Managing the PsychologicalContract

ABM Abdullah

Managing thePsychologicalContract

Employee Relations in South Asia

ABM AbdullahUniversity of South AustraliaAdelaide, South Australia, Australia

ISBN 978-3-319-53537-1 ISBN 978-3-319-53538-8 (eBook)DOI 10.1007/978-3-319-53538-8

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To my beloved parents, with profound thanks and love for theircountless sacrifices and unwavering support throughout my life.

PREFACE

Globalization has opened the door of opportunity to an increasing num-ber of corporations, enabling them to cross national boundaries andventure into new markets geographically. But no matter how easy is theentry into a new market, making the new venture successful is extremelydifficult. One of the major challenges faced by the corporate managers isthat of managing their Human Resources effectively in different socio-economic and cultural contexts. The latter play a significant role in theemployment relationship, for many aspects of employment contracts thataffect the cultural orientations of the employees are not written. Anunwritten or informal contract is based on an employee’s perceptionsand interpretations of the communication and promises from theiremployers, which is defined as psychological contract by organizationalresearchers.In influencing the interpretation of implicit and explicit promises made

by employers to their employees, culture plays an important role in thedevelopment process of the employee psychological contract. While thedirect and indirect outcomes of psychological contract breach have beenextensively studied, few studies have been made on the impact of psycho-logical contract fulfillment on employee outcomes. The research presentedin this book has investigated the impact of psychological contract fulfill-ment, or, more specifically, the mediating role of psychological contractfulfillment between the relationship of salient HR practices and employ-ees’ cognitive and behavioral outcomes. In addition, this research has beenconducted in the non-Western context of South Asia, an emerging eco-nomic region; and this is in line with organizational researchers’ increasing

vii

interest in the non-Western context for providing a more comprehensiveunderstanding of the implications of psychological contract breach orfulfillment.For this study, social exchange theory was used as a theoretical back-

ground to understand the mediating role of fulfillment of psychologicalcontract on employee outcomes. A multi-method approach was appliedintegrating both qualitative and quantitative methodologies. Themain objective of the qualitative approach was to explore the role ofcultural context in shaping employee psychological contract and resul-tant employee outcomes in the non-Western South Asian context.Management level employees from a number of South Asian privatecompanies participated in one-on-one in-depth interviews. A semi-structured interview protocol was used to conduct the interviews.Questions were asked to identify culturally relevant elements of HRpractices that have significant influence on employee psychologicalcontract and to reveal how employees perceive, feel and react to theirpsychological contract fulfillment. The study identified several cultu-rally congruent elements of HR practices with significant influence onemployee psychological contract. In addition, the study also assessedthe perception of psychological contract on employees’ job satisfaction,commitment and motivation.The main objective of the quantitative approach was to examine the

mediating role of psychological contract fulfillment between the relation-ship of salient HR practices and employees’ behavioral and cognitive out-comes. The data for the study were obtained from management-levelemployees of the participating companies operating in South Asia. Aquestionnaire survey was used to collect data from the participants. Aspredicated, results found significant positive relationships between salientHR practices of compensation policy, job security, selection and recruit-ment, and decentralization and teamwork; and employee cognitive andbehavioral outcomes of job satisfaction, commitment, motivation andorganizational citizenship behavior when mediated by fulfillment of psy-chological contract. The results also revealed the existence of a significantrelationship between employees’ cognitive and behavioral outcomes andtheir individual performance. These findings were congruent with thefindings of the qualitative analysis.This research makes two major contributions to the psychological con-

tract literature. Firstly, the research identified and investigated the cultu-rally relevant elements of HR practices that significantly affect the

viii PREFACE

employee psychological contract in the South Asian context. Secondly, theresearch empirically tested and investigated the mediating role of psycho-logical contract fulfillment between the relationship of salient HR prac-tices and employee outcomes. This is among the first studies to investigateemployees’ perceptions, feelings and resultant outcomes of perceivedpsychological contract fulfillment among employees of South Asian orga-nizations, therefore, extending the psychological contract literature byapplying the concept and construct of psychological contract fulfillmentin a non-Western context.

