Chapter 2

The Organizational Context

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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:

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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.

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Figure 2-1: Management demands of international growth

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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

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Figure 2-2: Stages of internationalization

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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

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Figure 2-3: Export department

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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

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Figure 2-4: Sales subsidiary

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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

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Figure 2-5: International division

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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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Figure 2-6a: Global product division Figure 2-6b: Global area division

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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

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Figure 2-7: The matrix

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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

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Beyond the matrix Less hierarchical structural forms

Heterarchy Transnational Networked firm

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Figure 2-8: The networked organization

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Figure 2-9: US, European and Japanese structural changes

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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

“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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Figure 2-10: Control mechanisms

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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)

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Figure 2-11: Linking operation mode and HRM

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Inter-firm 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

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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

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:

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:

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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.)

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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.)

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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 todemonstrate 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.

Through the approach taken in this chapter, we have been able todemonstrate 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.

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