Factors affecting organizational commitment and retention of key employees in small and medium sized firms in ho chi minh city

UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business PHAM THUY THUY DUNG FACTORS AFFECTING ORGANIZATIONAL COMMITMENT AND RETENTION OF KEY EMPLOYEES IN SMALL AND MEDIUM SIZED FIRMS IN HO CHI MINH CITY MASTER OF BUSINESS (Honours) Ho Chi Minh City - 2014 UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business PHAM THUY THUY DUNG FACTORS AFFECTING ORGANIZATIONAL COMMITMENT AND RETENTION OF KEY EMPLOYEES IN SMALL AND MEDIUM SIZED FIRMS IN HO CHI MINH CITY ID: 21110009 MASTER OF BUSINESS (Honours) SUPERVISOR: DR DINH THAI HOANG Ho Chi Minh City – 2014 TABLE OF CONTENT ABSTRACT……………………………………………………………………………….….1 CHAPTER 1: INTRODUCTION 1.1 Research background and problem statement 1.2 Research objectives 1.3 Research scope 1.4 Significance of the study 1.5 Research structure 1.6 Summary CHAPTER 2: LITERATURE REVIEW 2.1Introduction 2.2Definition 2.3Previous Studies 2.4Research Model 15 2.5 Summary 16 CHAPTER 3: RESEARCH METHODOLOGY 3.1 Sample 17 3.2 Data Collection and Procedure 18 3.3 Question Design 31 3.4 Data analysis method 24 3.5 Summary 24 CHAPTER 4: DATA ANALYSIS 4.1 Respondent’s Demographics 26 4.2 Reliability Analysis 27 4.3 Exploratory Factor Analysis 29 4.4.5 Regression Analysis 32 CHAPTER 5: CONCLUSION, IMPLICATIONS AND LIMITATIONS 5.1 Conclusion 41 5.2 Managerial implications 41 5.2 Limitation and future research 43 REFERENCES 45 APPENDICES………………………………………………………… ……… 50 LIST OF FIGURES Figure 2.1: Research Model………………………………………………….…… ….16 Figure 3.1: Research Process……………………………………… ………………… 19 LIST OF TABLES Table 3.1 Source of data collection………………………………………….……….….20 Table 4.1: Demography Sampling……………………………………………………….27 Table 4.2 Reliability Test Results………………………………………………… ……28 Table 4.3 KMO and Bartlett’s Test of Independent Variables………………………… 30 Table 4.4 Rotated Component Matrix of Independent Variables……………………….31 Table 4.5 KMO and Bartlett’s Test of Dependent Variables………………… ……… 31 Table 4.6 Rotated Component Matrix of Dependent Variables………… …………… 32 Table 4.7 Correlation matrix………………………… …………………………………34 Table 4.8 Model Summary of multiple regression analysis……………… ……………35 Table 4.9 ANOVA of multiple regression………………………………………………35 Table 4.10 Coefficients of multiple regression analysis……………………………….36 Table 4.11 Model Summary of Simple Regression Analysis…………………… ….…38 Table 4.12 ANOVA of Simple Regression Analysis……………………………………38 Table 4.13 Coefficients of Simple Regression Analysis……………… ………………39 Table 4.14 Summary of testing hypotheses result……………………………………….40 ACKNOWLEDGEMENTS First at all, I would like to express my sincere gratitude to my supervisor, Dr Dinh Thai Hoang for his continuous support in the throughout process of my thesis I would like to take this opportunity to thank leaders, professors and staffs at ISB who have helped me during my two year master course My sincere thanks also go to the friends and colleagues at Bach Viet JSC, that participated in the initial trial survey stages that led to the development of the final survey questionnaire and their support over the time when I was busy to study Last but not least, I would like to grant special thanks to my family members who have loved and supported me all over the time Ho Chi Minh City, July 4, 2014 Pham Thuy Thuy Dung ABSTRACT Retaining of key employees is one of the most important current matters of human resource management Employee’s turnover is a major threat to sustainability and development of organizations The problem is being faced by different organizations around the countries Intent to stay of key employee is one of the main factors that could help reinforce the labor force and achieve the targeted goal This study examines the retention of key employees; its benefits and factors that may help to retain the best employees of the organization Questions with five-point Likert scale are used to the research for investigating the needs of core employees Base on the previous research, the most affective factors among of factors: training and career opportunities; job characteristics, and work/life policies will be considered The research findings prove significant relationship of training and career opportunities; job characteristics, and work/life policies that affect the staying decision of core employees This study will help SMEs in HCMC to find out various human resource policies and to revise their current policies for further improvements CHAPTER 1: INTRODUCTION 1.1 Research Background and Problem Statement Small and medium sized companies (SMEs) are important to almost all economies in the world SMEs are main element in all economics, in Europe, there are 57 per cent of 1- person enterprises, 34 per cent of micro enterprises (less than 10 employees); 7.7 per cent of small enterprises; 1per cent of medium, totally of SME is 99.7 per cent but there are only 0.27 per cent of large companies and 0.03 per cent of Stock Exchange (Agnès, 2010) SMEs in China account for 99.9 percent of the total number of