Int. J Sup. Chain. Mgt Vol. 7, No. 6, December 2018 118 The Link between HRM Practices and Performance in Malaysian SMEs Nazlina Zakaria #1 , Waida Irani Mohd Fauzi #2 , Nor Azimah Chew Abdullah #3 , Rushami Zien Yusoff #4 # School of Business Management, Universiti Utara Malaysia, 06010 Sintok, Kedah, Malaysia 1 nazlina@uum.edu.my 2 waida@uum.edu.my 3 norazimah@uum.edu.my 4 rzy278@uum.edu.my Abstract— This empirical study investigated HRM- performance links in Malaysian small and medium enterprises (SMEs). SMEs performance is conceptualized within a multidimensional framework consisting of four dimensions, which are satisfaction with financial performance, satisfaction with non- financial performance, performance relative to competitors and business growth. The five HRM practices adapted consisted of communication and information sharing, compensation, job design, performance appraisal, selection and training and development. The hypothesis of this study has been built on a resource based view. Field research was conducted through surveys with a total of 321 owners/managers of manufacturing SMEs, representing a response rate of 60.5%. Confirmatory factor analyses were used to analyse the quality of the scales and PLS-SEM were conducted to test the hypotheses of the study. Statistical results show certain HRM practices, namely, communication and information sharing and selection are positively related to organizational performance. Finally, this study is useful for future researchers, entrepreneurs and policy makers in realizing the importance of HRM practices towards enhancing SMEs performance. Keywords— Human resource management practices; organizational performance; manufacturing; small and medium enterprises (SMEs). 1. Introduction Small-and medium-sized enterprises (SMEs) have been acknowledged as a key business sector for various countries in the world since they make up over 90 percent of all enterprises [1, 2, 3]. In Malaysia, SMEs contribute significantly to the overall economic performance [4, 5, 6]. However, their contributions is still low and they are yet to reach their full potential. The contribution of Malaysian SMEs was also lower than that of the neighbouring countries such as Indonesia (57%) and Thailand (38.9%) (“More efforts needed”, 2008). This suggests that further efforts are needed to improve SMEs performance in order to expand the sources of the national economic growth. SMEs need to know comprehensively the factors that could affect their performance in order to be sustained in country's economic growth. Since the competitors can imitate the advantage of physical and financial resources easily, practitioners and researchers must focus to the uniqueness of human resources as factors that could lead to firm’s sustainable competitive advantage [7, 8]. Therefore, it is significant to know in what way to manage human resources which can boost the productivity and control the costs as well [9]. Due to diversity, the growth rate and the rising number of SMEs, HRM can become a strong basis to study in SME [10]. Therefore, a system of good human resource management (HRM) practices need to be addressed as to ensure the development of organizational performance run smoothly [11]. Hence, the purpose of this study is to investigate the relationship between HRM practices (i.e. communication and information sharing, compensation, job design, performance appraisal, selection, training and development) and organizational performance (OP). Next, to further understand the concept of organizational performance, the concept of HRM practices and how it relates to organizational performance will be discussed in the following sections. 2. Literature Review 2.1 Relationship between HRM practices and OP Undoubtedly, organizational performance is subjectively described phenomenon and becomes ______________________________________________________________ International Journal of Supply Chain Management IJSCM, ISSN: 2050-7399 (Online), 2051-3771 (Print) Copyright © ExcelingTech Pub, UK (http://excelingtech.co.uk/) brought to you by CORE View metadata, citation and similar papers at core.ac.uk provided by UUM Repository