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Master of International Business HRM in Global Economy

IBU5HRM

Semester 2, 2012

Lecture 2 Week 2

Lecturer: Dr Jerome Choy

Contact: j.choy@latrobe.edu.auConsultation: 2 pm - 3 pm Wednesday

DWB 129

International Organisations (IO’s):Strategy and Structure

Lecture Outline:

o Evolution of the MNE• Degree of internationalisation

• Choice of method for entry into IO

• Global Mind-set (orientation)

o Organisational structure and design

o IHRM and global organisational design

o Research on structure and performance of the MNE

o The global learning organisation: The tie that binds

Factors contribute to the complexity of international business (IB)

oNumber of countries involved

oProtection of foreign investments

oPolitical uncertainty

oCompetitors

oOperational differences abroad

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Opportunities for IB to take

advantage of its global presence

oAdapt to local market differences

oExploit global economies of scale

oExploit economies of global scope

oTap into the best locations for

activities and resources

oMaximize knowledge and experience

transfer between locations.

Three issues central to IB strategy

1. The degree of internationalisation

and geographic scope

2. The basic choice of method for

entry into international business

3. The extent of global mind-set

(orientation) of the firm and its

executives in internationalisation

Eight forms of internationalisation

1. Internationalisation through export

2. International division or global product

division

3. Multi-country/multi-domestic strategy

4. Regionalisation

5. The global firm

6. The transnational firm

7. The born global firm

8. The globally integrated enterprise

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Export

oThe initial decision to go

international

� exporting one or two products to

one country, or

� importing one or a few products

from one country

oLittle impact on HR and the overall business of the firm

International / global product division

o International division (service-oriented)

oGlobal product division (product-

oriented)

o International responsibilities of the HR

department can expand dramatically and

become much more complex, including:

• International assignment,

• development of HRM policies, practices,

• strategic decisions for foreign operations

Multi-country/ multi-domestic strategy

o Subsidiaries in multiple countries

o Operating independently within each country

and in other countries

o Operating independently of the parent-company

HQs except finance, HRM, marketing, R&D

o A global division in parent-company HQs, or a

regional HQs, integrating & coordinating these

basic business functions

o HRM coordinates HRM activities and practices

of the subsidiaries and is responsible for

relocation, compensation, and benefits for a

large number of international assignees

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Regionalisation

oConducting an international business

on a regional basis

o In only one or two regions, e.g.,

Europe or Asia

oManage HR from a regional

headquarters

The global firm

o The world is one market – products / services marketed to customers all over

the world

o Products / services are created in countries whichever do the job best.

o Dominant HQs

o Strong organizational culture

o Global organizational branding

The transnational firm

oFinal stage of globalization (Bartlett &

Ghoshal)

oBalance of global integration, local

responsiveness and knowledge

sharing

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The born global firm

o Operate instantly around the globe

o IT focus

o HR activities in this kind of firms include

• Frequent international business travel of

key personnel

• Legal protection of intellectual property

rights (patents and trademarks)

• Hiring of key local staff

• Management of international project

teams for local client service.

The 21st Century globally integrated

enterprise

oIntegrated approach to deliver

value to employees and customers worldwide

oTalent and expertise within the MNE flow to where it creates most value

Business Forms (Entry Methods)

for entering into international business

o Licensing and sub-contracting

o Outsourcing

o Off shoring

o Wholly-owned subsidiary

o Mergers and acquisitions (M&As)

o International joint ventures (IJVs)

o Strategic alliances, partnerships (e.g.

research) and consortia

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Licensing & sub-contracting

o To take advantage of lower labour and operating costs by

� Licensing the rights to manufacture and/or

market one’s product abroad

� Sub-contracting to an overseas contractor the

manufacture or assembly of a firm’s products

o Not involving in setting up of directly

owned subsidiary

o IHR makes sure human rights of workers

and OH&S are maintained in the

productions

Outsourcing• Another form of subcontracting

• Contract out a/number of business process(es)

to overseas firms

• Reasons for reducing costs, improving quality,

freeing firm’s resources for greater focus on core

competencies

• Directly linked to business management due to

importance of the outsourced operations

• Very much involving IHR in planning, managing

and execution of international assignments,

business travel, training

Off shoring• Involving relocation of one or more business

processes of a firm’s to another country

• For lowering costs

• Offshore process is still operated by the firm’s

personnel but in an offshore location

• Same HR responsibilities as those in the parent-

firm except under different legal system and influence of other national culture

• HR mostly dealing with employee satisfaction, recruitment & retention in wake of damaged staff

morale caused by threats of off-shoring

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Wholly-owned subsidiary

o Own sale offices in foreign countries where sales are large

o Own manufacturing factories in foreign

countries to assemble and/or manufacture products

o Managed by a sales manager from parent-company

o HR in HQs involved in matters related to

international assignees and foreign employees

Mergers & Acquisitions

oA preferred entry method

oTo consolidate the scope of business activities and parent-firm’s

position in global market

oIHR input is important in:

�pre-merger due diligence

�post merger integration

International joint ventures

o Involving 2 or more firms from 2 countries to create a NEW business entity with shared

ownership and managerial responsibilities

o the NEW entity are operated by employees from both partners.

o HR needs to adopt or develop HR practices for the multi-national workforce.

o HR specifically is responsible for merger

/interaction of two or more national and corporate cultures

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Strategic alliances, partnerships (e.g. research) and consortia

o Not a replacement of other international business forms (e.g., multi-domestic,

transnational)

o Providing additional flexibility in a fast-moving global economy

o Firms adopting these forms to gain access to technology, research, laboratories

o HR issues in coordinating different workforces

and managements in different countries, thus detremental to desired edges.

Designing the organizational

structure of global firmso Integrates activities

o Coordinates policies and practices

o Organizational components

• Product lines

• Regional & home country HQs

• Country subsidiaries & alliances

• Global business functions

o Additional factors

• Firm’s stage & forms of international development

• Standardisation vs localisation

• Host government involvement in economic process

• Diversity and complexity of MNE operations

Coordination mechanisms

o Balance parent-firm HQs policies with local approaches

o Reduced size of business units

o Informal linkages

o Global networks

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IHRM and the management of

global organization structure

o Shared services model

o Linkages

o Networks

Research on structure and performance of the MNE - Empirical shortcomings

o Manufacturing industry slant

o More emphasis placed on strategy issues

rather than management and organization

issues

o Failure to capture temporal context

The global learning organization: The tie that binds - Knowledge is power

o Intellectual and social capital

o Knowledge sharing

o Facilitate learning on a global basis

o Utilise full skill sets

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Chapter 2: Guided discussion

questionso How has the MNE evolved? How have

the changes in MNEs affected HR?

o What are the various choices that MNEs have for entry into international business? How do the functions of HR vary with these various choices?

o How can IHR help to ensure the success of cross-border acquisitions and joint ventures?

o How do networks and learning organizations help to ensure an MNEs competitive advantage?