Impact of internal marketing on Turnover intention of SME staff in service industry in Hanoi, Vietnam

1010 IMPACT OF INTERNAL MARKETING ON TURNOVER INTENTION OF SME STAFF IN SERVICE INDUSTRY IN HANOI, VIETNAM Dr.Le Thuy Huong huong13p@gmail.com Faculty of Business Administration, Hanoi University of Industry, Hanoi, Vietnam Dr.Cao Thi Thanh caothanhdhcn@gmail.com Faculty of Business Administration, Hanoi University of Industry, Hanoi, Vietnam Dr.Hoang Thanh Tung hoangthanhtung15@gmail.com Faculty of Business Administration, University of Labor and Social Affairs Abstract The role of internal marketing has been confirmed through many researches in various fields. This article explores the relationship between some elements of internal marketing and the turnover intention of SME‟ employees in service industry in Hanoi. The study was carried out by quantitative method with a sample of 818 workers. The findings confirm that Leadership, Pay Satisfaction and Person-Organizational Fits significantly impact turnover intention. The Working environment was found to have no impact on Turnover intention in service industry. The result of the study adds to the expertise of human resource service managers in keeping employees in business. Keywords: internal marketing, leadership, pay satisfaction, person-organization fit, service industry, SME, turnover intention, working environment. 1. Introduction In the international globalization, competitions among enterprises have become more challenge. It is difficult to recruit but how to retain them is more difficult. During last years, staff turnover has become a big issue of many organizations, especially in SMEs where their resources must be prioritized on production or business development in order to create more profit rather than resources spent to keep or retain their employees. Moreover, in SMEs of services industry in which it requires their employee‘s commitment than the other industries because the service‘s quality demonstrates on their employee‘s behavior. When the employee has less organizational commitment, it affects directly their service‘s quality, it means it affects their business reputation and turnover. This industry requires the number of employees, in the meantime, its staff turnover rate is always higher than the others because of this industry‘s nature as its diversity in the labor, seasonal services, it‘ staff has more job opportunities and unstable labor forces. Labor forces play an important role because they are objects to transform every message, corporate culture and the nature of the industry. The service industry‘s quality is demonstrated on its labor force‘s quality. The more labor force has changes, the more quality of the industry is affected. 1011 Most conventional marketing researchers focus on external customers to business organizations and explore methods of retaining external customers. However, for service providing organizations, services provision is from internal customers to external customers with intangible or tangible services. The organizational service quality thus is affected by the service contents from internal customers and the employee‘s service attitude. Internal marketing issues thus have started to become the focus of research on marketing, strategies and organizations. Particularly, service organizations should pay increased attention to internal marketing, because employees must contact and interact with customers when providing service. Internal marketing practices aim to attract and retain the most qualified and committed employees for the organization. In a service- providing organization, this translates into eliciting service-oriented behaviors designed to achieve high customer satisfaction and loyalty (Kim, 2016; Barnes & Morris, 2000). Service organizations create service values for external customers by interacting with employees and delivering service value to external customers. Bansal et al. (2001) posited that internal marketing can improve employee organizational loyalty and job satisfaction. Internal marketing also attracts and organizes talent, and helps business organizations improve employee service capabilities (Berry, 1984). Internal marketing is gaining increasing recognition in both the academic and commercial arenas through enhancing both customer and employee satisfaction (Lings, 1999). 2. Litteratural review Internal Marketing Internal marketing is an application of marketing philosophy and method with the purpose of stimulating employees to complete the tasks (Greene, Walls, & Schrest, 1994). Palmer (2001) defined internal marketing as the application of the principles and practices of marketing to an organization‘s dealings with its employees. Internal marketing treats the employee as an internal customer, regards jobs as products, and intends to satisfy the employee‘s demands through products (Longbottom et al., 2006). Kotler and Armstrong (1991) viewed internal marketing as the building of customer orientation among employees by training and motivating both customer-contact and support staff to work as a team. Zeithaml and Bitner (2000) indicated that in the Golden Triangle model of service, external marketing aims to construct commitment, interactive marketing aims to fulfill commitment, and internal marketing aims to enhance an employee‘s ability to fulfill commitment. Although external and interactive marketing are important, internal marketing places greater value on internal employees‘ human resources management and applications. Research Objectives and Importance of the investigation Significance Internal marketing is especially important for service organizations (Greene et al., 1994), because service companies generally maintain contact with customers via their employees, most service industry organizations are highly labor-intensive and internal marketing is helpful for such organizations in attracting and ensuring high involvement of high quality talent (Berry, 1984). Internal marketing is based on the notion that organizations providing secure employment are committed to their workforce. 