A More Complete Conceptual Framework for SME Finance - Essay Example

Are The Different Theoretical Models That Attempt To Provide A General Theory Of Employee Relations In Small And Medium Sized Firms (SMEs) Reliable, Or Is The Sector To Divergent? Critically Discuss. Small and Medium Enterprises contribute to the nation’s economy by providing employment opportunity to plenty of people. Forth, Bewly and Bryson (2006) consider SMEs as vital part of the healthy economy because of the role it plays in creation of jobs and fostering of innovation in accordance with the changing market condition. This was also the view of Towers (1987) as according to him small firms enjoy the approval of governments and economist as they are viewed as important sources of innovation, economic renewal and economic growth (Towers, 1987). SMEs provide new flexible forms of employment which is not an inferior form of work organization but necessitated by supply and demand forming an additional basis for new segmentation in work and employment relations in the labour market (Thurman 1993). Official statistics on the incidenceof SMEs provide valuable information stating that these SMEs employed a total of 8.66 million employees i.e. 36 percent of all UK employees and accounted for 47 percent of private sector employers’ turnover. This makes it apparent why employee relations are important in small and medium sized firms apart from innovation and economic growth (Forth, Bewly and Bryson 2006). The above statistical records for SMEs make it vital for the involvement of employee relationship in these firms and whether industrial relations theory or model are reliable in the context of their operations and management. Employee Relations in SMEs According to Bolton Report ‘Committee of Inquiry on Small Firms” (cited in Forth, Bewly and Bryson, 2006), it was concluded that “although physical working conditions were generally inferior to those found in larger firms, industrial relations in smaller firms were distinctive in conflict prone economy as being predominantly harmonious. Arrowsmith et al (2003) further elaborate the report of Bolton Committee characterizing about the size of SMEs and observe that there is a close proximity between manager and workers in SME which promotes mutual and informal ‘give and take’ that undermines collective organization and conflict. While industrial relations or employee relations is necessary to so as to maintain a balance at bargaining for the purpose of which unions are formed, putting forth their demand in front of the employer in case of large firms (Farnham, 2000). The three main competing sets of theories are classified and explained by Farnham and Pimlott (cited in Farnham 2000) which depict the nature of industrial conflict between employers and employees and between management and unions. These three theories are structural or Marxist theory, unitary or human relations theory and functionalist theory. . Marxist theory is also known as Radical perspective as it looks at the nature of the capitalist society where conflict between employee and employer exists and views workplace against this history (Wiljoy, 2009) This is a theory of social change and is a method of analysing power relationships in society (Farnham, 2000). According to Marxist perspective, institutions of joint regulations would not limit the management position which seems to enhance as they presume the continuation of capitalism rather than challenging it (Hirszowicz, 1965). Regarding SME’s most of the conflicts were due to the improper balance of expectation as most of the issues were related to the increasing worker poverty (Rummel, n.d). The theories provided in Marxist approach prevail in most of the countries that are using its concepts but with a difference in approach amended by certain government regulations making the approach inappropriate in practice. Depending upon the SMEs in different industries the application for the employment relationship was different. Since the SMEs are divergent and depends upon the country law it becomes more complicated to generalise the view (Hirszowicz, 1965). Unitary perspective or approach is ‘assumption of common purpose and shared goals with no fundamental conflict of interest between labour and capital’. The conflict at work in unitary theory is dysfunctional as trade unions cause industrial conflicts and that industrial conflict in any form is a corroding and disruptive social influence in the workplace and the wider society. This is usually found in Small and Medium Sized Enterprises as the employees are few in numbers, and there are no hard rules to manage these employees (Kochan 1992) and due to which trade union activities do not exist in small and medium sized firms because it is necessary to maintain that maximum number of employees to form a union under trade unions act (Carley et al , 2009). In pluralism, conflict is inevitable as there are competing interests between the parties and power is diffused among the main bargaining groups within the employment relationship while trade unions are viewed as providing a mechanism that legitimates employees’ rights to bargain within the workplace (Farnham, 2000). The firms which operate under pluralist perspective are faced with issues related to power, authority and the wage rate policy. In large firms, where management deals with trade unions, the policies and decisions in SMEs are concentrated by an individual or a group of individual. The theory that has been provided in this approach has changed a lot due to the changing policy of the UK and the US government related to the employment. The theories have given a general overview and SMEs being divergent, it is not