THE ORGANIZATIONAL CONTEXT Chapter 3 THE ORGANIZATIONAL CONTEXT

INTRODUCTION we focus on internal responses as firms attempt to deal with global environment challenges. the major elements encountered as a result of international growth that place demands on senior managers. The various elements are not mutually exclusive

Figure 3.1 Management demands of international growth

Our focus remains on the connection between organizational factors, management decisions and HR consequences. To a certain extent, how the internationalizing firm copes with the HR demands of its various foreign operations determines its ability to execute its chosen expansion strategies.

Standardization & localization of HRM practices now discuss the twin forces of standardization and localization and follow the path a domestic firm takes as it evolves into a global entity and illustrate how the HRM function is affected by the way the internationalization process itself is managed

the exact balance of a firm’s HRM standardization- localization choice is based on factors of influence such as strategy structure, firm size and maturity9. The strength of corporate culture plays an important role on the standardization side, while the cultural and institutional environment, including features of the local entity such as operation mode and subsidiary role, play an important role on the localization side. As Harzing10 confirms, there exists a continuum of advantages for both standardization and localization

Why globally standardize HRM? Consistency Transparency Alignment of a geographically fragmented workforce around common Principles Objectives

Why locally responsive HRM? Cultural values Traditions Legislation Government policies Education systems To respect local regarding HRM and work practices

Figure 3.2 Balancing the standardization and localization of HRM in MNEs

Factors driving standardization

MNEs that standardize The relationship suggested in the literature explains that a large MNE with a long international history and extensive cross-border operations pursue multinational or transnational/ international corporate strategies supported by corresponding org structures that are reinforced by a shared worldwide corporate culture

Factors driving localization factors driving localization include the cultural and institutional environment and features of the local entity itself

Localization factors include: Cultural environment more social context  more complete balance of extrinsic & intrinsic rewards more individual  more extrinsic rewards or fast changing personal & social contexts (Extrinsic rewards are expected by an employee and does not lead to his or her greater satisfaction. Intrinsic Rewards: An outcome that gives an individual personal satisfaction such as that derived from a job well done) Institutional environment (country-of-origin & HC) Mode of operation abroad Subsidiary role: e.g., global innovator, integrated player, implementer

Institutional environment The institutionalism perspective20 indicates that institutional pressures may be powerful influences on human resource practices. According to Whitley institutional norms and values may be based on the features of a national business system. Elements which are relevant to HRM are, for example, the characteristics of the education system or the industrial relations system

The impact of the institutional environment on IHRM is shown in the following example, which addresses staffing decisions. A study by As-Saber, Dowling and Liesch found that there was a clear preference for using HCNs in key positions by multinationals operating in India. The authors suggest that a major reason for HCN preference was the belief that an Indian would know more than an expatriate manager could learn in years on the job.

Generally, localization of HR staff positions is more likely to ensure that local customs and host-government employment regulations are followed. Khilji found that, although foreign multinationals in Pakistan had formulated policies, implementation was low ‘because managers brought up and trained in a hierarchical and centralized set-up resist sharing power and involving employees in decision making’. This occurred despite the host country’s expectation that multinationals would transfer their best practices and act as a positive force in the introduction of what was regarded as desirable Western management styles.

However, the multinationals in Khilji’s study had taken a polycentric approach, with HCNs in key positions, including that of the HR manager. The country-of-origin effect implies that multinationals are shaped by institutions existing in their country of origin and that they attempt to introduce these parent-country-based HRM practices in their foreign subsidiaries.

Liberman and Torbiorn in their study of eight European subsidiaries of a global firm, found variation in the degree to which employees adopted corporate norms Taylor28 found that Chinese employees working in Japanese plants in their home country perceived team briefings and other such forums as a new form of rhetoric, replacing nationalist and Communist Party propaganda of the past, and this information was consequently considered of little value by workers and managers The host-country effect refers to the extent to which HRM practices in subsidiaries are impacted by the host-country context

Table 3.1 Examples of impact of the cultural & institutional context on HRM practices Chapter 3

Mode of operation abroad mode of operation, it is helpful to examine this from the level of the local affiliate. Thus, we turn to firm-endogenous factors to determine the balance between global standardization and localization. A study by Buckley et al.36 provides two examples of how the mode of operation either inhibits or facilitates work standardization. In late 1978, the Chinese government announced an open-door policy and commenced economic reforms aimed at moving the country from a centrally planned to a market economy

One case in the Buckley et al One case in the Buckley et al. study is Shanghai Bell – a joint venture formed in 1983 between a Belgian telecommunications firm (now Alcatel Bell), the Belgian government and the Chinese Postal and Telecommunications Industries Corporation (PTIC). There was a gradual transfer of relevant technology by the Belgian firm, with a long-term reliance on Belgian expatriates. The Belgian firm had limited control over the Chinese employees in the joint venture and was constrained by its partner’s expectations and differing goals.

The second case researched was much different The second case researched was much different. The US telecommunications firm, Motorola, established a wholly owned operation in Tianjin, China, in 1992. Changing conditions in China meant that Motorola could effectively build a ‘transplant factory’: importing production equipment, organizational processes and practices from either the parent or other subsidiaries in its global network. This enabled Motorola to integrate the Chinese operation into the broader corporate network and to localize management. These have been supported by HRM initiatives such as a special management training program (China Accelerated Management Program – CAMP), English language training and transfer of Chinese employees into the US operations. Motorola has been able to transfer its processes and systems, such as Six Sigma quality control, bringing its technology, knowledge and work practices, supported by HRM activities, into the new facilities in China relatively quickly.

