The concentration of the researches in the field of HRM has been mainly focused on large organizations, and small and medium sized enterprises have not received as much attention. Especially in the field of IHRM of SMEs only a couple of studies were found.
This indicates the critical need of researches in the field of IHRM of SMEs. The purpose of this chapter is to summarize the main theoretical issues and to formulate a model of human resource management of internationalizing small and medium sized enterprises which is based on the existing literature and studies.
4.1 Summary
In the first part of the theoretical framework it was explained how the human resource management of SMEs is characterized and how they use HRM practices. Also two models of HRM of SMEs were introduced. It can be stated that according to the findings, SMEs are strongly heterogeneous and they use practices very differently with varying levels of informality and formality. HRM of SMEs can be characterized as complex, informal and ad hoc (Cassel et al. 2002: 689; Harney et al. 2006: 49; Hornsby et al. 2003). There usually is no HR department in SMEs and the owner takes care of HR issues. (Hornsby et al. 1990: 9; Hornsby et al. 2003: 74; Klaas et al. 2000: 107).
In the second part of the theoretical framework it was explained what the internationalization process is like and how the IHRM of SMEs can be characterized.
When SMEs become international, the number of IHRM practices increases because HR department, for example, needs to take care of expatriates. The number of nationalities rises too, thus HR professionals need to have a broader perspective on HRM because the workforce consists of PCNs, HCNs and perhaps of TCNs. Usually in the early phase of internationalization firms use expatriates, but later when international activities increase, there might be a need to change the staffing approach. It is stated that the formality normally increases when the firm‟s operations expand. However, the study of Monks et al. (2001) indicated that informality prevails still in international human resource management of SMEs as in domestic human resource management. In the second part a few models were also introduced: Morgan‟s (1986) model of international
human resource management and the findings of Monks et al. (2001) can also be viewed as some kind of model.
4.2 Formation of the model of IHRM of SMEs
The figure 6 has been formulated based on the models of Cassel et al. (2002: 687) and Harney et al. (2006: 54) and the theoretical framework. The created model below illustrates the IHRM of SMEs. On the left side of the figure are listed the concepts that describe human resource management of SMEs. In the middle part of the model are described external and internal factors which influence the IHRM of SMEs. On the right side of the figure is the box of IHRM of SMEs. Next the figure is explained more in detail.
Figure 6. The model of IHRM of SMEs according to the existing literature and studies.
The box on the left side of the figure describes the situation of HRM of SMEs when the firm has no international involvement. As it was stated already in the theoretical part these concepts informal, ad hoc and complex characterize the HRM of SMEs. When the internationalization process begins, companies need to consider both internal and external factors that influence their human resource management. Internal influence factors are the existence of an HR champion, resources, previous experience, norms surrounding HR issues and managerial style (Cassel et al. 2002: 687; Harney et al.
2006: 54). If an HR champion exists in the company, it might affect positively the international human resource management. Usually small and medium sized enterprises have limited resources in comparison to large companies, which might be problematic for the IHRM. Previous positive experience can contribute to SMEs applying of a specific IHRM practice, whereas if HR issues are not appreciated in the firm, it can lead to the rejection of an IHRM practice. Managerial style also affects IHRM because it might have an influence on the use of different IHRM practices. For instance, if the managerial style is very traditional, then the reward systems might also be traditional and new rewarding methods are not applied.
HR managers also need to consider external factors. They need to know several countries‟ legislations, and it is good to have an understanding of what kinds of political systems exist in the countries in order to avoid mistakes. Consideration of cultural issues is important when planning different IHRM practices because it is not possible to use same kinds of practices in every country because of cultural differences. For example, as the five dimensions of Hofstede indicate, people from different countries can be motivated in different ways. The language also affects because all the documents and regulations need to be produced in English. Geographical location determines time differences that challenge the running of HR issues. HR managers need to consider the HR supply too. This means that they have to consider where they can acquire available labor and they need to take into account different nationalities because the workforce mix of PCNs, HCNs and TCNs varies. Also, current HR trends and field of business can influence HRM of internationalized SMEs.
On the right side of the figure the IHRM of SMEs is described. In IHRM, HR department has to be more involved in employees‟ personal lives when they are selecting international assignees because they need to arrange, for instance, their housing arrangements and health care in the foreign country. They also need to have a broader perspective on HRM because the workforce consists of different nationalities.
Obviously, the number of IHRM practices increases but still the informality prevails in
most of the practices. Because of the international environment, IHRM of companies has to adapt to different circumstances of countries. This model gives an overview on how IHRM of SMEs is characterized in literature and studies. The created model is used as a base for the empirical part and it is modified based on the empirical data. In the next chapter the research methodology of this study is described.