EMPLOYEE TURNOVER AND RETENTION STRATEGIES OF
SMALL AND MEDIUM ENTERPRISE SERVICE
BUSINESSES IN HANOI

___________________________

A DISSERTATION
Presented to the Faculty of the Graduate School
Southern Luzon State University, Lucban, Quezon, Philippines
in Collaboration with
Thai Nguyen University, Socialist Republic of Vietnam

___________________________

In Partial Fulfillment
of the Requirements for the Degree
Doctor of Business Administration

___________________________

By
NGO THI MAI (SUSAN)
December 2013
i


APPROVAL SHEET

The Dissertation of

NGO THI MAI

entitled
EMPLOYEE TURNOVER AND RETENTION STRATEGIES OF SMALL AND
MEDIUM ENTERPRISE IN SERVICE BUSINESSES IN HANOI
Submitted in Partial Fulfilment of the Requirements for the Degree
DOCTOR OF BUSINESS ADMINISTRATION
A program offered by Southern Luzon State University,
Republic of the Philippines in collaboration with
Thai Nguyen University, Socialist Republic of Vietnam
has been approved by Oral Examination Committee

WALBERTO A. MACARAAN, EdD
Expert

JOANNA PAULA A. ELLAGA, DBA
Expert

NELLY I. MENDOZA, DBA
Expert

EDWIN P. BERNAL, DBA
External Panel

CECILIA N. GASCON, PhD
Chairman
Endorsed by:

Recommended by:

CONRADO L. ABRAHAM, PhD
Adviser


APOLONIA A. ESPINOSA, PhD
Dean

Accepted in Partial Fulfilment of the Requirements for the Degree
Doctor of Business Administration

_____________________
Date

WALBERTO A. MACARAAN, EdD
Vice President for Academic Affairs
ii


CERTIFICATE OF ORIGINALITY

iii


ACKNOWLEDGMENT

I would like to express my sincerest gratitude to the Management
Board of the Southern Luzon State University, Thai Nguyen University, and to
the teachers who taught me all the academic competencies necessary for me
complete this study.
I would like to express my gratitude to Professor Conrado L. Abraham,
my enthusiastic teacher, for the encouragement, and for the time he spent
guiding me in the conduct of this research.
I would like to express my sincere thanks to the Department of

Employment - Ministry of Labor, Invalids and Social Affairs, Department of
Labor, Invalids and Social Affairs Hanoi, and to the SMEs service business in
Hanoi that helped me collect the data for the study.
I sincerely appreciate the Board of the University of Labor and Social
Affair (ULSA), my colleagues in ULSA, and my classmates in DBA1 for
helping me accomplish this study.
Finally, I would like to give thanks to my family who shared with me
their enthusiasm and who encouraged me to complete my dissertation.

Ngo Thi Mai

iv


DEDICATION

To my family and friends
This piece of work is for you.

NTM

v


TABLE OF CONTENTS
PAGE
TITLE PAGE ………………………………………………………………..

i


APPROVAL SHEET ……………………………………………………….

ii

CERTIFICATE OF ORIGINALITY ………………………………………..

iii

ACKNOWLEDGEMENT …………………………………………………..

iv

DEDICATION ………………………………………………………………

v

TABLE OF CONTENTS …………………………………………………..

vi

LIST OF TABLES ………………………………………………………….

viii

LIST OF FIGURES ………………………………………………………...

ix

LIST OF APPENDICES …………………………………………………...


x

ABSTRACT …………………………………………………………………

xi

CHAPTER
I

II

III

INTRODUCTION ……………………………………………

1

Background of the Study …………………………………..

1

Statement of the Problem ………………………………….

2

Objectives of the Study …………………………………….

3

Significance of the Study …………………………………..


4

Scope and Limitations of the Study ………………………

5

Definition of Terms ………………………………………….

5

REVIEW OF LITERATURE ……………………………….

