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

2. 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

3. Demands on Management by International Growth
IBUS 618 Dr. Yang

4. 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

5. Stages of Internationalization
IBUS 618 Dr. Yang

6. 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

7. Export Department
IBUS 618 Dr. Yang

8. 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

9. Sales Subsidiary
IBUS 618 Dr. Yang

10. 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

11. International Division
IBUS 618 Dr. Yang

12. 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

13. Global Product Division
IBUS 618 Dr. Yang

14. Global Area Division
IBUS 618 Dr. Yang

15. 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

16. The Matrix
IBUS 618 Dr. Yang

17. 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

18. 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

19. The Networked Organization
IBUS 618 Dr. Yang

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

21. 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

22. Control Mechanisms
IBUS 618 Dr. Yang

23. 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

24. Linking Operation Mode and HRM
IBUS 618 Dr. Yang

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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