1. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/1 Chapter 2 The organizational context

2. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/2 Chapter objectives structural responses to international growth control and coordination mechanisms (cont.) In this chapter, 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:

3. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/3 Chapter objectives (cont.) mode of operation used in various international markets effect of responses on human resource management approaches and activities. It builds upon material covered in Chapter 1 to provide a meaningful global and organizational context for drawing out the international dimension of human resource management – the central theme of this book.

4. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/4 Figure 2-1: Management demands of international growth

5. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/5 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 host-government regulations on ownership and equity Evolution path common but not normative

6. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/6 Figure 2-2: Stages of internationalization

7. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/7 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

8. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/8 Figure 2-3: Export department

9. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/9 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

10. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/10 Figure 2-4: Sales subsidiary

11. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/11 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

12. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/12 Figure 2-5: International division

13. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/13 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

14. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/14 Figure 2-6a: Global product divisionFigure 2-6b: Global area division

15. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/15 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

16. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/16 Figure 2-7: The matrix

17. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/17 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

18. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/18 Beyond the matrix Less hierarchical structural forms –Heterarchy –Transnational –Networked firm

19. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/19 Figure 2-8: The networked organization

20. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/20 Figure 2-9: US, European and Japanese structural changes

21. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/21 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

22. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/22 Figure 2-10: Control mechanisms

23. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/23 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)

24. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/24 Figure 2-11: Linking operation mode and HRM

25. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/25 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

26. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/26 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 benefits

27. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/27 Chapter summary 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.) The purpose of this chapter has been to identify the HR implications of the various options and responses that international growth places on the firm. This chapter focused on:

28. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/28 Chapter 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.)

29. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/29 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. 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 firm’s 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.)

30. Use with International Human Resource Management ISBN 1-84480013-X Published by Thomson Learning © Peter Dowling and Denice Welch 2/30 Chapter 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. 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.