Human Resource Management Practices as Predictors of Organisational Innovations: An Analysis of Manufacturing SMEs in Japan

Aruna S. Gamage


Small and Medium Enterprises (SMEs) are prevalent across the Japanese economy, accounting for the lion‘s share of its GDP. Their importance is indicated not only by the large share of GDP, but also by the number of companies, total number of employees, and value of shipments etc. However, since last two decades, this sector has no longer been a thriving source of growth. The business failure rate remains high while firm entry rate has slipped downward. One of the reasons for high rate of business failures in SMEs is the lack of attention they are paying to the Human Resource Management (HRM) practices of their businesses when compared with their large counter parts. Therefore, the broad aim of this study is to investigate HRM practices in SMEs in Japan. Specifically, this study aims to investigate whether HRM practices are significant predictors of innovations in SMEs, as measured by the number of new products, process and administrative developments which are crucial to face global competition. Further, this study attempts to examine the relationship between HRM practices and organizational innovations shedding some light on the link between the two. A structured questionnaire was developed and sent to 436 SMEs in Aichi Prefecture and 144 firms responded to the questionnaire resulting in 32 per cent response rate. Based on the data analysis, it was found that there is a strong positive relationship between HRM practices and organizational innovations in manufacturing SMEs in Japan.

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