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Chapter 3
The Organizational Context
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Chapter Objectives
Examine how international growth places demands on management and HRM
Standardization and localization of HRM practicesFactors driving standardization
Factors driving localization
The path to global statusStructural responses to international growth
Effect of responses on HRM approaches and activities
Control and coordination mechanisms, including cultural control
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Demands on Management by International Growth
Figure3.1
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The Global Mindset and Local Responsiveness
The aim of global standardization Consistency Transparency Ease of administration Efficiency and
effectiveness Sense of equity
The aim of global standardization Consistency Transparency Ease of administration Efficiency and
effectiveness Sense of equity
The aim of localization Respect for local culture
and traditions Adaptation to local
institutional requirements such as legislations and government policies
Educational system and HR practices
Workplace practices and employee expectations
The aim of localization Respect for local culture
and traditions Adaptation to local
institutional requirements such as legislations and government policies
Educational system and HR practices
Workplace practices and employee expectations
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Balancing the standardization and localization of HRM in MNEs
Figure3.2
Factors Driving Standardization
Large MNEs with long international history and extensive cross-border operations
Pursue multinational or transnational corporate strategies
Supported by corresponding organizational structures
reinforced by a shared worldwide corporate culture
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Factors Driving Localization
The host-country context The cultural environment The institutional environment
Mode of operation abroad Ownership and control
Subsidiary role Greenfield versus IJV M&A Implementer, innovator, integrator
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Institutional effects on MNEsFigure9-2
Country of origin effects Home-country effects Host-country effects Reversed diffusion
Examples of impact of the cultural & institutional context on HRM practices
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Table3.1
Gupta and Govindarajan’s Four Generic Subsidiary Roles
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Table3.2
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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
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Stages of InternationalizationFigure3.4
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Export department structureFigure
3.5
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Sales subsidiary structureFigure3.6
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International division structureFigure
3.7
HRM
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International division StructureFigure3.7A
Headquarters
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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 the parent over the subsidiary unit
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 the parent over the subsidiary unit
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Global product division structureFigure3.8A
HRMHRM
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Example of Global Product Division
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Global area division structureFigure3.8B
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Example of Global Area Division
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Global matrix structure
Figure3.9
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Example of the Matrix
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Problems with the Matrix
Dual reporting Proliferation of
communication channels
Overlapping responsibilities
Barriers of distance, language, time and culture
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
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
HRM Issues in Matrix
Management skills and abilities Know the business in general
Have good interpersonal skills
Can deal with ambiguities of responsibility and authority inherent in the matrix system
Analytical and presenting skills for sharing ideas, joint authority, and decision-making in groups
Management development and HR planning are more critical in matrix MNEs than in traditional organizations.
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Beyond the Matrix
The HeterarchyMNEs have different kinds of centers apart from ‘headquarters’
The TransnationalResources & responsibilities are interdependent across national boundaries
The NetworkSubsidiaries are nodes, loosely coupled political systems
At this stage, there is less hierarchy & no structure is considered inherently superior
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The networked organizationFigure3.10
Five Dimensions of a Less Hierarchical Structure or Networked MNEs
Delegation of decision-making authority to appropriate units and levels
Geographical dispersal of key functions across units in different countries
De-layering of organizational levels De-bureaucratization of formal procedures Differentiation of work, responsibility and
authority across the networked subsidiaries
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Beyond Networks: Meta-nationals
Locally imbedded sensing unitsUncover widely dispersed sources of engineering & market insights
Magnet unitsAttract innovative processes and create a business plan to convert innovations into products & services
Marketing & production unitsMarket and produce adaptations of these products & services for a range of customers around the world
A global tournament played at three levels is a race to identify and access new technologies and market trends ahead of the competition, a race to turn this dispersed knowledge into innovative products and services, and a race to scale and exploit these innovations in markets around the world.
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The Place of HR in Response to Structural Changes Centralized HR firms
characterized by large, well-resourced HR departments responsible for a wide range of functions, typically within product-based or matrix structures
Decentralized HR firmscharacterized by devolving HR responsibilities to a small group, mostly for senior mgmt at corporate HQ; mostly within product- or regional-based structures
Transition HR firmscharacterized by medium-sized corporate HR with small staff at HQ; decentralized, operate mostly in product-based structure
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Different Countries, Different Paths
European MNEs: ‘mother-daughter’ global with product/area divisions or matrix structure
Swedish MNEs: Tend to adopt mixture ofmother-daughter & product divisions
Nordic MNEs: may prefer matrix structure
U.S. MNEs: limited success with matrix
Japanese MNEs: similar to US, but evolve more slowly, possibly not changing structure
Chinese & Indian MNEs: Not much info yet
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The role of MNE culture of origin
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Control Strategies for Multinational FirmsFigure3.11
Summary
Issues of standardization & localization Mode of operations Subsidiary role Structural responses to international growth The effect of responses on HRM approaches
and activities Control & coordination mechanisms, including
cultural control
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Vocabulary corporate culture agents of socialization international boundary spanners intrinsic & extrinsic rewards institutionalism perspective centralized set-up country-of-origin effect host country, home country effects reverse diffusion local responsiveness global standardization, localization Six Sigma Quality Control IJV Local innovator global innovator integrative player implementer
export oriented approach vs. integrative management orientation
corporate immune system knowledge-sharing hostility, knowledge
hoarding person & non-person oriented coordination stage model, born globals MNE structures:
mother-daughter, matrix, heterarchy, N-form, transnational, network, meta-national
chaebols greenfield building approach Bamboo network firm clan = social control social capital
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IBUS 628 Dr. N. Yang 36
Discussion Questions
1. What are the stages a firm typically goes through as it grows internationally and how does each stage affect the HR function?
2. What are the specific HRM challenges in a networked firm?
3. 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?
1. What are the stages a firm typically goes through as it grows internationally and how does each stage affect the HR function?
2. What are the specific HRM challenges in a networked firm?
3. 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?