1012 Gronroos (1994) asserted that without active and continuous internal marketing efforts, the interactive marketing impact on customers will deteriorate, service quality will suffer, and customers will start to defect with negative effects on profitability as a result. Gummesson (2000) suggested that internal marketing is a strategic operation that combines marketing and human resources management in order for first-line service personnel to provide the best service when interacting with customers. Joseph (1996) suggested that internal marketing motivates, mobilizes, recruits, and manages employees by using marketing and human resource management approaches to continuously improve services to employees, which was consistent with Kotler and Levy (1969), who defined internal marketing as follows: firms successfully hire, train, and motivate employees to provide better service to customers. In summary, internal marketing embraces the notion that a company should treat its internal employees as external customers in satisfying their needs. Thus, through management satisfying the needs of internal customers, employees become more motivated and committed to the company, which leads to external customers being well served (Barnes et al., 2004). Many academic studies in the internal marketing literature identified key elements of internal marketing, including Conduit and Mavondo‘s (2001) market training and education, management support, internal communication, personnel management, and employee involvement in external communication; Ahmed, Rafiq, and Saad‘s (2003) top management support, business process support, and cross-functional coordination; Tsai and Tang‘s (2008) service training programs, performance incentives, and vision for service excellence. In this study, four factors represent internal marketing will be test. Those are: Leadership (LS), Person-Organizational Fits (POF), Pay Satisfaction (PS) and Working Environment (WO). Leadership Leadership is the way the leader gives the direction, plan and motivates the others in the enterprise. It is the leading way for their employee to achieve the company‘s objectives. The leader who is mirror of their employee, transform to the others by their action plans and directions in the future (Podsakoff, MacKenzie, Moorman & Fette‘s (1990). Person-Organizational Fits POF is the fit between an individual and organization (supplementary and complimentary fits). It is additional same characters (Muchinsky & Monahan, 1987, p.269). Supplementary occurs when an individual‘s characters add the whole or a part to what is that organization (Muchinsky & Monahan, 1987, p 271). Pay Satisfaction Pay Satisfaction is with salary, the way to pay, C&B policy or process and term of payment as well as other bonus or allowance (in-direct benefits) to the employee (Heneman, 1985). Working Environment According to Balzer et all (1997), Dabke et all (2008), WE is the place where the employee can expose their ideas, the place where they are equipped necessary working tools to work, where they can work in fresh air and independently. This is the working 1013 condition to facilitate the employee so that they can work more effectively and enhance there commitment to the organization. Turnover Intention Turnover intention is the intention to leave the current working environment to move to another working environment. According to some studies, there are many reasons to leave an organization, such as retirement or relocation, but the most common reasons are when employees see leadership or managerial behavior. Incorrect or not good work, inconvenient work for development (no chance of development or promotion), unreasonable wages and bonuses (Janet Cheng Lian Chew, 2004). Turnover is a process where employees leave a job or leave an organization. The turnover intention is to measure whether an employee plans to leave their position or whether the organization plans to change the employee from that position. Turnover intention, like the very nature of leaving, may be voluntary or involuntary. The voluntary turnover intention of the organization will occur when the employee decides to leave his or her organization. This action occurs when the employee receives a better job opportunity than the current job. This also includes reasons for being paid higher, more credited, or to a more advantageous organization. It can also occur due to health or family factors of the employee. If an employee plans to leave his or her job, it is obvious that they intend to leave voluntarily (Dess & Shaw, 2011). In contrast, involuntary turnover intention organization is measured whether the organization plans to fire or replace the employee from the job, and this will inevitably result in leaving the organization. This usually happens when an organization is dissatisfied with the employee, dissatisfied with the performance of the employee and seeks to replace the employee. It also happens when businesses want to cut back on excess, unimportant (non-value-generating) positions due to economic downturns or termination of operations (Dess & Shaw, 2011). In summary, involuntary departure is the decision of the employer not to employ such personnel. There are not many studies examining the relationship between internal marketing and the intention to leave the business. Especially in the service sector, this issue has not been considered much. Therefore, the author studies the relationship between some elements of internal marketing and the intention to leave the business of SME employees in the service sector in Hanoi, Vietnam through the following model: Proposed research model Leadership Person-Organization Fit Pay Satisfaction Working Environment Turnover Intention 1014 Research hypotheses: (H1) Leadership impacts negatively to turnover intention. (H2) Working Environment impacts negatively to turnover intention. (H3) Pay Satisfaction impacts negatively to turnover intention. (H4) Person-Organization Fit impacts negatively to turnover intention. Measure Turnover intention scale was adopted from Meyer Angle, Perry (1981) và Jenkins (1993). Leadership scale was adopted from Podsakoff, MacKenzie, Moorman, and Fette‗s (1990). Working Environment scale was adopted from Nazim Ali (2010). Pay Satisfaction scale was adopted from Weiss, Dawis, England and Lofquist (1967). Person-Organization Fit scale was adopted from Cable and Judge(1996). 