7

Theoretical Framework ………………………………….…

37

Conceptual Framework ………………………………….…

39

METHODOLOGY …………………………………………..

40

Locale of the Study …………………………………………

40


Research Design ……………………………………………

40

Population, Sample and Sampling Technique …………..

40

Research Instrument ……………………………………….

41

Data Gathering Procedure …………………………………

41

Statistical Treatment ………………………........…….……

42

vi


IV

RESULTS AND DISCUSSIONS ………………………….

43


4.1 Profile of SME Respondents …………………………

43

4.2 Evaluation of Expected Turnover and Retention in
Enterprise in Hanoi

44

4.3 The Relationship Evaluation of Expected Turnover
and Retention with Personal Factors ………………..

46

4.4 Analysis of Factors Affecting the Expected Turnover
and Retention …………………………………………..

V

59

SUMMARY OF FINDINGS, CONCLUSIONS AND
RECOMMENDATIONS
Summary of Findings ………………………………………

61

Conclusions …………………………………………………

66


Recommendations …………………………………………

68

BIBLIOGRAPHY …….………………...…………………………………..

70

APPENDICES ……………………………………………………………...

74

CURRICULUM VITAE …………………………………………………….

78

vii


LIST OF TABLES
TABLE

PAGE

4.1

Age and Gender of Respondents

43


4.2

Qualifications of the Respondents

44

4.3

Expected Turnover and Retention Rate in SMEs Service
Businesses in Hanoi

45

4.4

The Voluntary Turnover Rate

45

4.5

Cross-Tabulation of Expected Employees Turnover and
Gender

46

Cross-Tabulation of Expected Employees Turnover and
Age


47

Cross-Tabulation of Expected Employees Turnover and
Education

48

Cross-Tabulation of Valuation of Job Title and the
Satisfaction from Benefits

49

4.9

Cross-Tabulation of Work Satisfaction and Gender

50

4.10

Cross-tabulation of Work Satisfaction and Age

51

4.11

Cross-Tabulation of Work Satisfaction and Education

52


4.12

Cross-Tabulation of Emotional Attachment and Gender

53

4.13

Cross-Tabulation of Emotional Attachment and Age

54

4.14

Cross-Tabulation of Emotional Attachment and Education

55

4.15

Cross-Tabulation of Valuation of Job Title and Gender

56

4.16

Cross-Tabulation of Valuation of Job Title and Age

57


4.17

Cross-Tabulation of Valuation of Job Title and Education

58

4.18

Result of the Logistic Regression

60

5.1

Employee Retention Strategy

69

4.6

4.7

4.8

viii


LIST OF FIGURES
FIGURE


PAGE

2.1

Types of Employee Turnover

8

2.2

Summary of Indirect Expenses Related to Employee
Turnover

16

2.3

Adam' Equity Theory

37

2.4

Conceptual Framework Showing the Factors Influencing the
Expected Turnover of Employees in SMEs Service
Businesses in Hanoi, Vietnam

39

ix



LIST OF APPENDICES
APPENDIX
A

PAGE
Questionnaire

75

`

x


ABSTRACT
Title of Research

: EMPLOYEE TURNOVER AND RETENTION

STRATEGIES OF SMALL AND MEDIUM
ENTERPRISE SERVICE BUSINESSES IN
HANOI
Researcher

: NGO THI MAI (SUSAN)

Degree Conferred


: DOCTOR OF BUSINESS ADMINISTRATION

Name and Address
of Institution

: Southern Luzon State University Lucban, Quezon,
Philippines and Thai Nguyen University, Socialist
Republic of Vietnam

