Chapter 2

The organizational context

By Anju Chawla Trainer for Marketing & HR with IIPM, Symbiosis, IRS & ICFAI
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Sessions objectives
In this session, we examine how international growth places demands on management, and the factors that impact on how managers of internationalizing firms responds to these challenges. We start with the premise that the human resource (HR) function does not operate in a vacuum, and that HR activities are determined by, and influence, organisational factors. We cover the following areas:

structural responses to international growth control and coordination mechanisms (cont.)

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SESSIONS objectives (cont.)

mode of operation used in various international markets effect of responses on human resource management approaches and activities.

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Figure 2-1: Management demands of international growth

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The path to global status

Causes structural responses, due to:
Strain imposed by growth and geographical spread Need for improved coordination and control across business units The constraints imposed by hostgovernment regulations on ownership and equity

Evolution path common but not normative

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Figure 2-2: Stages of internationalization

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Stages of internationalization: Exporting

Typically the initial stage of international operations
Usually handled by an intermediary (foreign agent or distributor) Role of HR department unclear at this stage

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Figure 2-3: Export department

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Sales subsidiary
Replacing foreign agents/distributors with own through sales or branch offices/subsidiaries May be prompted by:
Problems with foreign agents More confidence in international activities Desire for greater control Give greater support to exporting activities

PCNs may be selected, leading to some HR involvement

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Figure 2-4: Sales subsidiary

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International division
Creation of a separate division in which all international activities are grouped Resembles miniature replica of domestic organization Subsidiary managers report to head of international division Objectives regarding foreign activities may determine approach to staffing of key positions
Expatriate management role of corporate HR
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Figure 2-5: International division

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Global product/area division

Strain of sheer size may prompt structural change to either of these global approaches Choice typically influenced by:
The extent to which key decisions are to be made at the parent country headquarters or at the subsidiary units (centralization versus decentralization) Type or form of control exerted by parent over subsidiary
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Figure 2-6a: Global product division

Figure 2-6b: Global area division

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The matrix
An attempt to integrate operations across more than one dimension Violates Fayols principle of unity of command Considered to bring into the management system a philosophy of matching the structure to the decision-making process
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Figure 2-7: The matrix

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Problems with the Matrix

Bartlett and Ghoshal
Dual reporting
Proliferation of communication channels Overlapping responsibilities Barriers of distance, language, time and culture

Leads to conflict and confusion

Creates informational logjams Produce turf battles and loss of accountability Make it virtually impossible to resolve conflicts and clarify confusion Unit-2 by Anju Chawla

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Beyond the matrix

Less hierarchical structural forms
Heterarchy- MNC may have a number of different kinds of centres
apart from the traditionally HQ. Argument in favor is : competence can be found in a location different than the parent company. Focus is on corporate culture and less on top down approach.

Transnational- here interdependence of resources and

responsibilities across all business units regardless of national boundaries.It is a complex flow of components, products, resources, people and information among its subsidaries, while simultaneously recognizing distributed specialized resources and capabilities.

Networked firm- Subsidaries have developed into significant centres for investments, activities and influence and can no longer be regarded as the periphery. GE has established a centre of excellence in Hungary for R&D in its lighting division.
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Figure 2-8: The networked organization

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Figure 2-9: US, European and Japanese structural changes

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Control mechanisms
Globalization brings considerable challenges which are often underestimated. Every morning when I wake I think about the challenges of coordinating our operations in many different countries
Quote by Accor CEO
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Figure 2-10: Control mechanisms

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Mode of operation and HRM

Not just subsidiary operations Firms may also adopt contractual modes
Licensing Franchising Management contracts Projects

And/or cooperative modes (such as joint ventures)

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Figure 2-11: Linking operation mode and HRM

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Interfirm linkages
Alliance (strategic alliance, cooperative venture, collaborative venture or corporate linkage) A form of business relationship that:
Involves some measure on interfirm integration Stops short of a full merger or acquisition

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HR factors
HR issues and activities that affect the successful functioning of international joint ventures include:
Assigning mangers to the joint venture Evaluating their performance Handling aspects pertaining to career path Compensation benefits
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Sessions summary
The purpose of this session has been to identify the HR implications of the various options and responses that international growth places on the firm. This session focused on: The organizational context in which IHRM activities take place. Different structural arrangements have been identified as the firm moves along the path to multinational status from export department through to more complex varieties such as the matrix, heterarchy, transnational and networked. Control and coordination aspects. Formal and informal mechanisms were outlined, with emphasis on control through personal networks and relationships, and control through corporate culture, drawing out HRM implications. (cont.)
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Sessions summary (cont.)

The various modes such as wholly owned, franchising, management contracts and international joint ventures used by multinationals for foreign market entry and expansion. Again, we attempted to demonstrate the IHRM implications of these various modes, although noting that most of the literature focuses on wholly owned subsidiaries and international joint ventures. (cont.)

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Sessions summary (cont.)

How international growth affects the firms approach to HRM. Firms vary from one another as they go through the stages of international development, and react in different ways to the circumstances they encounter in the various foreign markets. There is a wide variety of matches between IHRM approaches, organizational structure and stage of internationalization. For example, almost half the US firms surveyed by Dowling55 reported that the operations of the HR function were unrelated to the nature of the firms international operations. A study of nine subsidiaries of multinationals operating in Ireland by Monks56 found that the majority adopted a local approach to the HR function, with headquarters involvement often limited to monitoring the financial implications of HR decisions. (cont.)
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Sessions summary (cont.)

Stages of development, organizational forms and mode of operation should not be taken as normative. Research does suggest a pattern and a process of internationalization but firms do vary in how they adapt to international operations we use nationality of the parent firm to demonstrate this.

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Through the approach taken in this chapter, we have been able to demonstrate that there is an interconnection between international HRM approaches and activities and the organizational context and that HR managers have a crucial role to play. In order to perform this role better, it would seem important that HR managers understand the various international structural options along with the control and coordination demands imposed by international growth and the HR implications that accompany the range of operation modes outlined in this chapter.

The End!
Assignment:: Find out the HR policies of any MNC and prepare a presentation individually, for next class.

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