firms, they provide 84 percent of total employment and account for 71 percent of total sales (Qimiao, 2003) General Statistics Office (2012) reported SMEs are approximately 97 per cent of 448.393 companies in Vietnam and they represent the main drivers in obtaining employment and VCCI (2012) reported SMEs contribute 60 percent GDP in Vietnam with the capital of million billion VND Although there is many important SME's distribution, they still face to many problems in HR, the demand of the human resource is increasing and the lack of the right person, especially in the management personnel, prevents the SMEs from development One of the specifications of HR in SMEs is not clearly function between administration and human resource such as administration usually is responsibility for recruitment function in SMEs, but that are different functions of HR in the organization (Torben., 2003) SMEs are very hard to compare with other organization type to attract qualified employees because there are not clear policies to keep them Recruitment firm Jobs Factory, which polled over 4,500 students, revealed that in this year’s survey, the top five employers of choice in the private sector are Apple, Singapore Airlines, Google, 3M and DBS Bank – all large companies with operations across the world It is not difficult to see why job seekers flock to Multinational Companies (MNCs) Besides the easily recognizable brand names, they are also seen as organizations that are more transparent, offer higher remuneration, superior benefits and strong organizational structure – all of which point to better career prospects Recent surveys have highlighted that work-life balance is important to the younger generation, and bigger firms are perceived to be more flexible – or at least, more open to suggestion – in these areas Conversely, SMEs are often seen to be nontransparent, authoritarian, and less professional More often than not, the founder/boss’ inner circle is made up of family and relatives, with competence a secondary consideration (Developing an Argument, 2010) Employee retention is considered the greatest challenge for businesses in Vietnam and becomes a hot topic for discussions of human resource managers Vietnamese employees aggressively accelerate their career to better positions, challenging jobs and better pay In a survey of Navigos Group, the leading and largest executive recruitment solution provider reported in Vietnam Plus (2010) “63,8 percent of respondents from 168 companies operating in Vietnam including foreign-invested ones ranked the employee retention as the number one human resource challenge in 2010” And it also confirmed “getting the right people into the right job with the right skills and to have them stay and grow are missions which will keep human resource personnel busy in 2010 As long as this is the fact, employee retention is hard work.” According to Towers Watson (2011) in a briefing of engagement indicator survey, Vietnam labor market has experienced a talent war in which Vietnamese employers are trying to engage their talent through some employee engagement programs In the Towers Watson’s data, it also showed that “employee engagement levels in Vietnam have remained steady over the last five years (currently 78% favorable) and higher than employee engagement levels in the overall Asia Pacific Region (currently 74% favorable) However, employee intent to continue working for their current companies is lower in Vietnam (54%) compared to Asia Pacific (61%) In other words, the war for talent is fiercer in Vietnam than elsewhere in Asia Pacific because employees are at higher risk of leaving.” It is clear that organizational commitment has become one of the big matters to human resource managers and employers in organizations in general and small and medium sized organizations in particular today in Vietnam It is also the role of HR managers and employers to understand what are the critical factors affecting employees to get their higher commitment to the company Employee working life in SMEs is short; most of employees think SMEs is temporary place, so they not have any long-term plan for the SME The other specification of employees in SMEs is that they are dependent on working, always waiting direction from leader Based on that, the employers at small and medium sized companies in Vietnam should come up with strategic action plans to engage their employees into the sustainability of the organization These requirements from the reality are important to the employers to find out what factors are affecting organizational commitment and intent to stay of key employees in small and medium sized firms in Ho Chi Minh City 1.2 Research objectives In the thesis, we will review related theories and previous researches on factors that have impact on the organizational commitment of employees in SMEs Besides, this study will find out what factors are affecting the retention of key employees and measure how deep the influencing factors effect organizational commitment and retention of key employees in SMEs 1.3 Research Scope The research was conducted