possible to accumulate all and develop a general theory upon the relationship (Bachmann, 1999). It is important to note that maintaining employee relations in larger firms is important to achieve competitive status in market and to continue cordial and harmonious relationship with the employees and trade unions. Ram et al (2001) mentions that research on employment relations in small firms has developed considerably in past ten years establishing that different sorts of small firms have very different forms of employment relationship as contemplated by Goss (1991) with the character of the relationship varying markedly between industries. Ram et al (2001) deliberates about informal employment relations stating that it is dynamic rather than a fixed characteristic and is highly context specific. It is further demonstrated through Workplace Employee Relations Survey that a sharp distinction cannot be drawn between the formal and the informal aspects of employee relations due to widespread managerial reliance on informal understandings. According to Towers (1987) small firms place a high priority on the management of people. It is further observed by Ritchie (1993) that small firms hardly contemplate formalizing their working practice and even less consideration in given to integrating human resource strategies with operational plans. It is further stated the new management techniques is implemented in most of the SMEs and initiatives such as team working, quality programmes and cultural change are present in SMEs (Towers, 1987). Different perspectives of employee relations reveal the existence or practice of such theories in SMEs between employee and managers. However, according to Berger (2004) these theories are not reliable as they differ in perspectives and operations and employee relations in all the SMEs. It is further mentioned that employees are appointed mostly on ad hoc basis to meet the work pressure for the time being. It was due to the changes in regulation policy and legal administration that has forced the SME firms to adopt employee relationship strategy (Berer, 2004) According to Ritcher (2001) belief and loyalty are two important factors for negotiation between employee and employers and collective bargaining is possible if the bargain is carried out in good belief, faith and loyalty. The theory of the relationship in the SMEs that are contributed towards the collective bargaining proves that this concept is applicable in all the SMEs but it is a general statement. Every country has its own rules and regulations regarding the labour policy and the trade union activities that lead to the changes in the relationship of employment in different SMEs (Silva, 1996). The theories which are represented by theorist upon the relationship of the employee in SME have provided the relationship that exists in the traditional. Many factors have evolved that have developed a new level of relationship in SMEs between the employees and the employers (ForFas, 2005). Profit, job assessment, manpower shortage, seniority, the negotiating power and ability of the employee or trade unions and reduction in costs are the factors that have prejudiced pay enhancement through collective bargaining (ForFas, 2005). The different theoretical models that attempt to provide general theories of employee relations in small and medium sized firms (SMEs) are not fully reliable as the SMEs sector is divergent in nature (ForFas, 2005). Conclusion It is evident that theories pertaining to employee relations are important in terms of maintaining cordial and harmonious relationship between the employee and employers. It is noted by Ritchie (cited in Wilkinson, 1999) that few small businesses tend to place a high priority on the management of human resources as smaller firms hardly contemplate formalizing their working strategies, still less integrating human resource development plans into them. It is further found in a study in USA that lack of emphasis on human resources in SMEs was one of the main reasons for its failures which reveal that SMEs do not have formalized business strategies and informality does not imply a particular view of the substance of work relation, which can be autocratic as well as harmonious. . The theories, so far mentioned above, are of general nature and for divergent SMEs, they are not reliable due to the number of employees, period of employment, and other factors which are important for employee relations. Although the SMEs are divergent in nature, the problems that are linked with the employee relationship are of the same nature. There have been changes in the issues and it gained a broader and diversified perspective making the relationship differential. Therefore, the theoretical models provided for SMEs with respect to employee relation are not completely reliable as SMEs are now more divergent. References 1. Arrowsmith J et al 2003. Impact of the National Minimum Wages in Small Firms, British Journal of Industrial Relations, 41 (3) pp.435-456 2. Bachmann, R., 1999. Trust Power and Control in Trans-Organizational Relationship. University of Cambridge. [Online] Available at: http://www.cbr.cam.ac.uk/pdf/wp129.pdf [Accessed December 04, 2010]. 3. Berger, A.N., 2004. A More Complete Conceptual Framework for SME Finance. Small and Medium Enterprises: Overcoming Growth Constraints. [Online] Available at: http://siteresources.worldbank.org/INTFR/Resources/475459-1107891190953/661910-1108584820141/Financing_Framework_berger_udell.pdf [Accessed December 04, 2010]. 4. Farnham, D 2000. 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Wilkinson, A. 1999 Employment Relations in SMEs, Journal of Employee Relations, 21 (3) pp.206-217 Read More