Chapter 02 IHRM

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Use with International Human Resource Management ISBN 1-84480013-XPublished by Thomson Learning Peter Dowling and Denice Welch

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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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Use with International Human Resource Management ISBN 1-84480013-X

Published by Thomson Learning Peter Dowling and Denice Welch2/5

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-governmentregulations 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 (foreignagent 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 ownthrough 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 allinternational activities are grouped

Resembles miniature replica of domesticorganization

Subsidiary managers report to head ofinternational division

Objectives regarding foreign activities maydetermine 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 structuralchange 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 atthe 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 Fayols principle of unity ofcommand

Considered to bring into the management

system a philosophy of matching thestructure 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 ofcommunication

channels

Overlapping

responsibilities Barriers of distance,

language, time and

culture

Leads to conflict andconfusion

Creates informational logjams

Produce turf battles and loss ofaccountability

Make it virtually impossible toresolve conflicts and clarifyconfusion


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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 thechallenges 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

LicensingFranchising

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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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


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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 pathCompensation benefits


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Chapter summary

The organizational context in which IHRM activities take place.

Different structural arrangements have been identified as the firmmoves along the path to multinational statusfrom 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 networksand 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:


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Chapter summary (cont.) The various modessuch as wholly owned, franchising, management

contracts and international joint venturesused 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 subsidiariesand international joint ventures.

(cont.)


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Chapter summary (cont.) How international growth affects the firms 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 andstage 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 firms international

operations. A study of nine subsidiaries of multinationals operating in

Ireland by Monks56 found that the majority adopted a local approachto 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 operationswe 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 variousinternational structural optionsalong with the control and coordination

demands imposed by international growthand the HR implications that

accompany the range of operation modes outlined in this chapter.

Chapter 02 IHRM

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