in Ho Chi Minh City, a commercial and financial trading center of Vietnam Ho Chi Minh City has been chosen for this research due to its centricity for Economic and Industrial activities and being a silicon valley for many other activities (such as culture, education, sport) in which also gathers the largest number of small and medium enterprises in the country This study focuses on small and medium sized enterprises in the area of Ho Chi Minh City 1.4 Significance of the study HCMC is the biggest trading, financial and service center of Vietnam There are over 170.000 SMEs, among of 38 per cent of SMEs in Vietnam (HCMC Department of Planning and Investment, 2012) SMEs in HCMC are very flexible so they not only Respondent's information Mai Thi Phuong Nhan - 25 years old, Accountant Nguyen Ngoc Thanh - 29 years old, Sales Manager Truong Quynh Chi - 32 years old, Deputy Director Nguyen Thanh Son - 35 years old, Sales Engineer Le Thi Hong Thuy 28 years old, HR Manager Original measurement scales Comments Final measurement scales I feel a strong sense of belonging to this organization The respondent suggested to change "feel a strong sense of" by "do feel" I feel belonging to this organization I could just as well working for a different organization if the type of work was similar The respondent suggested to change this scale into clearer sentence I could the same type of this job at different organization I find it difficult to agree with this organization's policies Scale was agreed I find it difficult to agree with this organization's policies This organization really inspires the very best in me in the way of job performance The respondent suggested to change this scale into clearer sentence This organization always inspires me to perform my job in the best way My values and this organization’s values are very similar Scale was agreed My values and this organization’s values are very similar There is little to be gained by sticking with this organization indefinitely The respondent suggested to change this scale into clearer sentence I not feel that I can gain much by sticking with this organization I am willing to put in a great deal more effort than normally expected to help this organization be successful The respondent suggested to change this scale into clearer sentence I am willing to put more effect than normal to help this organization be successful 52 Respondent's information Original measurement scales I am proud to tell others that I am part of this organization I really care about the future of this organization Comments Final measurement scales Scale was agreed I am proud to tell others that I am part of this organization Scale was agreed I really care about the future of this organization Intent to stay Mai Thi Phuong Nhan - 25 years old, Accountant Nguyen Ngoc Thanh - 29 years old, Sales Manager Truong Quynh Chi - 32 years old, Deputy Director Nguyen Thanh Son - 35 years old, Sales Engineer Le Thi Hong Thuy 28 years old, HR Manager I plan to work at my present job for as long as possible All the respondents understood this scale I plan to work at my present job for as long as possible I will most certainly look for a new job in the near future The respondent suggested to change " I will most certainly" by "I am going" I am going to look for a new job in the near future I plan to stay in this job for at least two to three years All the I plan to stay in this respondentsunderstood job for at least two to this scale three years I would hate to quit this job The respondent suggested to change "would hate to quit" by "don't want to quit" I don't want to quit this job 53 Appendix B: Questionnaire in English Dear Respondent, I am Pham Thuy Thuy Dung, currently a student of the program "Master of Business Administration" of International School of Business - University of Economics Ho ChiMinh City I am working on my thesis to analyze Factors affecting organizational commitment and retention of key employees in small and medium sized firms in Ho Chi Minh City You are kindly requested to respond to the statements in the following questionnaire The statements are related to organizational commitment and retention of key employees Your responses are of great importance to my research I therefore value your cooperation very highly On the following pages you will find several kinds of questions However, it should not take you more than 10 minutes to complete the entire questionnaire Then please ensure that you respond to every question There is no right or wrong answer to any question I am only interested in your personal opinions Your answers will be treated in strict confidence and will only be used for research purposes Please turn to the next page to start with the questionnaire Thank you for your support A- General information: Question Are you company's owner? Yes How long have you worked for the Less than months More than company? □ □ No □ months □ Do you work full time? Yes □ No □ Support the organizational culture and Yes □ No □ vision B- Interviewee information: 54 Gender Male □ Female □ Marital status Single □ Married □ Age