Adviser

: Dr. Conrado L. Abraham

Year Written
: 2013
______________________________________________________________
This study sought to determine the relationship between employee
turnover and personal characters in SMEs service businesses in Hanoi. It also
sought to (i) determine the profile of the respondents in SMEs service
businesses in Hanoi, (ii) analyze the expected turnover and retention rates in
SMEs service businesses in Hanoi, (ii) ascertain the relationship between the
expected turnover and retention rates in SMEs service businesses in Hanoi,
(iv)

determine the factor that will affect the expected turnover of the

respondents, and (v) recommend workable retention strategies for SMEs
service businesses in Hanoi. The study is also after providing answers to the
following research questions, (i) what is the profile of employee-respondents
in different service oriented SMEs in Hanoi; (ii) what is the expected turnover

rate and retention rate in service-oriented SMEs in Hanoi?; (iii) what are the
relation between expected employee turnover and retention strategies with
personal factors?; and (iv) what are the factor that will affect the expected
turnover of the respondents?
xi


A total of 400 respondents answered the questionnaires. The
researcher used statistical model and logistic regression to analyze the data.
The result showed that the model of relation between expected turnover,
retention and related personal character is workable and consistent with
variable of SAT (Work satisfaction), EA (Emotional attachment) and VAL
(Valuation of job title). Base on the result, it is recommended to develop
workable strategies to increase employee retention rate.

xii


1

Chapter I
INTRODUCTION

An important issue being faced by the small and medium scale
enterprises (SMEs) service business is minimizing turnover rate. In the
context of globalization, SMEs are losing a large number of employees,
especially excellent managers, to large multinational companies. SMEs have
no other options but to train and re-train new employees to be able to sustain
their business operations.


However, this entails a sizeable amount of

investment in human resource development which, eventually, will go into
waste if trained employees will leave the organization.

Data from the 2012 Towers Watsson: Vietnam Labor Market Overview
Trends reveals that in that year, employee turnover rate accounted for some
13% with production sector posting the highest turnover at 17%.

Although,

over the years, from 2007 to 2012, voluntary employee turnover slowly went
down, the fact remains that there is a need to look into the reasons for the loss
of people and investments in an organization.

Background of the Study

Employee turnover is permanent withdrawal from an organization
whether voluntary or involuntary. Straightforward ways to explain it are "how
long employees tend to stay" or "the rate of traffic through the revolving door".
Turnover is measured for individual companies and for their service as a
whole.

If an employer is said to have a high turnover relative to its

competitors, it means that employees of that company have a shorter average


2


tenure than those of other companies in the same service” (2012 Towers
Watsson). High turnover can be harmful to the company's productivity if
skilled workers often leave the labor population and contains a high
percentage of new employees. Therefore, the company has a deep interest in
the turnover rate of their employees, because workers can replace a portion of
the cost of business operations. When a company replaces a worker, it incurs
costs directly and indirectly. Tasks that must be performed all cost money,
time, or both. Additionally, there may be a loss of productivity during the
period after the employee leaves the former and new staff has been fully
trained. For some companies, employees can be difficult to replace because
in order to retain customers or clients, rapport should be established with a
customer by the employee that he had worked with. Often, managers view the
company as a success or just a stepping stone to climb to the prestigious
multinational companies. SMEs are left as these managers are being raised in
power. Indeed, managing employee turnover is a challenge for the managers
of SMEs.

Those with solid understanding of the human behavior and the

reasons behind employee’s abandonment of the workplace will have bigger
chances of becoming successful at handling cases involving recycling of
people outside the organization.

Hence, this research study sought to

determine the relationship between employee turnover and personal
characters in SME’s service businesses in Hanoi.

Statement of the Problem
This research intended to examine the reasons why employees leave

their jobs at the SME service businesses in Hanoi. Consequently, it also


3

attempted to determine the reasons of employees’ desire to stay in their
respective organizations. Specifically, this research sought to answer the
following questions:
1. What is the profile of employee-respondents in different service
oriented SMEs in Hanoi in terms of:
1.1 Age;
1.2 Gender;
1.3 Educational level;
2. What is the expected turnover rate and retention rate in serviceoriented SMEs in Hanoi?
3. What is the relationship between expected employee turnover, and
retention strategies with personal factors?
4. What are the factors that affect the expected turnover of the
employees?