- The discussion here indicates that the achievement of an acceptable balance in the standardization and localization of HRM practices is less problematic in wholly owned subsidiaries than in cross-border alliances. However, in the latter, the balance also depends on many features of a particular alliance including ownership and control issues. As we will discuss in the next section, it is important to further differentiate wholly owned subsidiaries. We will therefore now introduce the concept of a subsidiary role.

Subsidiary role The subsidiary role specifies the position of a particular unit in relation to the rest of the organization and defines what is expected of it in terms of contribution to the efficiency of the whole MNE. Subsidiaries characterized as global innovators provide significant knowledge for other units and have gained importance as MNEs move towards the transnational model. This role is reflected in an IHRM orientation in which the parent firm develops HRM policies and practices which are then transferred to its overseas affiliates.

- The integrated player also creates knowledge but at the same time is recipient of knowledge flows. Thus, a subsidiary characterized by this role can represent an important knowledge node in the MNE network. This should be supported by a highly integrated HRM orientation. Thus, the HRM practices and policies between headquarters and subsidiaries are very similar, probably characterized by a high extent of global standardization and localized elements when this is needed. - Implementers rely heavily on knowledge from the parent or peer subsidiaries and create a relatively small amount of knowledge themselves. If the IHRM system is export-oriented, i.e., global HRM decisions are mainly made in the parent company, then the local subsidiaries are responsible for the implementation process at the local level.

Harzing and Noorderhaven45 tested this typology and found empirical support in a sample of 169 subsidiaries of MNEs headquartered in The Netherlands, France, Germany, the UK, Japan and the USA: (In comparison to earlier studies, our results show an increasing differentiation between subsidiaries, as well as an increase in the relative importance of both knowledge and product flows between subsidiaries suggesting that MNCs are getting closer to the ideal type of the transnational company)

- Increasing the mobility of managers is one way to break down these barriers and produce corporate rather than subsidiary champions who are prepared to disseminate information about subsidiary initiatives and capabilities, and recommend adoption in other parts of the organization where appropriate. Tregaskis, in her study of R&D centers, reports how one firm found that personal relationships formed through visits of key staff to other units facilitated information sharing and the eventual adoption of new products by other subsidiaries. Face-to-face interactions were important in building trust and exchanges of tacit knowledge which might be possible in the context of corporate or regional meetings. Hence, frequent personal exchanges between the MNE units via individual encounters or regional or global meetings are essential in the processes of successful identification and transfer of knowledge

Measures creating the HRM balance between standardization and localization Various studies have investigated coordination, communication and control processes between parent organizations and subsidiaries. The analysis of these mechanisms contributes to our understanding about how the balance between globalization and localization is achieved. - Martinez and Jarillo found that, HR managers from the headquarters as well as from the foreign affiliates must exchange their knowledge, expectancies and experiences on the different local contexts. Therefore, meetings and common project work using a respective supporting infrastructure such as intranet platforms are essential throughout the process of developing and implementing the standardization- localization balance in IHRM. Furthermore, powerful line managers acting as opinion leaders should be involved in the process as well in order to achieve broad support for the transnational HRM measures. Finally, a high importance placed on the respective HRM solution by the corporate top management is essential for the success of the initiative.

The path to global status

Organizational structures typically change due to Strain/ pressure imposed by growth & geographical spread Need for improved coordination & control across business units Constraints/ restrictions imposed by host-government regulations on ownership and equity

Figure 3.4 Stages of internationalization

Figure 3.5 Export department structure

Figure 3.6 Sales subsidiary structure

Figure 3.7 International division structure

Two major MNE issues of structure Extent/ degree to which key decisions are made at PC (parent company) headquarters or at subsidiary units (centralization vs. decentralization) Type of control exerted/ exercised by the parent over the subsidiary unit

Figure 3.8A Global product division structure

Figure 3.8B Global product division structure

Figure 3.9 Global matrix structure Chapter 3

Internationally, matrix is difficult Dual reporting can cause conflict & confusion Many communication channels can create information logjams Overlapping responsibilities can produce - turf/ territory battles - loss of accountability Distance, language, time, & culture barriers make it difficult for managers to resolve conflicts & clarify confusion

Matrix requires managers who Know the business in general/ universally Have good interpersonal skills Can deal with ambiguities/ doubts of responsibility & authority Have training for presenting ideas in groups HR planning in matrix MNEs is more critical than in traditional organizations

Beyond the matrix org. structures The Heterarchy MNEs have different kinds of centers apart from ‘headquarters’ The Transnational resources & responsibilities are interdependent across national boundaries The Network subsidiaries are nodes/ knots, loosely coupled political systems At this stage, there is less hierarchy & no structure is considered inherently superior

Figure 3.10 The networked organization

5 dimensions of networked MNEs Decision-making authority is delegated to appropriate units & levels Key functions are dispersed/ detached geographically across units in different countries Fewer organizational levels Formal procedures are less bureaucratic Work, responsibility, & authority are differentiated across the networked subsidiaries

Beyond networks: meta-nationals Meta-nationals have 3 types of units: Sensing units Uncover widely dispersed sources of engineering & market insights Magnet units Attract & create business plan to convert innovations into products & services Marketing & production units Market & produce adaptations of these products & services around the world

HR’s place in structural forms Three ways HR develops with international growth: Centralized HR firms large, well-resourced: typically product-based or matrix structures Decentralized HR firms small group, mostly for senior mgmt. at corp. HQ: mostly product- or regional-based structures Transition HR firms medium-sized corp. HR with small staff at HQ: decentralized, product-based structure