June 11, 2008 1

INTERNATIONAL HUMAN RESOURCE MANAGEMENT

Staffing Approach

June 11, 2008 2

HRM and the Organizational Context (1)

HRM activities determine, and are also influenced by organizational considerations:

• The organization’s level of internationalization• Internationalization strategy in foreign markets• Control and coordination requirements• Strategic importance of foreign operations in

relation to the organization’s overall profitability

June 11, 2008 3

HRM and the Organizational Context (2)

Ideally, HRM considerations should play a key role in an organization’s decision to internationalize itself, rather than a market-driven strategy, which is usually followed

HRM constraints and factors may have a significant impact on an organization’s internationalization strategy

June 11, 2008 4

Managing and Staffing Approaches in the International Context (1)

The HRM literature identifies the following four managing and staffing approaches, which are also indicative of top management attitude:

• Ethnocentric Approach – High level of control exerted by the parent organization / corporate headquarters over foreign subsidiaries. Key positions in the subsidiaries are managed by expatriates from the parent country (i.e. PCNs)

• Polycentric Approach – Subsidiaries are treated as distinct national entities with a certain level of decision-making autonomy. They are usually managed by local nationals (i.e. HCNs). These are seldom promoted to positions at corporate headquarters and, likewise, PCNs are rarely transferred to foreign subsidiaries

June 11, 2008 5

Managing and Staffing Approaches in the International Context (2)

• Geocentric Approach – Global perspective resulting in there being no discrimination of PCNs, HCNs and TCNs, who, depending on capability and performance, are given the opportunity to work in key positions anywhere (parent organization, subsidiaries) in the organization

• Regiocentric Approach – Considered a precursory step in the direction of geocentricism. Managers may be transferred freely within a particular geographic region. These may enjoy a considerable level of autonomy in decision-making but are usually not transferred to the parent organization

June 11, 2008 6

Organizational Typologies (1)

Bartlett and Ghoshal identify the following types of corporate organizational modals:

• Multinational Modal – Characterized by decentralization of many of the organization’s key assets, responsibilities and decisions. Management regards overseas operations as a portfolio of independent businesses. For example, Siemens has many different lines of business around the world, but it is not really consolidated into one whole, and each country of operation is autonomous. Bayer, ADP and Levi also fit into this category

June 11, 2008 7

Organizational Typologies (2)

• Global Modal – It has a central hub where most of the strategic assets, resources and decisions are centralized. The management views overseas operations as a pipeline to a global marketplace. Examples include British Airlines, Deutsche Bank and NCR

• International Modal - Sits midway between the decentralized and centralized models. Many of the key assets, responsibilities and decisions are decentralized, but controlled from headquarters. Management regards overseas operations as appendages to a central, domestic corporation. Johnson & Johnson fits this description

June 11, 2008 8

Organizational Typologies (3)

• Transnational Modal – It's a distributed network with distributed resources and capabilities. The management oversees a complex process of coordination and cooperation in an environment of shared decision-making. It has distributed control. This kind of corporation can have very small corporate headquarters

Hewlett-Packard and Cendant are examples of transnational corporations

June 11, 2008 9

The Internationalization Process

• Organizations have several options available for expanding their operations into foreign markets

• The option pursued by the organization depends on a host of factors, for example, its size, available its resources (including human resources), strategy, confidence and environmental contingencies

• Linked to the internationalization of organizations are the need for effective and efficient coordination and control mechanisms and, among other things, appropriate HRM policies

June 11, 2008 10

HRM and „Soft“ Modes of Internationalization by Organizations (1)

Typical „soft“ modes of internationalization include:

Licensing – A business arrangement in which the manufacturer of a product (or a firm with proprietary rights over certain technology, trademarks, etc.) grants permission to some other group or individual to manufacture that product (or make use of that proprietary material) in return for specified royalties or other payment. Often does not involve a heavy committment of human resources

Management Contracts – Involve the transfer of experienced managerial and technical staff to another organization for a fee and for a specified period of time. Management contracts usually involves training the organization‘s employees

June 11, 2008 11

HRM and „Soft“ Modes of Internationalization by Organizations (2)

Alliances – A collaboration between organizations under which their resources are pooled, exchanged or integrated for mutual benefit. The committment of human resources depends on the level of inter-organizational interaction

Projects and Joint Ventures – Potentially considerable challenges on the human resource management function due to the usually close and sustained inter-organizational interaction which is necessary for such collaborative vventures, and the consequent varying management styles and philosophies, work ethics and cultures

June 11, 2008 12

The HRM Function in the Context of Internationalization (Export)

• By and large, little implications for HR policies for manufacturing organizations unless their export sales reach a “critical level”

• Service-based industries would establish a branch office or go into a joint venture with a local partner as the nature of their business (i.e. provision of services) would necessitate this

HCN Intermediary(local knowledge)

Export Manager(PCN)