ABM AbdullahSchool of ManagementUniSA Business SchoolUniversity of South AustraliaAdelaide, Australia

PREFACE ix

CONTENTS

1 Introduction 11.1 Background 11.2 Motivation of the Study 31.3 Purpose of the Study 51.4 South Asia: An Emerging Economic Region 51.5 State of HR Issues-Related Research in South Asia 81.6 Benefits of Studying HR Practices in South Asia 91.7 Psychological Contract Research in a Non-Western

Cultural Context 101.8 Research Questions and Objectives of the Study 121.9 Significance of the Research 131.10 Research Design and Methodology 141.11 Organization of the Book 151.12 Summary 17References 17

2 Cultural Context 232.1 Introduction 232.2 Brief Introduction to South Asia 242.3 The Concept of Culture 242.4 South Asian Culture 262.5 South Asian Culture in the Light of Hofstede’s Study 27

2.5.1 Power Distance 272.5.2 Individualism 28

xi

2.5.3 Masculinity 282.5.4 Uncertainty Avoidance 312.5.5 Long-Term Orientation 31

2.6 Impact of Religion on South Asian Culture 312.7 Impact of Cultural Factors on HR Practices 342.8 Cultural Context and Psychological Contract 352.9 Summary 37References 37

3 The Mediating Role of Psychological Contract 433.1 Introduction 433.2 Salient HR Practices 44

3.2.1 Compensation Policy 453.2.2 Job Security 463.2.3 Training and Development 473.2.4 Selection and Recruitment 483.2.5 Decentralization and Teamwork 493.2.6 Information Sharing 50

3.3 Employee Psychological Contract 523.4 HR Practices and Psychological Contracts 533.5 Mediating Role of Psychological Contract 553.6 Employee-Employer Relationship and Social

Exchange Theory 563.7 Psychological Contract Fulfillment or Breach 583.8 Impact of Psychological Contract on Employees Cognitive

and Behavioral Outcomes 603.8.1 Job Satisfaction and Psychological Contract 613.8.2 Employee Commitment and Psychological Contract 623.8.3 Employee Motivation and Psychological Contract 643.8.4 Employees’ OCB and Psychological Contract 65

3.9 Link Between Employee Outcomes and EmployeePerformance 68

3.10 Summary 70References 71

4 Research Methodology 834.1 Introduction 834.2 Research Design: A Multi-Method Approach 85

xii CONTENTS

4.3 Qualitative Method 874.3.1 Methodology 88

4.3.1.1 Participants 884.3.1.2 Interview Guide 894.3.1.3 Research Protocol and Ethical

Considerations 904.3.1.4 Data Analysis 904.3.1.5 Reliability and Validity 92

4.4 Quantitative Method 934.4.1 Survey Instrument 944.4.2 Validity and Reliability of the Questionnaire 954.4.3 Ethical Consideration 1014.4.4 Pilot Study 1014.4.5 Sampling 1024.4.6 Data Screen 1034.4.7 Data Analysis 103

4.4.7.1 EFA 1044.4.7.2 CFA 1054.4.7.3 SEM 107

4.5 Summary 110References 110

5 Qualitative Approach 1155.1 Introduction 1155.2 Demographic and Sample Profile 1155.3 Elements of HR Practices Relevant to the Cultural Context 117

5.3.1 Work Environment 1175.3.2 Social Recognition 1195.3.3 Financial Stability 1225.3.4 Family Considerations 1245.3.5 Career Growth 1265.3.6 Work Flexibility and Work–Life Balance 1285.3.7 Religious Considerations 1305.3.8 Equitable Treatment 132

5.4 Impact of the Psychological Contract Fulfillmenton Employee Outcomes 1345.4.1 Job Satisfaction 1345.4.2 Employee Motivation 1365.4.3 Employee Commitment 138

CONTENTS xiii

5.5 Discussion 1405.6 Summary 144References 145

6 Quantitative Approach 1496.1 Introduction 1496.2 Data Screen 149

6.2.1 Demographic and Sample Profile 1506.3 Descriptive Analysis of the Questions 1536.4 EFA 153

6.4.1 Underlying Dimensions of HR Practices 1546.4.2 Underlying Dimensions of Employees’ Cognitive

and Behavioral Outcomes 1586.5 CFA 161

6.5.1 Confirmatory FactorModel forHRPractices Constructs 1626.5.1.1 Convergent Validity 164

6.5.2 Confirmatory Factor Model for Employees’Cognitive and Behavioral Constructs 166

6.6 SEM 1706.7 Test of Hypotheses 1776.8 Discussion on Findings 1856.9 Summary 187References 188

7 General Discussion and Conclusion 1917.1 Introduction 1917.2 Background Context 1927.3 South Asia as a Context 1937.4 Discussion on Findings 1957.5 Strengths of the Research 2007.6 Limitations of the Research 2007.7 Suggestions for Future Research 2017.8 Practical Implications of the Research 2037.9 Summary 204References 206

