includes from the recruitment process, to training and development, through compensation and benefits finally the rewards such as compensation and benefits and till termination of employees (Storey, 2007). According to MacDuffie (1995) the HR practices helps in the development of the organization. The human resource is the most valuable assets of any organization. The talented work force is the need of any organization. As, Yew, (2005) indicated that the HR plays a vital role in sustaining the competitive advantage of the firm. Similarly SMEs as being much smaller organizations with concentrated workforce are also pertinent to HR practices. Furthermore, Combs, Liu, Hall and Ketchen, (2006) incorporated that with such concentrated workforce, each employee represents as a sustentative element for the organization and therefore, each employee has a significant impact on the overall performance of the firm. As, SMEs having smaller operational business each employee have a potential impact on the performance of the firm.

In such Instances it has been widely debated that the SMEs operations needs to be streamlined with the HR practices. These practices will help in gaining competitive advantage and improve the firm’s performance (Christen, Iyer and Soberman, 2006). Though due to time constraint the following study would be unable to include each perspective but five major practices have been selected which are human resource Compensation and benefits, performance appraisal, employee involvement, training and development and job security whic