The Role of HRM in Improving Labour Productivity: An Analysis of Manufacturing SMEs in Japan

Abstract

Small and Medium Enterprise (SME) sector is considered to be the backbone of Japanese economy. Its importance is often highlighted by the large share of the economy it occupies, whether in terms of number of companies, total number of employees, value of shipments or GDP. However, since last two decades many SMEs have gone out of businesses while firm entry rate is showing downward trend. According to some business advocates, one of the reasons for high rate of business failures in SMEs is due to its less attention to the human side of their businesses. Therefore, the broad objective of this study is to examine the role of Human Resource Management (HRM) practices in SMEs in Japan. Specifically, this study attempts to examine the relationship between HRM practices and labor productivity in manufacturing SMEs in Japan. Further, it aims to examine the mediating link of HR outcomes in between HRM practices and labour productivity. A structured questionnaire was developed and sent to 436 SMEs in Aichi Prefecture and 144 firms responded to the questionnaire resulting in 32 percent response rate. Based on the data analysis it was found that there is a strong positive relationship between HRM practices and labour productivity mediated by HR outcomes in manufacturing SMEs in Japan.