Appendices 211

Index 229

xiv CONTENTS

LIST OF ABBREVIATIONS

ABS Australian Bureau of StatisticsAGFI Adjusted Goodness-of-Fit IndexAMD Advanced Micro DevicesAPEC Asia Pacific Economic ForumASEAN Association of Southeast Asian NationsAVE Average variance extractedBRICS Brazil, Russia, India, China and South AfricaCFA Confirmatory Factor AnalysisCFI Comparative Fit IndexCN Critical NCOMIT CommitmentCP Compensation policyCR Composite reliabilityDT Decentralization and teamworkEFA Exploratory factor analysisEU European UnionFDI Foreign Direct InvestmentFedEx Federal ExpressG-20 Group of Twenty Major EconomiesGDP Gross Domestic ProductGFI Goodness-of-Fit IndexHPWS High Performance Work SystemsHR Human ResourceHREC Human Research Ethics CommitteeHRM Human Resources ManagementHSC Higher Secondary CertificateIMF International Monetary Fund

xv

IP Individual performanceIS Information SharingJS Job securityLAFTA Latin American Free Trade AssociationMBA Master of Business AdministrationMNC Multinational corporationsMOT MotivationMSA Measures of sample adequacyNAFTA North American Free Trade AgreementNFI Normed Fit IndexNNFI Non-formed Fit IndexOCB Organizational Citizenship BehaviorPCA Principal Component AnalysisPCF Psychological Contract FulfillmentPhD Doctor of PhilosophyRMSEA Root mean square error of approximationSAARC South Asian Association for Regional CooperationSAFTA South Asian Free Trade AreaSAPTA South Asian Preferential Trade AgreementSATIS Job satisfactionSEM Structural equation modelingSR Selection and recruitmentSRMR Standardized root mean square residualTD Training and developmentTLI Tucker-Lewis IndexUAE United Arab EmiratesUK United KingdomUniSA University of South AustraliaUS United StatesWTO World Trade Organization

xvi LIST OF ABBREVIATIONS

LIST OF FIGURES

Fig. 3.1 Theoretical model 70Fig. 3.2 Hypothesized model for quantitative study 71Fig. 4.1 Steps for quantitative study 93Fig. 6.1 Confirmatory factor analysis for the HR practices constructs 163Fig. 6.2 Confirmatory factor analysis for the employees’ cognitive

and behavioral outcomes constructs 167Fig. 6.3 Initial structural model 171Fig. 6.4 Final structural model 186

xvii

LIST OF TABLES

Table 1.1 GDP growth rates for South Asian countries (IMF, 2016) 7Table 2.1 Key details of the South Asian countries

(CIA Factbook, 2016) 25Table 2.2 Predicted cultural dimensions of South people based

on Hofstede’s (1980, 1993) studies 29Table 4.1 Key details of the participating companies 89Table 4.2 Measurement items of employees’ individual performance 94Table 4.3 Measurement items of employees’ cognitive

and behavioral outcomes 96Table 4.4 Measurement items of employees’ psychological

contract fulfillment 97Table 4.5 Measurement items of six HR Practices Constructs 98Table 4.6 Reliability of measurements in the pilot study 102Table 4.7 Summary of fit statistics 107Table 4.8 Constructs in the proposed structural model 109Table 5.1 Frequency distribution of participants by gender, age,

current experience, level of education and levelof management 116

Table 5.2 Key themes for each element of HR practice 144Table 6.1 Frequency distribution of participants by gender 150Table 6.2 Frequency distribution of participants by age 151Table 6.3 Frequency distribution of participants by level of education 151Table 6.4 Frequency distribution of participants by current

