Impact of Human Resource Management Practices on Business Performance of Small and Medium Enterprises (Evidence from manufacturing SMEs in Hambanthota District, Sri Lanka)

Abstract

This study empirically examines eight human resource management practices (HRMPs) and their impact on business performance among small and medium sized enterprises in manufacturing sector (MSMEs) in Sri Lanka. There is a little attention given to the effect of HRMPs on performance of MSMES in Sri Lanka. Thus, this study addresses this knowledge gap in the literature in relation to MSMEs. Fifty MSMEs in Hambanthota district in Sri Lanka (HDSL) were randomly selected as the sample. Structured questionnaire was administrated and in-depth interviews were conducted with owner-managers. Results revealed that selected MSMEs in HDSL are mainly adopting informal HR practices. On average, these firms adopted two out of eight possible formal HR practices. Two-thirds of MSMEs adopted fewer than three HR practices and one-third did not adopt any formal HR practices. Further, results revealed that most commonly adopted HR practices are using professional sources of recruitment, using written criteria for firing and having a Human Resource plan for the firm. The nature of HRMPs in MSMEs in HDSL differs according to owner-manager’s education qualification and the firm size. Results illustrated that insignificant weak positive relationship between the formal Human Resource Management Practices and business performance of MSMEs in HDSL. There is a positive relationship between all the HRMPs variables, except presence of HR specialist(s) and overall business performance. Spending training for employees is the significant predictor of business performance of MSMEs in HDSL. It can also be concluded that there is a significant positive relationship among education qualification, firm size and formal HRMPs.