3. Method The study was conducted by quantitative method through a survey. Data collection was used to evaluate the scales, factor analysis, and model testing and hypotheses by means of multiple regression with the support of SPSS software version 20. To achieve the objective of the research, within limited capabilities and resources, the authors selected sampling probability (non-stratified random selection). According to a delimitation of the Ministry of Planning and Investment on the small and medium enterprises operating in services sector includes various fields such as the health sector, education, information technology, transportation, management consulting ... Based on this classification, the authors randomly selected small and medium enterprises in the fields as stated above to ensure the extensiveness of enterprises in different sectors in the service industry. To ensure the representativeness of the sample, the authors have tried to select the sampling units in the small and medium enterprises in the service sector in different geographical areas of Hanoi, not just focused on districts at the center of Hanoi. The data collection took place at locations predetermined list, the author delivered the questionnaire to employees in such enterprises above. Total questionaires was 1,000; 915 were collected, and valid ones were 818. 4. Results 4.1. Testing value and reliability of measuring scales Results show that KMO = 0.711 which meets the condition of KMO > 0.5 (Kaiser, 1974). So, we could conclude that the factor is appropriate with available data. By the same way, test result Barlett shows that p = 0.000 < 5%, which means variables have relationship with each other and meet conditions to analysis factors by EFA examination. Results showed that from 38 items of can extract 4 independent variables. The total variance which is explainable as extracting factor group is 75.175% (> 50%). 1015 EFA shows that LS is loaded in one factor. All of load coefficients meet defined standards (>0.6) and shows that observing variables have significant relationships with each factor. All items of POF is loaded in one factor, the lowest is 0.821, highest 0.842, it means it has significant relationship with POF. PS with 14 items are loaded in one factor, all is 0,662 above, as a result, observing variables have significant relationship with PS. All items of WE are loaded in one factor and it has significant relationship. The result shows that Cronbach Alpha value and total variable correlation coefficient meets standards (>0.7). Therefore, these are good measuring scale with close correlation with each other‘s in order to measure independent and dependent variables. These scales guarantee reliability and may be used for following analysis. 4.2. Hypothesis test and regression analysis The result illutrates that the adjusted coefficient R2 of the model is 0.218. Thus, the independent variables were able to explain 21.8% of the variation of turnover intention. The F test result of the model shows that F = 24.542, sig = 0.000. Thus, this relationship assures the reliability with a permissible level of 5%. Therefore, it is possible to conclude that independent variables have an impact on turnover intention and a linear multiple regression model that is consistent with the data set and is usable. The results of the multi-collinearity test of the model show that the variance inflation factors VIF in this model are <2. Therefore, multicollinearity property of independent variables is insignificant and variables in the model may be accepted The results of the regression analysis also show that: - Sig value of Leadership factor < 0.05, so we could accept hypothesis H1 Leadership impacts negatively to turnover intention. - Sig value of Working Environment factor > 0.05, so we could reject hypothesis H2. Working Environment impacts negatively to turnover intention. - Sig value of Pay Satisfaction factor < 0.05, so we could accept hypothesis H3. Pay Satisfaction impacts negatively to turnover intention. - Sig value of Person-Organization Fit factor < 0.05, so we could accept hypothesis H4. Person-Organization Fit impacts negatively to turnover intention The relationship between dependent and independent variables is shown in the following linear regression equation: Y = -0,250X1 - 0,214X2 - 0,139X3 Y: Turnover intention X1: Leadership X2: Pay Satisfaction X3: Person-Organization Fit 1016 The regression equation shows that normalized Beta coefficients of independent factors are all < 0, which means independent variables negatively influence to turnover intention. Thus, according to the above equation, when an entity turnover intention increases, then there must be a negative resonance of 0.250 Leadership, 0,214 Pay Satisfaction, and 0,139 Person-Organization Fit. 5. Discussion and implication Hypothesis H1 is accepted, confirming Leadership impacts positively to turnover intention. The better the leader, the less the intention to leave the company. Leadership is the way the leader gives the direction, plan and motivates the others in the enterprise. It is the leading way for their employee to achieve the company‘s objectives. The leader who is mirror of their employee, transform to the others by their action plans and directions in the future. When leaders have a positive leadership style, respecting employees and creating good working conditions for employees, employees will want to stay. Especially in the SME service industry, the leader often has direct supervision to employees, so the leadership style is more influence on the intention to connect or leave the business. Therefore, the leaders of SME service industries need to choose an positive leadership style and towards the retention of employees. Hypothesis H2 is rejected, so there is not enough evidence to conclude that Working Environment impacts positively to turnover intention. Working Environment is the place where the employee can expose their ideas, the place where they are equipped necessary working tools to work, where they can work in fresh air and independently. This is the working condition to facilitate the employee so that they can work more effectively and enhance there commitment to the organization. However turnover intention does not come from internal factors, but also from external factors, such as other firms offering higher salaries or more suitable jobs. Especially with the SME service sector, because of the small size of the company, the working conditions are not the best. Besides the service sector is the industry where competitors often attract good employees from other businesses Therefore, good working environment does not explain the intention to leave the company. Hypothesis H3 is accepted, confirming Pay Satisfaction impacts positively to turnover intention. Thus, employees are more satisfied with the income from the business, the less they intend to le