experience 152Table 6.5 Frequency distribution of participants by previous

experience 152Table 6.6 Descriptive statistics 153

xix

Table 6.7 KMO and Bartlett’s test for HR practices factors 154Table 6.8 Total variance explained 155Table 6.9 Underlying dimensions of HR practices 157Table 6.10 KMO and Bartlett’s test for employees’ cognitive

and behavioral factors 158Table 6.11 Total variance explained 159Table 6.12 Underlying dimensions of employees’ cognitive

and behavioral outcomes 160Table 6.13 Overall model fit for the six HR practices constructs 161Table 6.14 CR and AVE for HR practices constructs 165Table 6.15 Factor correlation matrix for HR practices factors 166Table 6.16 Overall model fit for the four cognitive and behavioral

outcomes constructs 168Table 6.17 CR and AVE for four cognitive and behavioral outcomes

constructs 169Table 6.18 Factor correlation matrix for cognitive and behavioral

outcomes constructs 169Table 6.19 Initial model fitness 172Table 6.20 Significantly correlated parameters that needed

modification 173Table 6.21 Modified overall model fit 174Table 6.22 SMC, CR and AVE for final model 175Table 6.23 Correlation matrix for the exogenous and endogenous

constructs 178Table 6.24 Summary of the hypotheses test results 179Table 6.25 Final coefficients value 182Table 7.1 Summary of the hypotheses tests and relevant supportive

literature 198Table 7.2 Key descriptors of managerial elements supporting

positive employee outcomes 205

xx LIST OF TABLES

CHAPTER 1

Introduction

1.1 BACKGROUND

It is accepted both in domestic and international business arenas thatemployees create an important source of competitive advantage forcorporations (Pfeffer, 2005, 1998; Peteraf, 1993). Therefore, it is abso-lutely critical that corporations adopt Human Resources Management(HRM) policies and practices that utilize their employees’ potential inthe best possible way (Boxall & Purcell, 2000; Grant, 1996). Thesepolicies and practices include thorough recruitment and selection pro-cesses, effective compensation systems, extensive training and develop-ment activities, decentralization and teamwork, employment securityand fair selection policies (Pfeffer, 2005). It has been found that ifHRM is linked to the overall business of a company, it may furtherenhance the performance of the company (Arthur, 1994; Huselid,1995; Hoque, 1999). In addition, effective HRM can help generate inthe long run a sustainable competitive advantage for the organization(Pfeffer, 1998) due to the fact that unlike technology and physicalresources that can be acquired by almost any company at any time,human capital is often very difficult to imitate or duplicate (Pfeffer,1998). According to Sparrow (1994),

The world is becoming far more competitive and volatile than ever before,causing firms to seek to gain competitive advantage whenever and whereverpossible. As traditional sources and means such as capital, technology or

© The Author(s) 2017A. Abdullah, Managing the Psychological Contract,DOI 10.1007/978-3-319-53538-8_1

1

location become less significant as a basis for competitive advantage, firmsare turning to more innovative sources. One of these is the management ofhuman resources. (p. 267)

In the contemporary context, no matter how easy it is to enter a newmarket because of free trade agreements and other trade treaties, there arestill numerous complexities. Corporate managers today face an externalenvironment that is fast-changing, complex, uncertain and more vigorouslycompetitive than before (Thomas, 2002). Although many organizations arecrossing borders to materialize the benefits of the international markets,internationalization of company operations results in developing a compe-titive advantage only when companies integrate local differences in HRM,realize global economies of scale and effectively transfer knowledge andtechnology across borders (Gupta & Govindarajan, 2001). Without signifi-cant understanding of the specific organizational, socioeconomic and cul-tural factors at play, international managers will not succeed in taking fulladvantage of available resources and opportunities (Gupta & Govindarajan,2001). One of the major challenges faced by the management of multi-national corporations (MNCs) is that of managing their Human Resources(HRs) effectively in different socioeconomic and cultural contexts. Thelatter play a significant role in the employment relationship, for manyaspects of employment contracts that affect the cultural orientations of theemployees are unwritten (Rousseau & Schalk, 2000). An unwritten orinformal contract is based on an employee’s perceptions and interpretationsof the communication and promises from their employers: it is defined aspsychological contract (Rousseau, 1989).

