The Organizational Context Chapter 2 The Organizational Context IBUS 618 Dr. Yang

Chapter Objectives Examine how international growth places demands on management and HRM Identify factors that impact on how managers of internationalizing firms respond to these challenges We cover the following areas: Structural responses to international growth Control and coordination mechanisms 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 and influence organisational factors. IBUS 618 Dr. Yang

Demands on Management by International Growth IBUS 618 Dr. Yang

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 IBUS 618 Dr. Yang

Stages of Internationalization IBUS 618 Dr. Yang

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 IBUS 618 Dr. Yang

Export Department IBUS 618 Dr. Yang

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 More confidence in international activities Desire for greater control Give greater support to exporting activities PCNs may be selected, leading to some HR involvement IBUS 618 Dr. Yang

Sales Subsidiary IBUS 618 Dr. Yang

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 IBUS 618 Dr. Yang

International Division IBUS 618 Dr. Yang

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 IBUS 618 Dr. Yang

Global Product Division IBUS 618 Dr. Yang

Global Area Division IBUS 618 Dr. Yang

The Matrix An attempt to integrate operations across more than one dimension Violates Fayol’s principle of unity of command Considered to bring into the management system a philosophy of matching the structure to the decision-making process IBUS 618 Dr. Yang

The Matrix IBUS 618 Dr. Yang

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 virtually impossible to resolve conflicts and clarify confusion IBUS 618 Dr. Yang

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 IBUS 618 Dr. Yang

The Networked Organization IBUS 618 Dr. Yang

US, European and Japanese Structural Changes IBUS 618 Dr. Yang

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 IBUS 618 Dr. Yang

Control Mechanisms IBUS 618 Dr. Yang

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) IBUS 618 Dr. Yang

Linking Operation Mode and HRM IBUS 618 Dr. Yang

Interfirm Linkages Alliances (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 IBUS 618 Dr. Yang

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 and benefits IBUS 618 Dr. Yang

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; Different structural arrangements 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; (cont.) IBUS 618 Dr. Yang

Chapter Summary (cont.) 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; The various modes of operation – 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.) IBUS 618 Dr. Yang

Chapter Summary (cont.) How international growth affects the firm’s 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. We compared examples of U.S. firms European firms Japanese firms IBUS 618 Dr. Yang

Implications to IHRM Stages of international 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. Cont. IBUS 618 Dr. Yang

Implications to IHRM (cont.) 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. IBUS 618 Dr. Yang