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Chapter 2

Chapter 2. The Organizational Context. Chapter Objectives. Examine how international growth places demands on management and HRM We will cover the following areas: Structural responses to international growth Control and coordination mechanisms, including culture

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Chapter 2

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  1. Chapter 2 The Organizational Context IBUS 618 Dr. Yang

  2. Chapter Objectives • Examine how international growth places demands on management and HRM • We will cover the following areas: • Structural responses to international growth • Control and coordination mechanisms, including culture • Mode of operation used in various international markets • Effect of responses on HRM approaches and activities. We start with the premise that the HR functions do not operate in a vacuum, and that HR activities are determined by, as well as influence organisational factors. IBUS 618 Dr. Yang

  3. Demands on Management by International Growth Figure2-1 IBUS 618 Dr. Yang

  4. Entered Germany in 1997 Taking over 95 stores Number dropped to 85 stores Announced to sell them all to a German rival Metro at a discount price ($100 million less) in 2006 Wal-Mart International Global sales: $312 billion in 2005 Net profit, $11.3 billion, in 2007 2,700 stores in 14 countries outside the U.S. Employees: 1.9 million Wal-Mart German Retreat IBUS 618 Dr. Yang

  5. American model: Service with a Smile Employee chanting: W-A-L-M-A-R-T to raise workplace morale An ethical code: Banning“office romance” Wal-Mart’s blames: “You have unions and higher wages” “German government regulations” Did Wal-Mart smile too much in Germany? IBUS 618 Dr. Yang

  6. “You really think that average underpaid clerk at the Wal-Mart store in the U.S. cares about how you are doing? To the Germans this is more or less upsetting ...” “I was too lazy to take the car if I could do all my shopping by foot in an Aldi …” “I never had somebody trying to bag my groceries …” “Germans prefer … resusable carriers … at least to pay a small fee for the avoidable sin of needing a plastic bag …” “I don’t think it is a cultural problem … it is a problem of competition. … Aldi and Lidl have over 6,500 stores while Wal-Mart has 85.” “… not that cheap like the German stores … Their basic stuff that was as cheap as Aldi’s never seemed to be the same quality.” “If Wal-Mart is not going to compete on price in Germany, as it does in the U.S., then what on earth were they doing here?” “There’s not enough quality and Germans are a picky bunch.” Is it culture or business competition? What did the Germans say? IBUS 618 Dr. Yang

  7. The Path to Global Status • As the nature and size of international activities change, organizational structures response, due to: • The strain imposed by growth and geographical spread • The need for improved coordination and control across business units • The constraints imposed by host-government regulations on ownership and equity • The evolution path is common but the steps are not normative IBUS 618 Dr. Yang

  8. Figure2-2 Stages of Internationalization IBUS 618 Dr. Yang

  9. Stages of Internationalization: • Exporting • Typically the initial stage of international operations • Usually handled by an intermediary (foreign agent or distributor) • Role of the HR department is unclear at this stage IBUS 618 Dr. Yang

  10. Figure2-3 Export department structure IBUS 618 Dr. Yang 10 IHRM Chapter 2

  11. Sales Subsidiary • Replacing foreign agents/distributors with own sales subsidiaries or branch offices in the market countries • May be prompted by: • Problems with foreign agents • Lack of local competence • More confidence in international activities • Desire for greater control • Give greater support to exporting activities • PCNs may be selected, leading to some HR involvement IBUS 618 Dr. Yang

  12. Figure2-4 Sales subsidiary structure IBUS 618 Dr. Yang 12 IHRM Chapter 2

  13. 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 approaches to staffing of key positions • Expatriate management role of corporate HR IBUS 618 Dr. Yang

  14. Figure2-5 International division structure HRM IBUS 618 Dr. Yang 14 IHRM Chapter 2

  15. Figure2-5 International division Structure Headquarters IBUS 618 Dr. Yang

  16. 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 IBUS 618 Dr. Yang

  17. Figure2-6a Global product division structure HRM IBUS 618 Dr. Yang 17 IHRM Chapter 2

  18. Global Product Division IBUS 618 Dr. Yang

  19. Global area division structure Figure2-6b IBUS 618 Dr. Yang 19 IHRM Chapter 2

  20. Global Area Division IBUS 618 Dr. Yang

  21. The Matrix • An attempt to integrate operations across more than one dimension • Considered to bring into the management system a philosophy of matching the structure to the decision-making process • Violates Fayol’s principle of unity of command IBUS 618 Dr. Yang

  22. Figure2-7 Global matrix structure IBUS 618 Dr. Yang 22 IHRM Chapter 2

  23. The Matrix IBUS 618 Dr. Yang

  24. Dual reporting Proliferation of communication channels Overlapping responsibilities Barriers of distance, language, time and culture Tend to lead to conflict and confusion Creates informational logjams Produce turf battles and loss of accountability Make it very difficult to resolve conflicts and clarify confusion Problems with the Matrix IBUS 618 Dr. Yang

  25. Beyond the Matrix • Less hierarchical structural forms: • Heterarchy • Transnational • Multinational as a network • Networked firms • Delegation of decision-making authority • Geographical dispersal of key functions • Delayering organizational levels • Debureaucratization • Differentiation of work, responsibility and authority across subsidiaries IBUS 618 Dr. Yang

  26. The networked organization Figure2-8 IBUS 618 Dr. Yang 26 IHRM Chapter 2

  27. Figure2-9 The role of MNE culture of origin IBUS 618 Dr. Yang 27 IHRM Chapter 2

  28. 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 IBUS 618 Dr. Yang

  29. Control strategies for multinational firms Figure2-10 IBUS 618 Dr. Yang 29 IHRM Chapter 2

  30. Mode of Operation and HRM • Not just subsidiary operations • Firms may also adopt contractual modes • Licensing • Franchising • Management contracts • Projects • And cooperative modes (such as joint ventures, strategic alliances) IBUS 618 Dr. Yang

  31. The organizational context in which IHRM activities take place, particularly different structural arrangements as the firm moves along the path to multinational status – from export department to more complex varieties such as the matrix, heterarchy, transnational and networked. Control and coordination aspects – formal and informal mechanisms, with emphasis on control through personal networks and relationships, and control through corporate culture, drawing out HRM implications. Chapter Summary The purpose of this chapter is to identify the HR implications of the various options and responses that international growth places on the firm. The chapter focused on: IBUS 618 Dr. Yang

  32. Chapter Summary(cont.) • International growth affects the firm’s approach to HRM • Research suggests a pattern and a process of internationalization but the stages of development and organizational forms should not be taken as normative. • Firms vary from one another as they go through the stages of international development, and • Country of origin influences the firm’s approach to organizational structure. • U.S. firms • European firms • Japanese firms • Korean • Chinese • India IBUS 618 Dr. Yang

  33. Implications to IHRM • Through the approach taken in this chapter, we have been able to demonstrate that there is an interconnection between IHRM 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 is important that HR managers understand the various international structural options – along with the control and coordination demands imposed by international growth. IBUS 618 Dr. Yang

  34. Discussion Questions What are the stages a firm typically goes through as it grows internationally and how does each stage affect the HR function? What are the specific HRM challenges in a networked firm? Country of origin influences the firm’s approach to organization structure. As MNEs from China and India internationalize, to what extent are they likely to differ from that observed for Japanese, European and US MNEs? IBUS 618 Dr. Yang 34 IHRM Chapter 2

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