Export Department

June 11, 2008 13

The HRM Function in the Export Context (1)

Managing Director

Production Manager

Finance Manager

Marketing / SalesManager

HR Manager

DomesticSales

ExportSales

June 11, 2008 14

The HRM Function in the Export Context (2)

Managing Director

Production Manager

Finance Manager

ExportManager

HR Manager

ExportsSales

Subsidiary

Firms would tend to replace sales agents and distributors in foreign markets with their own sales subsidiaries or branch offices for anyseveral reasons: Problems with foreign agents and distributors, moreconfidence in self-handling international sales activities, the desire for more control and because of increasing importance which exportingactivity has on the success of the organization

PCNsHCNs

June 11, 2008 15

There may be several reasons for a firm desiring to establish production facilities overseas, for example:

• Cheaper production and transportation costs• Host government investment incentives and import restrictions• Maintaining markets

Means of establishing production facilities overseas include setting up a facility independently, entering into joint ventures or acquiring local companies. Usually, going international means creating an international division at corporate headquarters

At this (initial) stage of internationalization, some organizations will usually make extensive use of PCNs, others will use HCNs to capitalize on local conditions or satisfy local regulations

HRM in the Context of Internationalization (Foreign Production)

June 11, 2008 16

Challenge of Internationalization for Organizations: Centralization versus Decentralization

Pressure forDecentralization

Pressure forCentralization

Need for national responsiveness:

Differences in market structuresDistribution channelsCustomer needsLocal cultureHost Government pressures

Need for more centralization:

Multinational CustomersGlobal CompetitorsEconomies of ScaleFlow of Information

June 11, 2008 17

The HRM Function in the Context of Internationalization (International Division)

Managing Director

Production Marketing Finance Human Resources

DomesticDivision

(Product A)

DomesticDivision

(Product B)

InternationalDivision

Exporting Departing

SubsidiaryCountry A

SubsidiaryCountry B

Production Marketing Finance Human Resources

Staff selection

Expatriates

June 11, 2008 18

The HRM Function in the Context of Internationalization (Global Product Division)

MarketingProductionGlobal Product

DivisionMarketing Finance

Human Resources

Chief Executive Officer

ProductA

ProductB

ProductC

ProductD

Europe Americas Asia-Pacific

Pakistan

Human ResourcesMarketing

June 11, 2008 19

The HRM Function in the Context of Internationalization (Global Area Division)

Production Marketing FinanceHuman

Resources

Chief Executive Officer

AmericasEuropeAsia-

Pacific

Pakistan

Human ResourcesMarketing

Product DProduct CProduct BProduct A

June 11, 2008 20

The HRM Function in the Context of Internationalization (Matrix)

Production Marketing FinanceHuman

Resources

Chief Executive Officer

Vice-PresidentGlobal Products

Vice-PresidentInternational

AmericasEuropeAsia-

Pacific

Product A

Product B

Pakistan

Human Resources

June 11, 2008 21

The Heterarchy – An organization has different “centers” in different locations, for example, R&D activities are concentrated in one center, training in another. It places considerable demands on the human resource function management (experienced personnel, incentive packages to motivate and control employee performance, promotion of awareness of common corporate goals)

The Transnational – Characterized by interdependence of resources and responsibilities across subsidiaries and business units resulting in large flows of information, people, resources etc. Complex level of communication, cooperation and coordination required along with strong corporate identity and well-developed worldwide management perspective. Seeks to achieve global integration while retaining localized flexibility. Human resources need to be flexible, quickly transferable and think across national and subsidiary boundaries

•

The HRM Function in the Context of Internationalization (Network Structures)

June 11, 2008 22

The HRM Function in the Context of Internationalization (A Complex Network Structure)

Centere.g. R&D

SubsidiarySubsidiary

Center(e.g. Training)

Subsidiary

Subsidiary

CorporateHeadquarters

June 11, 2008 23

Control Mechanisms in a Networked Organizational Environment

Control Mechanisms

StructureReporting Systems

BudgetsPerformance Targets

FORMAL INFORMAL

PersonalRelationships

CorporateCulture

In networked organizational environments, there is a tendency to rely more onInformal controls instead of formal controls that are usually prevalent in thehierarchichal-type environments

June 11, 2008 24

Control and Coordination Issues for HRM in International Networked Organizational Environments

In networked organizational environments, human resource management has a crucial role to play, for example through:

• Contact facilitation for information and knowledge diffusion

• Training and development for fostering informal communication channels and building a corporate culture

• Assisting in creating personal networks amongst key staff persons

• Staffing Decisions and Transfers

June 11, 2008 25

The “ideal” Organizational Structure?

There is no “ideal” structure for organizations which are internationalizing. The determination of organizational structure will depend on a plethora of factors and considerations, such as:

• Size of the organization• Management traditions and policies• Circumstances prevailing in the host countries

Some organizations have experimented with different organizational structures with a view to finding the appropriate structure best suiting their requirements