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

Abstract

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