Objectives of the Study
This research was designed to attain the following objectives:
1. To determine the profile of the respondents in SMEs service
businesses in Hanoi in terms of:
a. Age
b. Gender
c. Educational qualification
d. Work satisfaction
e. Emotional attachment
f. Valuation of job title



4

2. To analyze the expected turnover and retention rates in SMEs
service businesses in Hanoi
3. To ascertain the relationship between the expected turnover and
retention rates in SMEs service businesses in Hanoi
4. To determine the factors that affect the expected turnover of the
respondents.
5. To recommend workable retention strategies for SMEs service
businesses in Hanoi.

Significance of the Study
This research work will be significant to the following individuals and
organizations:
Small and Medium Enterprises (SMEs). SMEs will benefit from the
knowledge of the study since it will help them devise ways to retain qualified
and high-performing employees who ensure customer satisfaction. This study
shall offer additional value to the SMEs because managers will be able to
educate themselves on the benefits of managing employee turnover more
effectively.
Individual Employee.

When employees are properly managed by

managers with solid grounding on employee turnover management, there is a
greater chance for them to be more satisfied in the workplace. There is also a
bigger chance for the employee to weigh the advantages and disadvantages
of leaving or staying in the company based on informed decision.
Researchers.


This study will help the researcher improve the skill in

conducting scientific study.

This is also an opportunity to apply DBA


5

knowledge into practice.

The study shall become a rich source of reference

for future researchers.

Scope and Limitations of the Study
This study aims to determine the applicability of three new employee
retention strategies in service businesses of the SMEs in Hanoi. This will help
the SMEs service businesses to retain the right employees.
This study was concentrated on the urban service area in Hanoi.
Workers in other areas might have different job preferences. Therefore, the
applications of these studies are limited in Hanoi City only

Definition of Terms
For the purpose of achieving optimum understanding of this research
work, the following terms were defined based on how they were used in this
study.
Small and Medium Enterprises (SMEs). The author adopts the Vietnamese
government’s definition of SMEs based on Decree 56/2009/ND-CP.

Accordingly, small and medium-sized enterprises are business
establishments that have registered their business according to the law
and are divided into three levels: very small, small and medium
according to the sizes of their total capital (equivalent to the total assets
identified in an enterprise’s accounting balance sheet) or the average
annual number of laborers (total capital is the priority criterion).


6

Employee turnover. This refers to the ratio of the number of employees that
leave the SME through

attrition, dismissal, or resignation during

a period to the number of employees on payroll during the same period.
It also refers to the number or percentage of workers who leave an
organization and are replaced by new employees.
Employee Retention. This refers to the effort by an SME to maintain a
working environment which supports current staff in remaining with the
organization.

Retention Strategy. This refers to the method or plan chosen to bring about
a

desired improvement

in

retaining


the

achievement of a goal or solution to a problem.

employees

such

as


7

Chapter II
REVIEW OF LITERATURE

The purpose of this study is to determine any relationships among
employee turnover and employee retention in an organization. This chapter
reviews literature related to the factors and the relationships among them.
The literature reviewed includes the following areas: (1) employee turnover
and employee retention theories, (2) research and findings on employee
turnover, (3) relationship between employee turnover and retention.

Employee Turnover
Since the employee turnover has been discussed, its nature, reasons,
advantages and drawbacks were the major issues to be considered (Morrell,
Loan-Clarke and Wilkinson, 2004; Hong, Wei and Chen, 2007; Massingham,
2008). Bowden (1952) suggested that in some situations personnel turnover
can be a positive change within an organization. He claimed that the

employee turnover is needed due to reasons such as a company growth or a
market

demand,

which

requires

an

internal

organizational

change.

Nevertheless, personnel changes are more often seen to have negative
impacts on a company rather than positive effects (Parker and Skitmore,
2005; Massingham, 2008). Such changes are known to be inevitable.
Therefore there is a necessity to better understand the staff turnover reasons
in order to be capable to tackle their damaging consequences.

