The relationship of HRM-FP (Firm Performance) in SMEs

An empirical study of HRM-FP in Chinese SMEs

Abstract

It is widely accepted that HRM can help firms improve organizational outcomes, which in turn leads to improve staff performance (Koch and McGrath, 1996). Indeed, claims about the impact of HRM on organizational outcomes are common in theoretical studies of HRM since the 1980s (e.g. Beer et al., 1984; Fombrun et al., 1984; Guest, 1997).

With the development of HR theory and statistical software a number of empirical studies that have been conducted to test the relationship between HRM and firm performance in many countries and industries (e.g. Arthur, 1994; Huselid, 1995; Kaman et al., 2001; MacDuffie, 1995; Ngo et al., 1998; Stavrou and Brewster, 2005; Wright et al., 2005; Youndt et al., 1996; Takeuchi, 2005). However, most of the studies focused on big companies, there are only a few studies about SMEs, especially the SMEs in developing countries.

This study tested the relationship of HRM-FP in 393 Chinese SMEs in Chaoyang, a city of Liaoning province. Firstly, regression analysis results support the conventional idea that HRM practices/system generate/generates better HRM outcomes and, in turn, better HRM outcomes contribute positively to FP. Secondly, it is found that the current HRM practices/system impact/impacts much stronger influence on HRM outcomes of the next three years rather than the HRM outcomes in the last three years. Thirdly, regression analysis results support that the HRM outcomes of the last three years are positively associated with FP in the next 3 years. Finally, it is found that HRM outcomes positively mediate the relationship between HRM system and FP.