In influencing the interpretation of implicit and explicit promisesmade by employers to their employees, culture plays an important rolein the development process of the employee psychological contract.While the direct and indirect outcomes of psychological contract breachhave been extensively studied, few studies have been made on the impactof psychological contract fulfillment on employee outcomes (Chi &Chien, 2007; Castaing, 2006). The research presented in this book hasinvestigated the impact of psychological contract fulfillment, or, morespecifically, the mediating role of psychological contract fulfillmentbetween the relationship of salient HR practices and employees’ cogni-tive and behavioral outcomes. In addition, this study has been conductedin the non-Western South Asian context, an emerging economic region;and this is in line with organizational researchers’ increasing interest in

2 A. ABDULLAH

the non-Western context for providing a more comprehensive under-standing of the implications of psychological contract breach or fulfill-ment (Conway & Briner, 2005, 2009).

1.2 MOTIVATION OF THE STUDY

Over the last few decades, significant developments in the field of telecom-munications and transportation have made the world a global village.Globalization has opened the door to an increasing number of corporationsto cross their national boundaries for expansion of their market share, reduc-tion of costs and enhancement of efficiency; serving the two ultimate goals ofthe modern corporation – minimizing costs and maximizing profits.International movements of goods and services have grown exponentiallyfrom US$7.9 trillion in 2001 (Ulrich & Brockbank, 2005) to US$28.18trillion in 2009 (Xinhuanet, 2010). Trade barriers have decreased significantlywith the emergence of free trade zones in Asia, Europe and North and SouthAmerica, which include the Asia Pacific Economic Forum, Association ofSoutheast Asian Nations (ASEAN), European Union, North American FreeTrade Agreement, The Latin American Free Trade Association and SouthAsian Association for Regional Cooperation (SAARC). At current growthrate, trade between nations will soon exceed total commerce within nations inthe near future (WTO, 2016).

Although recent trends show that many organizations are implement-ing internationalization strategies to increase market share or reduce coststhrough the localization of low-cost production units, the broader goal isto gain competitive advantage over rivals in this intensely competitivebusiness world. One of the most critical factors for gaining competitiveadvantage in today’s global business arena is management of the work-force, considered the “human capital” of an organization (Pfeffer, 2005).It is always hard for companies to acquire and manage highly qualified andmotivated employees (Sparrow, 1994); and managing HR effectively is acomplex and delicate matter (Tayeb, 1997). Complexity in HRM ismagnified when it involves managing people from different socioeco-nomic and cultural backgrounds (Rousseau & Schalk, 2000). Few orga-nizations know how to manage HR effectively in a dynamic internationalenvironment, because best practice in one context does not always trans-late to other contexts when there are differing socioeconomic conditionsand cultures (Chilton, 1993).

INTRODUCTION 3

Cultural context can play a significant role in shaping the employmentrelationship, as many aspects of this relationship are either unwritten or notformally established between employee and employer (Rousseau, 1989;Katou & Budhwar, 2012). These unwritten or informal aspects of theemployment relationship are based on the employees’ perceptions andinterpretations of the communication about promises made by theemployer (Rousseau, 1989, 1995). This portion of the employee-employerrelationship termed as “Psychological Contract” resides in the minds of theemployees (Rousseau, 1989). An employee’s psychological contract devel-ops from either explicit or implicit promises made by an employer duringthe employment relationship, as well as how those implicit promises areinterpreted in a given cultural context (Rousseau & Schalk, 2000).Individual cultural orientation influences employee perceptions and there-fore the psychological contract (Rousseau & Schalk, 2000).

The psychological contract has emerged as an important element ofthe employment relationship and plays a significant role in shapingemployees’ behavioral and cognitive outcomes and performance in theworkplace (Zhao et al., 2007; Chi & Chien, 2007). In recent years,organizational researchers have focused mainly on the issues associatedwith the unfulfilled psychological contract (Chelliah & Davis, 2007;Rousseau, 1998), for breach of the psychological contract leads to unin-tended negative consequences for the organizations (Conway & Briner,2009; Zhao et al., 2007; Kickul & Lester, 2001; Deery et al., 2006).Unfulfillment or breach of the psychological contract refers to anemployee’s cognitive perception that he or she has not received every-thing that was promised explicitly or implicitly by the organization(Morrison & Robinson, 1997; Hartmann & Rutherford, 2015). It isquite common in the workplace: empirical studies have found that overone half of employees perceived that important explicit or implicit pro-mises made by their employers were not fulfilled (Conway & Briner,2009; Robinson & Rousseau, 1994; Turnley & Feldman, 1998, 2000).Rousseau (1989) found that unfulfillment of psychological contractresulted in strong negative emotional reactions and anti-organizationalbehaviors and attitudes. The extent of psychological contract unfulfill-ment or breach is negatively related to trust in management (Robinson,1996), job satisfaction (Turnley & Feldman, 1998), organizational com-mitment (Guzzo et al., 1994) and in-role and extra-role work behaviors(Robinson & Morrison, 1995; Turnley et al., 2003); and it is positivelyrelated to turnover intentions (Turnley & Feldman, 1999).

