1. Introduction Small and medium-sized enterprises (SMEs) have had a continuous increase in their respective countries economic performance (Bacon & Hoque, 2005). In UK, SMEs account for approximately 5 million businesses, employing over 15,000 people (Wapshott & Mallett, 2015: 4-5). Looking at the numbers presented, the conclusion would be that SMEs play a big part in the overall employment and therefore the adoption of HRM in SMEs needs to be carefully considered and kept in mind (Wapshott & Mallett, 2016). Baron (2003) stated that compared with the knowledge gained from MNCs, the human resource management of an SME would differ to a large proportion since most HRM knowledge accumulation focuses on larger organisations (Wapshott & Mallett, 2016). The difference between MNCs and SMEs differs on a number of different levels, including broader practices in MNCs (Cully, Woodland, O’Reilly & Dix, 1999), more sophisticated recruitment in MNCs (Aldrich & Langton, 1997), less training provided in SMEs (Koch & McGrath, 1996), employees relationships and other practices in general (Bacon & Hoque, 2005; Wapshott & Mallett, 2016). As Syed & Kramar (2017) stated, Globalisation has had many implications for international companies in all departments, including HRM.
There is a debate among scholars on which strategy is best when looking at international business, on whether or not localisation or standardisation is better for different contexts and the implications for HRM are considered in this debate as well. There are, however a range of factors that affect much of the HRM practices, including the business models of different nations, strategic capabilities of the companies and cultural and institutional contexts (Sparrow, Brewster & Cho?ng, 2016: 21). These factors are evident for international professionals and relate to the way of doing things, namely business from different contexts, cultures and institutions, pertaining to different geographical places around the globe. Two main differences in doing business comparing different places around the globe are embedded in the culture differences and the ”systems and structures for the management of people” (which can translate in institutions). These two important factors affect IHRM theories and practices all around due to their inclusive nature in explaining the differences between different places – in which institutional factors are the tangible factors, the ones that can be seen and the cultural factors are the intangible, subtle factors, which need careful consideration in order to succeed in International Human Resource Management (Hollinshead, 2010: 23-24).
2. Cultural and Institutional Factors – Theoretical Review Institutions can be defined in many ways, from Hollinshead (2010: 24) use of the word to define the institution as either ‘an official organisation with an important role in a country’ or ‘an organisation founded for a religious, educational or social purpose’; to authors such as Syed & Kramar (2017: xxvii) who define institutions as collectives of practices, approaches, training systems, legal and political frameworks, the social and economic environment or traditions. All these institutional factors have the potential to influence the HRM across borders and the knowledge of these factors could be a crucial step in successful implementation of International HRM. 2.1 Institutional Factors 2.1.1 The three mechanisms of Institutional Influence The institutions of a society have a great deal of influence on the way of doing business and therefore on its companies operating within and HRM in companies is also influenced by institutions in terms of three mechanisms: Coercive, Mimetic and Normative (Syed & Kramar, 2017: 11). The three mechanisms are also part of the wider debate of localisation vs standardisation, except that in this case, HRM practices in international companies are defined by which pressure is stronger, the one for internal consistency among HRM practices for internal consistency or local isomorphism (Rosenzweig & Nohria, 1994).
The coercive mechanism is where the institutional influence has a great deal of power on forcing the rules, norms and expectations on companies (including on HRM on international companies) (Syed & Kramar, 2017: 11). More specifically the coercive mechanism or isomorphism (as it is defined by some authors) happens where the institutional element has the power through politics, legality or regulations and ‘imposes specific patterns to a company’ (Rovai, 2008). The mimetic mechanism is the strategy of battling uncertainty in a host market by effectively mimicking another company’s structure or practices because the latter company is viewed as more successful (Syed & Kramar, 2017: 11). More specifically when the institutional factors are undefined, companies tend to adopt the patterns that successful firms show in the local context (Rovai, 2008: 183). The normative mechanism is when a company tends to adopt the standards or practices defined as successful by a profession or industry (Syed & Kramar, 2017: 11). More specifically when companies are implementing company-wide patterns which are appropriate in terms with the respective profession or industry (Rovai, 2008: 183) which in IHRM could mean, for example, patterns stated by CIPD (CIPD, 2017).