Employee retention in manufacturing SMEs in Indonesia: The applicability of job embeddedness theory

Despite the numerical dominance and economic importance of small and medium-sized enterprises (SMEs) in Indonesia and the vital contributions of key employees to the economic viability and competitive advantage of SMEs, limited research has examined how SME owner-managers can retain key employees. This study used job embeddedness (JE) theory to address this neglected area. JE refers to the totality of organisational and community forces that embed employees in their jobs and has proven to be a robust predictor of turnover. However, there is a need to examine the applicability of JE theory in diverse cultural contexts, such as in Indonesia, which is a multiethnic, multicultural society and a collectivistic country. Further, JE has mostly been studied in large organisations and its theory and scale may need to be reconceptualised to consider the distinctive characteristics of SMEs. This study addressed the question: Should JE theory be reconceptualised when applied to employee retention in manufacturing SMEs in Central Java, Indonesia, and, if so, how? The study had four aligned aims: 1) to explore employees’ perceptions of their work experiences and their intentions to stay with or leave their organisations; 2) to uncover the factors that embed SME employees in their work organisations and communities in a collectivistic culture; 3) to explore owner-managers’ perceptions of the reasons employees leave and the consequences of employee turnover on SMEs; and 4) to explore the nature of the human resources (HR) practices that are employed in SMEs and determine whether these practices contribute to embedding employees in manufacturing SMEs in Indonesia. The study employed a qualitative research design with a descriptive phenomenological approach. Data were collected via semi-structured face-to-face interviews in 13 SMEs in Central Java, Indonesia. Thirteen owner-managers and 42 employees participated in this study. Analysis of the interviews was guided by Moustakas’ (1994) phenomenological data analysis steps. NVivo10® and Microsoft Excel software were used to develop a consistent method for data management and make the coding and data analysis processes easier to manage. The study had four main findings that correspond with the research aims. First, factors that satisfy basic needs, such as existence and relatedness, were highly salient for employees when considering their intention to stay with an SME. Second, distinctive characteristics of SMEs and cultural factors influenced employees’ perceptions of their levels of embeddedness in their workplaces and residential communities. Third, owner-managers believed that poaching by competitors, employees’ personal considerations and their businesses’ lack of financial resources were common reasons for turnover. They considered that turnover reduced business productivity, caused work disruptions, and incurred replacement and opportunity costs. Finally, though a narrow range of informal, non-documented human resource management (HRM) practices were employed, some of these practices affected employees’ JE and decision to stay. The study findings suggest that the original JE framework only partially explains why employees stay with their employers. This thesis outlines the theoretical implications of the findings and makes several suggestions for amendments and additions to established JE measures. Practical suggestions are provided for owner-managers who wish to retain key employees, and avenues for future research derived from the study’s limitations, findings and focus are proposed. Overall, this study contributes to an understanding of factors that embed employees in the cultural context of Indonesia, and enhances our understanding of how JE theory operates in SMEs