4 A. ABDULLAH

1.3 PURPOSE OF THE STUDY

While the direct outcomes of psychological contract breach or unfulfillmenthave been studied extensively, not many studies have been conducted tostudy the impact of psychological contract fulfillment on employees’ cog-nitive, behavioral and attitudinal outcomes. The few that were done were inthe Western context and found that fulfilled psychological contracts havepositive influences on employees’ behavioral and cognitive outcomes(Coyle-Shapiro & Conway, 2005; Kickul & Lester 2001, Turnley et al.,2003; Lo & Aryee, 2003). Reviews of the psychological contract literaturereveal that some organizational researchers have been studying variousfactors that may influence and shape employees’ perceptions of the psycho-logical contract: e.g., the role of cultural context (Kickul et al., 2004) hasbeen studied in the Western context as a factor influencing the employees’perception about fulfillment or breach of psychological contracts. However,there is a clear lack of research on the consequences of psychologicalcontract breach or fulfillment on employee outcomes in the non-Westerncontext. As well, little attention has been paid to the sense-making processthrough which psychological contract breach or fulfillment affects employ-ees’ behavioral, attitudinal and/or cognitive outcomes (Lester et al., 2002;Restubog et al., 2006; Peng et al., 2016; Li et al., 2016).

Based on the earlier research in the Western context that found significantimpactmade by fulfilled psychological contracts on employees’ behavioral andcognitive outcomes, the aim of this research is to examine the employees’behavioral and cognitive outcomes based on their perception about psycho-logical contract fulfillment in the non-Western context of South Asia, con-sidered an emerging economic region by the recent economic indicators.Moreover, to gain a deeper understanding of the impact of the culturalcontext on employee psychological contract (expectation), this research willalso identify and investigate the culturally relevant elements of HR practicesthat influence the employees’ psychological contract in a non-Westerncontext.

1.4 SOUTH ASIA: AN EMERGING ECONOMIC REGION

South Asia is strategically located between the emerging markets ofCentral Asia and the fastest-growing markets of Southeast Asia and theASEAN countries. The region has been experiencing steady economicgrowth for the last two decades and considered as an economic

INTRODUCTION 5

powerhouse of the twenty-first century (IMF, 2016). Most of the SouthAsian countries are experiencing sustained economic growth for the lasttwo decades (refer to Table 1.1 for the details).

India is the largest and fastest-growing economy in the region with anestimated GDP value of US$2.18 trillion. India makes up almost 80% of theSouth Asian Economy. It is ranked seventh largest of the world and thirdlargest Asian economy based on nominal GDP value (IMF, 2016). India isalso a member of G-20 major economies and BRICS (Brazil, Russia, India,China and South Africa) trade bloc. In the year 2014–2015, with a GDPgrowth of 7.3% India has become one of the fastest-growing economy inthe world (IMF, 2016). India’s strong economic growth has helped sustainthe South Asian average growth at around 7% since the year 2000 (refer toTable 1.1). Pakistan is the second largest economy in South Asia with anannual nominal GDP value of US$250 billion followed by Bangladesh andSri Lanka, respectively (IMF, 2016). According to World Bank (2016),driven by strong growth in India coupled with low oil prices in the inter-national market, from the last quarter of 2014 South Asia has become thefastest-growing economic region in the world.

