Application of human resource management's universal model: An examination of people versus institutions as barriers of internationalization for SMEs in a small developing country

Abstract

Although the importance of people and institutions has been highlighted in multinational enterprise studies, the association between people, institutions, and the internationalization of small to medium-sized enterprise (SMEs) is an underexplored issue from the context of a small developing country. We examine theories subsumed under the Universal Model of human resource management (HRM) onto SMEs to study the hypothesized people and institutionally orientated barriers posed to SMEs' internationalization. Using quantitative analysis, the impacts of the barriers on internationalization are highlighted with particular attention to employer attractiveness. Following extant literature review, this study has used primary data collected through questionnaires from 212 Bangladeshi SMEs. We developed and validated the partial least square-based structural equation model (PLS-SEM) to assess the impacts and successfully framed people versus institutional barriers as a second-order hierarchical reflective model, which has not been done previously. Given their marginal significance over institutions, people-oriented cultural barriers should be included as an extension of the Universal Model to study SME internationalization.

Examining economic and technology‐related barriers of small‐ and medium‐sized enterprises internationalisation: An emerging economy context

“…Following the PLS path modelling, a confirmatory factor analysis is conducted to test the model and assess the reliability and validity as instructed by Wetzels et al (). The results indicate that the items measured in this research possess statistically significant at the 1% level ( p < .01; see Table ), and each item loading is higher than 0.70, which is also satisfactory (Mendy & Rahman, ). Values of Cronbach's alpha for all latent constructs were above 0.7, demonstrating unidimensionality and high internal consistency of the measurement scale (Rahman & Mendy, ).…”

“…Postulating the “institutional theory,” North () defines institutional framework as the combination of the fundamental economic, political, social, and legal ground rules that establish the basis for production and distribution. Institutional barriers are also defined as humanly devised constraints with significant variations across countries (Mendy & Rahman, ). Peng, Wang, and Jiang () suggest that strategic choices, such as export decision, is not just driven by industry conditions and firm capabilities but also by formal and informal institutional constraints faced by the managers and owners of firms.…”

“…Also, profitability, viability, and even survival and growth of SMEs largely depends on the existing institutional matrix because the quality of the institution can reduce transaction costs and make the economic activities more predictable. Consequent upon North (), theoretical assumptions and empirical findings (such as, Mendy & Rahman, ) stated that the nature of institutions in a given society or country could either be a curse or blessings. Similar findings were noted in Rahman and Mendy () as they referred that the diverse forms or manifestation of institutions could serve as barriers and/or provide incentives for SMEs to grow or cease to exist.…”

“…Cardoza, Fornes, Li, Xu, and Xu (2015) noted that adverse economic climate pose difficulties on SME internationalisation. Further, Mendy and Rahman (2019) highlight economic and financial constraints as highly relevant for the internationalisation of SMEs in developing countries. Thus, it is crucial to ease economic burden impose on business because it can significantly reduce the operational costs and create a more attractive environment for SMEs internationalisation.…”

“…In Bangladesh, 82% of enterprises are SMEs that is similar to the share of small and microenterprises in the United Kingdom and other western economies (Rahman, Uddin, & Lodorfos, ). In addition, Bangladesh has huge potential to become one of the leading exporters of garments products produced by Bangladeshi businesses including SMEs (Mendy & Rahman, ). It is further stressed that Bangladesh has the potential to become the world's leading emerging market through SMEs foreign market expansion although the issue of barriers to internationalisation was not discussed (Rahman, Billah, & Hack‐Polay, ).…”