This paper uses new panel data collected from 42 garment factories in India to examine the impact of work organization and human resource management practices on factory performance.
Do advanced HRM systems deliver higher production efficiencies than traditional approaches in an environment where the return on investment in human capital is widely perceived as negligible? How do these firms learn about innovative practice in HRM? Is monitoring by a foreign multinational always required to ensure the adoption of best practice in Indian factories?
Field research conducted across the factories, and four in-depth matched-pair case studies, reveal that the presence of more advanced HRM systems does raise factory performance, but that the relationship is more nuanced than many other intra-industry studies predict. High levels of worker participation and employee voice, widely diffused training, superior data collection, transparency and management systems are found to be the key differentiators in performance. Despite this positive relationship between innovative HRM and performance, the degree of the performance effect is dependent on the location of the factory, in terms of local labor market conditions, as well as management skill and experience.
Although the source of learning about best practice invariably originates with the foreign brands it is found that pressure from these buyers is not required for the presence of advanced HRM and work organization. Knowledge on innovations is being transferred within firms from their exporting divisions to their units manufacturing for the domestic Indian market. Garment manufacturers for the domestic market are incorporating best practice on HRM and work organization because it makes sense to them from a business point of view either for enhancing brand value and reputation or product quality and production efficiency.