Types of Staff Turnover
Many literature sources refer to staff turnover as to employee's
“movements across organizational boundaries” (Hong, Wei and Chen, 2007,


8


p.808). However, this term can also be used in case of movements within an
organization. The current section presents types of employee turnover in both
these contexts referred to as external and internal employee turnover,
accordingly.

Employee turnover is frequently considered to be involuntary or
anticipated, and voluntary or unanticipated, in its nature (Morrell, Loan-Clarke
and Wilkinson, 2004; Hong, Wei and Chen, 2007). Involuntary turnover is
mainly initiated by an organization. In this case employees do not have much
influence on the decision about their movement. Voluntary staff rotation, on
the other hand, takes place when an employee himself decides to change a
job within a company or to leave the organization.

Figure 2.1. Types of Employee Turnover


9

External involuntary employee turnover can take place because of a
company's strategy or policy, or a need to downsize its personnel (Hong, Wei
and Chen, 2007). It was claimed to be of a lesser interest for organization as it
is known in advance and its extent and consequences are easily defined
(Hong, Wei and Chen, 2007). However, consequences of extensive
downsizing related to the financial crisis in 2008 proved to be problematic to
companies (Datta et.al., 2010; Schmitt, Borzillo and Probst, 2011).

Thus, an interest in the causes of external involuntary staff rotation has
lately increased significantly and the issue is now being explored more
thoroughly (Datta et.al., 2010).


External voluntary staff turnover takes places when, e.g., one prefers to
be employed by another company (Morrell, Loan-Clarke and Wilkinson,
2004). Unlike involuntary employee changes, it is considered to be
challenging and is thus explored more extensively. Hong, Wei and Chen
(2007) clarify that challenges are explained by difficulties in predicting when
and under which circumstances voluntary turnover will occur, what the scale
of the change will be and which outcomes an organization will face due to it.

Internal involuntary employee turnover occurs when a company
requires a person to occupy another position within its structure. As Schmitt,
Borzillo and Probst (2011) explain, this can be caused by downsizing and
thus, lack of employees needed to execute some particular operations.
However, it may be also required that an employee does not change his
position but is requested to perform the same.


10

Reasons for Employee Turnover
There is extensive research of the causes that lead to people changing
jobs within organizations or across organizational boundaries. Generally, the
causes can be divided into two categories – inevitable and avoidable reasons
(Bowden, 1952; Hong, Wei and Chen, 2007).
External involuntary staff turnover with its reasons such as company
downsizing, employee's parental leave, permanent illness, retirement, or
death, can be seen as inevitable staff rotation. Inevitable reasons are
perceived as an element of organization’s normal life (Bowden, 1952), and
therefore, their existence emphasize that it is impractical to consider
organization’s personnel as an unchangeable environment while planning
resource allocation and managing the company in general.

However, many reasons for staff turnover are claimed to be
manageable and thus avoidable. Several employee turnover prediction
models were developed to assist identifying controllable reasons and
successfully manage them. Mobley (1977, cited in Hong, Wei and Chen,
2007) developed first model explaining employee turnover.
The model claimed that decision to quit a company starts with job
dissatisfaction, which then triggers thoughts of changing a job and causes
making endeavors to find a new placement. It can be argued that job
dissatisfaction is not an original cause of turnover, but an intermediary phase
of a process that results in staff rotation. This is due to various reasons why
an employee can be dissatisfied with his current work. Laser (1980) argues
the most widely spread misconception about an employee's motive to leave is
salary discontent. This opinion is widespread due to employees' stating salary


