An empirical study of human resources management practices in domestic and multinational enterprises in the kingdom of Saudi Arabia

Abstract

This study was undertaken with the objective to understand Strategic Human Resource Management (SHRM) practices in domestic enterprises (DEs) vs multinational enterprises (MNEs) in the country context of the Kingdom of Saudi Arabia (KSA). The literature suggested that there would be a number of important differences in core HR practices, such as recruitment, retaining, retention and compensation when it comes to executing these within the domestic and multinational work environment of business enterprise. Sixteen (16) testable hypotheses were drafted after scanning the literature on the subject; these were then put to test with the help of primary data collected from 255 firms, two-thirds of which were DEs whilst the remaining one-third were MNEs. Data that were analysed with the help of parametric and non-parametric tests revealed several interesting facts. The study found that differences do exist in the recruitment, training and compensation practices between the two modes of enterprise. Results in particular showed that MNEs were much more stringent in their recruitment practices than DEs; DEs were found to be more concerned with the formal qualifications of candidates than MNEs. The turnover rates of employees in DEs hired on the basis of personal characteristics were greatest, whereas it was lower in the context of MNEs. Interestingly, larger sized DEs did not worry about the personal characteristics of candidates during the selection process. Firms in oil and petrochemical MNEs were more likely to recruit employees with higher personality. On the whole, the results confirm that MNEs in Saudi faced lower employee turnover rates than DEs operating in the same context. Additionally, the results confirmed that MNEs followed better HR practices than DEs, spanning recruitment and selection policies, better training systems, better performance appraisal systems, and more structured incentives and rewards system. This is one of a few studies conducted in the context of a non-Western environment and points out a number of policy implications and future avenues of research. With respect to normative theory, the point is argued that those organisations with a set of best HRM practices would achieve greater performance outcomes, regardless of the organisational behaviour of the firms or the environment of the host country. However, the findings confirmed that part of the HRM practices were affected by the behaviour of firms during the process of the organisation moving to the global market. Furthermore, convergence theories argue that HRM practices will be the same, behaviourally, throughout the process of transferring from home country to host country. The results of the current research indicate that some HRM practices will be different during the process of transferring from the original country to the host country due to various factors, such as strength of cultural behaviour in Saudi Arabia, and competitors in the host country. For instance, the Saudi Labour Office Law requires that MNEs hire local employees, meaning that the recruitment process will be simple and not difficult in some regards, with employees able to meet the requirements of government regulations. The government of Saudi Arabia has forced MNEs to follow up the ‘Nitaq’ and ‘Saudisation’ system, which has argued that MNEs must recruit local employees. The findings also support convergence theories that state HRM practices as being the same during the process of transferring to Saudi Arabia. This convergence is required to fit the local context for the importance of local firms. Local firms can learn of the benefits to be garnered from the HRM practices of MNEs. As an example, the findings show that MNEs have a low turnover and high productivity of employees due to MNEs utilising appraisal, training and incentives. MNEs’ HRM practices in Saudi Arabia adopt duality theories that argue some practices as convergence whereas others HRM are divergence.