1. The Organizational Context
Chapter 2
The Organizational Context
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2. Chapter Objectives
Examine how international growth places demands on management and HRM
We will cover the following areas:
Structural responses to international growth
Control and coordination mechanisms, including culture
Mode of operation used in various international markets
Effect of responses on HRM approaches and activities.
We start with the premise that the HR functions do not operate in a vacuum, and that HR activities are determined by, as well as influence organisational factors.
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3. Demands on Management by International Growth
Figure 2-1
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4. Wal-Mart German Retreat
Wal-Mart International
Global sales: $312 billion in 2005
Net profit, $11.3 billion, in 2007
2,700 stores in 14 countries outside the U.S.
Employees: 1.9 million
Entered Germany in 1997
Taking over 95 stores
Number dropped to 85 stores
Announced to sell them all to a German rival Metro at a discount price ($100 million less) in 2006
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5. Did Wal-Mart smile too much in Germany?
American model:
Service with a Smile
Employee chanting:
W-A-L-M-A-R-T to raise workplace morale
An ethical code:
Banning “office romance”
Wal-Mart’s blames:
“You have unions and higher wages”
“German government regulations”
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6. Is it culture or business competition?
What did the Germans say?
“I don’t think it is a cultural problem … it is a problem of competition. … Aldi and Lidl have over 6,500 stores while Wal-Mart has 85.”
“… not that cheap like the German stores … Their basic stuff that was as cheap as Aldi’s never seemed to be the same quality.”
“If Wal-Mart is not going to compete on price in Germany, as it does in the U.S., then what on earth were they doing here?”
“There’s not enough quality and Germans are a picky bunch.”
“You really think that average underpaid clerk at the Wal-Mart store in the U.S. cares about how you are doing? To the Germans this is more or less upsetting ...”
“I was too lazy to take the car if I could do all my shopping by foot in an Aldi …”
“I never had somebody trying to bag my groceries …”
“Germans prefer … resusable carriers … at least to pay a small fee for the avoidable sin of needing a plastic bag …”
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7. The Path to Global Status
As the nature and size of international activities change, organizational structures response, due to:
The strain imposed by growth and geographical spread
The need for improved coordination and control across business units
The constraints imposed by host-government regulations on ownership and equity
The evolution path is common but the steps are not normative
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8. Stages of Internationalization
Figure 2-2
Stages of Internationalization
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9. Stages of Internationalization:
Exporting
Typically the initial stage of international operations
Usually handled by an intermediary (foreign agent or distributor)
Role of the HR department is unclear at this stage
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10. Export department structure
Figure 2-3
Export department structure
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11. Sales Subsidiary
Replacing foreign agents/distributors with own sales subsidiaries or branch offices in the market countries
May be prompted by:
Problems with foreign agents
Lack of local competence
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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12. Sales subsidiary structure
Figure 2-4
Sales subsidiary structure
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13. 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 approaches to staffing of key positions
Expatriate management role of corporate HR
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14. International division structure
Figure 2-5
International division structure
HRM
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15. International division Structure
Figure 2-5
International division Structure
Headquarters
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16. 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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17. Global product division structure
Figure 2-6a
Global product division structure
HRM
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18. Global Product Division
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19. Global area division structure
Figure 2-6b
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20. Global Area Division
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21. The Matrix
An attempt to integrate operations across more than one dimension
Considered to bring into the management system a philosophy of matching the structure to the decision-making process
Violates Fayol’s principle of unity of command
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22. Global matrix structure
Figure 2-7
Global matrix structure
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23. The Matrix
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24. Problems with the Matrix
Dual reporting
Proliferation of communication channels
Overlapping responsibilities
Barriers of distance, language, time and culture
Tend to lead to conflict and confusion
Creates informational logjams
Produce turf battles and loss of accountability
Make it very difficult to resolve conflicts and clarify confusion
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25. Beyond the Matrix Less hierarchical structural forms: Heterarchy
Transnational
Multinational as a network
Networked firms
Delegation of decision-making authority
Geographical dispersal of key functions
Delayering organizational levels
Debureaucratization
Differentiation of work, responsibility and authority across subsidiaries
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26. The networked organization
Figure 2-8
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27. The role of MNE culture of origin
Figure 2-9
The role of MNE culture of origin
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28. Control Mechanisms
“Globalization brings considerable challenges which are often under-estimated….
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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29. Control strategies for multinational firms
Figure 2-10
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30. Mode of Operation and HRM
Not just subsidiary operations
Firms may also adopt contractual modes
Licensing
Franchising
Management contracts
Projects
And cooperative modes (such as joint ventures, strategic alliances)
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31. Chapter Summary
The purpose of this chapter is to identify the HR implications of the various options and responses that international growth places on the firm. The chapter focused on:
The organizational context in which IHRM activities take place, particularly different structural arrangements as the firm moves along the path to multinational status – from export department to more complex varieties such as the matrix, heterarchy, transnational and networked.
Control and coordination aspects – formal and informal mechanisms, with emphasis on control through personal networks and relationships, and control through corporate culture, drawing out HRM implications.
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32. Chapter Summary (cont.)
International growth affects the firm’s approach to HRM
Research suggests a pattern and a process of internationalization but the stages of development and organizational forms should not be taken as normative.
Firms vary from one another as they go through the stages of international development, and
Country of origin influences the firm’s approach to organizational structure.
U.S. firms
European firms
Japanese firms
Korean
Chinese
India
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33. Implications to IHRM
Through the approach taken in this chapter, we have been able to demonstrate that there is an interconnection between IHRM 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 is important that HR managers understand the various international structural options – along with the control and coordination demands imposed by international growth.
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34. Discussion Questions
What are the stages a firm typically goes through as it grows internationally and how does each stage affect the HR function?
What are the specific HRM challenges in a networked firm?
Country of origin influences the firm’s approach to organization structure. As MNEs from China and India internationalize, to what extent are they likely to differ from that observed for Japanese, European and US MNEs?
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