Literature Review

Managing the human resource in Indian SMEs: The role of indigenous realities
Debi S. Saini, Pawan S. Budhwar

Over the last few decades there has been a tremendous growth in SMEs (small and medium enterprises).
More and more of such enterprises are now struggling to survive due to immense pressure created both
by globalization and giant multinational companies. It is important to re-examine different aspects of
working of the SMEs and their foundational strengths. This paper examines the extent to which
indigenous ways of people management are practiced in Indian SMEs.

SMEs are generally started by a single entrepreneur or a small group of people, and are often managed
by owner– managers (Ritchie, 1993). The organization structure is mostly flat. Technological
advancements have contributed to significant changes to the nature of present production systems.
This has also impacted the nature of work, workers and the skills involved. SMEs have to undergo some
change when they compete with global companies and other large buyers, as they are dependent on
supply contracts from the same.

The authors have constructed two case studies reflecting details about the nature and contextual
working of HR practices. The two case companies are based in the two industrial belts of Panipat and
Delhi. One of the five major handlooms exporters of Panipat, ‘Flaxo Exports’ was decided. The CEO of
Flaxo was interviewed at length on the management of human resource related practices of his firm. It
was supplemented by interviews conducted with two of his managers, and informal discussions carried
out with a group of workers. The second company was selected from the industrial area of Basai
Darapur in Delhi, Deakins India Pvt. Ltd. In depth interviews were conducted with its founder, and with
the managers and employees.

There is a lack of formalization in the management of people issues in SMEs. This is seen in great
contrast to MNCs operating in India who have very successfully adopted highly formal, structured and
rationalized HRM systems even when they employ smaller number of people. In the Indian SMEs the
entrepreneurs feel that the lack of structured processes helps them minimize cost and provide the
necessary in-built flexibility. Eventually, they perceive that by remaining informal they can compete on
cost in the new Indian economic environment.

We can see that Indigenous working and closer inter-personal relations between employer and
employees are the hallmark of SMEs. The prevalence of the piece-rate system in these enterprises is
seen as a key motivator by the employees to work more and earn more. The Indigenous way includes
local way of training the new workers who are especially from the family of the senior worker or are his
kins They work extra hours to meet the demands of prompt delivery to the firm’s customers and get
benefited in doing so, and preventing the union activists to seek union membership when they try to do
so by instigating labor unrest in the organization. The employer attempts to build collective involvement
culture in the organization, partly with his direct involvement. In addition, such a culture is also built
through inviting opinions of workers in doing the work in a more appropriate way or in solving some
work-related or other problems.

Some of the main motivation devices of SMEs include building a trusting relationship or a more fraternal
atmosphere so as to also project a better employer branding. Paternalism also helps in preventing the
rise of countervailing power against the employer. Further, it helps to legitimize the labor law violation
by the employer. The indigenous culture is so structured that employees are drawn into making
exigency-based adjustments when the firm is under pressure of meeting deadlines. The internal forces
that allow the perpetuation of the indigenous practices in SMEs are strong. They prevent any attempts
towards experimenting and implementing modern management practices. If SMEs want to shift their
focus from the ‘‘cost-minimization and profit maximization’’ approach to brand-building and faster
growth model of business, then they would have to tackle people issues more professionally. Big brands
can never be built without the inculcating professionalism and a sense of commitment in the common
worker.

Deakins does not prefer to employ any women workers as they were not seen suitable for many
operations. It was earlier decided to give some work, especially quilting, to the women employees.
Some discrimination on the basis can be seen as a part.

Deakins is already facing the heat of competition in its product market. And, it will not be a surprise if
Flaxo too gets affected by it in the near future. Then it would have to resolve the problem of the scale
of production as also of the usual tension between indigenization and formalization of people
management practices. In order to realize their full potential and to march towards realizing their
vision, SMEs have to eventually intertwine indigenization and formalization when they reach that stage.

The study has some limitations, hence caution is needed while generalizing the findings to other Indian
SMEs. Lack of focus on quantitative data looks like a limitation.
Adapted Interview Questions
Interview schedule for owner/company director/managers

1. Company’s name:
2. Year of establishment:
3. Please describe the conditions under which the company was set up:
4. Total no. of employees and break up:
5. Method of wage payment:
6. Investment (capital employed):
7. Company turnover (Rs.):
8. Who are your customers?
9. In how many countries are your goods sold?
10. What factors you think have contributed to the success of the company?
11. How do you compare your employees with employees in these countries?
12. Who are your competitors?
13. Key characteristics of your business:
14. Values that you hold dear in business:
15. Are there any unique people management practices in your company? If yes, what are they?
16. How you are competitively placed on people management front as compared to your competitors?
17. Are there any practices in people management that you think are purely indigenous? If so, what are
these? (Are they linked to any or some of the following: family ties, caste, social relations, political
affiliation, religion, language, and gender, anything else)?
18. What are the peculiarities of your leadership style, and in what way in your opinion does it influence
the employee commitment and behavior in your company?
19. How are you perceived as an employer by your workers/employees?
20. How do you motivate your people so as to secure a better performance?
21. How do you communicate your appreciation, displeasure, anger with your people?
22. How do you ensure employee discipline in the organization?
23. What language do you use with your employees?
24. How do you make recruitment? Please describe the exact procedure
25. What are your selection criteria?
26. How do you upgrade the skills of your employees to meet new demands on the including those
performing skilled and supervisory work? Please explain in detail.
27. How do you appraise their performance for promotion and rewards?
28. How do you determine employee rewards and bonuses?
29. What devices do you use to retain the more efficient employees?
30. What is the retirement age in your company?
31. Can you link some of the HR practices you use to possible business outcomes? (such as individual –
motivation, efficiency, commitment, etc and organizational – achievement of overall objectives, etc).
32. What do you think is likely to happen to indigenous practices followed in your company in view of the
changing business environment?
33. Have your workers ever tried to unionize? Why or why not?
34. Can you explain in detail the attempts to unionize and how you managed the situation?
35. What is your opinion of the relevance and justifiability of existing labor laws that are applicable to you?
36. What labor laws are applicable to you? Do you follow all of them?
37. If not, partially or fully, how do you manage the situation? Please explain in detail, including the
reasons for your answer.
38. What are the challenges your company is facing and how do you plan to face them?
39. How are these challenges related to the competencies of people employed in your firm?
40. What is likely to be people-management policy in time to come?