11

dissatisfaction as a reason to leave a company. This reason is often used
because of its neutrality, comparing to other causes such as conflicts with
management or colleagues (Laser, 1980).
Among reasons that cause employees to be dissatisfied with their
work, Laser (1980) mentions an inappropriate employment process, improper
employee expectations set during the employment, lack of formal training, and
tensions between the employee and his direct management. It is essential for
an organization to "find the right men for the right jobs" (Bowden, 1952, p.73).
If it fails to do so, both company and a new employee are facing the pitfalls of
the improper employment process – the company does not receive required
help from the newcomer, whilst the newcomer has a lack of motivation due to
his mismatching to the position held (Bowden, 1952). Situation like this leads
to staff turnover that can be voluntary or involuntary, external or internal. To

avoid employees leaving due to this reason, an organization should
appreciate their selection process more and invest sufficient time and
resources in investigating who is a suitable person to be employed (Laser,
1980).
Another reason for employee dissatisfaction mentioned by Laser
(1980) is setting inappropriate expectations upon the job. It is a mistake made
by management during the employment process to highlight only advantages
of a person's future job and thus, let him see position in "brighter light" and get
uninspired soon after taking over his new responsibilities. One more setback
that causes job dissatisfaction is providing insufficient training for a new
employee (Laser, 1980). Training is important for an employee's successful
work inception as it introduces him or her to the organization’s structure and


12

operations, provides knowledge about the ways of communication, and helps
to start developing a useful working network. Failing to supply a new
employee with knowledge and network encourages upcoming challenges and
problems which can again give rise to job dissatisfaction.
Lastly, Laser (1980) mentions tensions between employees and
management as a reason for staff turnover. It can be especially crucial to
manage employees accurately during an organizational change (Morrell,
Loan-Clarke and Wilkinson, 2004). In case the reasons for change are not
suitably explained to the staff, employees do not receive sufficient help from
management during the change implementation; it can lead to people's
decision to leave organization.
The abovementioned reasons of turnover and other causes identified
by diverse researchers (see Morrell, Loan-Clarke and Wilkinson, 2004, for a
summary) can be a ground for both types of voluntary staff turnover. Thus, an

employee can be willing to change a job within an organization, i.e. internal
voluntary staff rotation, or he or she can decide to make a crossorganizational movement, i.e. external voluntary employee turnover.
Voluntary staff turnover can also be caused by an employees'
eagerness to self-develop and have career growth opportunities (Bowden,
1952; Morrell, Loan-Clarke and Wilkinson, 2004). Since the beginning of
industrial growth, which provided larger amount of job opportunities in a wider
variety of industries and geographical locations (O’Connell and Kung, 2007),
employees' willingness of changes became more urgent. This caused an
amendment of people's work attitudes and therefore, a more dynamic
organizational environment. Nowadays, being aware of prospects, employees


13

tend to be more ambitious and consequently more motivated to perform better
to receive additional development and promotion. In case the current position
does not encourage career growth, an employee's job satisfaction can
deteriorate, which can prompt the intention to search for new work or affect
performance at the present one (Hong, Wei and Chen, 2007).
However, there is no general agreement upon the relationship between
an employee's performance and staff turnover (Hong, Wei and Chen, 2007).
There are four general opinions regarding the issue. The opinions claim that
the staff's performance and employee turnover are found to have (Hong, Wei
and Chen, 2007): (1) A positive relationship; (2) A negative relationship; (3)
No relationship; and (4) A non-linear relationship.
Hong, Wei and Chen (2007) claim that high performers tend to leave
an organization more often than others. Other sources suggest that
employees with poor performance switch jobs more often. However,
Birnbaum and Somers (1993, cited in Hong, Wei and Chen, 2007) asserted
that there is no relationship between an employee's performance and his or

her intention to leave a company or change a position. Lastly, some studies
have shown that both poor and high performers are in risk of changing jobs
often, whilst employees with medium performance tend to stay within an
organization.
According to Hong, Wei and Chen (2007), the negative correlation was
proved to be accurate in more studies than others, meaning that employees
with poor performance are more probable to leave organization. This raised
the discussion on whether companies should strive to reduce turnover of such
employees (Bowden, 1952). It is argued that keeping non-performers is