Major stock markets in the region are experiencing healthy growth overthe last two decades and slowly becoming significant players in the globalequity trading business. The major Stock Market Exchanges in the regionare Mumbai Stock Exchange with estimated market capitalization ofUS$1.68 trillion followed by National Stock Exchange of India withmarket capitalization of US$1.64 trillion and Karachi Stock Exchangewith market capitalization of US$60 billion (IMF, 2016). Based on thispromising growth performance and potential, Investor Chronicle, a UK-based research organization on market and investment, listed India,Pakistan and Bangladesh as three of the hottest emerging markets, which,along with Kazakhstan, Ukraine, Egypt, UAE and Nigeria, have the poten-tial to attract huge foreign investment (Investor Chronicle, 2008).

Despite having huge population and limited natural resources, SouthAsian countries are making economic headway through its skilled,semiskilled and unskilled workforce. Millions of South Asians are work-ing abroad and expatriate workers are sending billions of dollars ofremittances every year to their native countries. This large amount ofcash inflow is and will be a key driver in the country’s economic growthin the future. The strategic location of South Asian countries betweenthe fastest-growing markets of Southeast Asia and the ASEAN coun-tries, and energy-rich Central Asian countries is also contributing to the

6 A. ABDULLAH

Tab

le1.1

GDPgrow

thratesforSo

uthAsian

coun

tries(IMF,

2016

)

Country/R

egion

Year

2001

–20

10(%

)20

11(%

)20

12(%

)20

13(%

)20

14(%

)20

15(%

)20

16(P

rojected)(%

)20

17(P

rojected)(%

)

SouthAsia

7.0

6.3

5.6

6.2

6.8

6.9

7.0

7.1

Afghanistan

9.1

6.5

14.0

3.9

1.3

1.5

2.0

3.0

Bangladesh

5.8

6.5

6.3

6.0

6.3

6.4

6.6

6.9

Bhu

tan

8.4

10.1

6.4

4.9

6.4

7.7

8.4

8.6

India

7.6

6.6

5.6

6.6

7.2

7.3

7.5

7.5

Maldives

8.5

8.7

2.5

4.7

6.5

1.9

3.5

3.9

Nepal

4.0

3.4

4.8

4.1

5.4

3.4

0.5

4.5

Pakistan

4.6

3.6

3.8

3.7

4.0

4.2

4.5

4.7

SriL

anka

4.8

8.4

9.1

3.4

4.9

4.8

5.0

5.0

INTRODUCTION 7

economic growth of the region. All South Asian countries are membersof the SAARC bloc, established in 1985. SAARC aims to accelerate theprocess of economic, social, cultural and political exchanges among itsmember countries (saarc-sec.org, 2016). The South Asian PreferentialTrade Agreement was established in 1993 with the first round ofconcession talks held in 1995. SAARC members are committed toestablish a South Asian Free Trade Area within a decade (saarc-sec.org, 2016). Although consisting of only eight countries, a single SouthAsian market would be a significant force, given the size of the popula-tion (United Nations, 2016) and the acceleration of economic growthfollowing the liberalization of the member economies. South Asianeconomies have also adopted a number of policies to attract ForeignDirect Investment to foster future growth.

1.5 STATE OF HR ISSUES-RELATED RESEARCH IN SOUTH ASIA

South Asia’s recent economic turnaround in the last two decades is mostlyattributable to the large availability of HRs. In spite of her growing statusas an “emerging economy region” being based on skilled and semiskilledHRs, academicians and practitioners have paid little attention to the studyof HRM practices in that region. A comprehensive search of the AcademicPremier Source and Business Source Complete databases has yielded onlya handful of articles related to HRM practices in the South Asian (mostlyIndian) region. All of those studies have focused on HRM practices in aparticular industry or sector within the country (e.g., Mia and Bird, 2007).So there is a clear need for exploration of HR practices, as well as employeepsychological contract, in the South Asian context. The outcomes fromresearch into HR practices and employee psychology can help the manage-ment of corporations operating in South Asian countries to manage theirhuman resources more effectively.

The reasons for little research having been conducted into South AsianHRM practices include the following:

HRM is a fairly new phenomenon there; prior to the last 10 or so years,only a few local or international companies had formal HR departments.Most of the companies managed their employees through personnelmanagement departments. In the absence of formal HR departmentswith their policies and guidelines, it was very difficult for HR researchersto conduct any study in the South Asian context related to HR issues. But,recent economic growth has attracted many local and international

8 A. ABDULLAH