The Organizational Context Chapter 3 The Organizational Context IHRM, Dr. N. Yang

Chapter Objectives Examine how international growth places demands on management and HRM Standardization and localization of HRM practices Factors driving standardization Factors driving localization The path to global status Structural responses to international growth Effect of responses on HRM approaches and activities Control and coordination mechanisms, including cultural control IHRM, Dr. N. Yang

Demands on Management by International Growth Figure 3.1 IHRM, Dr. N. Yang

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 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 IHRM, Dr. N. Yang

Balancing the standardization and localization of HRM in MNEs Figure 3.2 IHRM, Dr. N. Yang 5

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 IHRM, Dr. N. Yang

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 IHRM, Dr. N. Yang

Institutional effects on MNEs Figure 9-2 Institutional effects on MNEs Country of origin effects Home-country effects Host-country effects Reversed diffusion IHRM, Dr. N. Yang 8

Examples of impact of the cultural & institutional context on HRM practices Table 3.1 IHRM, Dr. N. Yang

Gupta and Govindarajan’s Four Generic Subsidiary Roles Table 3.2 IHRM, Dr. N. Yang

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 IHRM, Dr. N. Yang

Stages of Internationalization Figure 3.4 Stages of Internationalization IHRM, Dr. N. Yang

Export department structure Figure 3.5 Export department structure IHRM, Dr. N. Yang

Sales subsidiary structure Figure 3.6 Sales subsidiary structure IHRM, Dr. N. Yang

International division structure Figure 3.7 International division structure HRM IHRM, Dr. N. Yang

International division Structure Figure 3.7A International division Structure Headquarters IHRM, Dr. N. Yang

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 IHRM, Dr. N. Yang

Global product division structure Figure 3.8A Global product division structure HRM HRM IHRM, Dr. N. Yang

Example of Global Product Division IHRM, Dr. N. Yang

Global area division structure Figure 3.8B Global area division structure IHRM, Dr. N. Yang

Example of Global Area Division IHRM, Dr. N. Yang

Global matrix structure Figure 3.9 Global matrix structure IHRM, Dr. N. Yang

Example of the Matrix IHRM, Dr. N. Yang

Problems with the Matrix 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 IHRM, Dr. N. Yang

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. IHRM, Dr. N. Yang

Beyond the Matrix The Heterarchy MNEs have different kinds of centers apart from ‘headquarters’ The Transnational Resources & responsibilities are interdependent across national boundaries The Network Subsidiaries are nodes, loosely coupled political systems At this stage, there is less hierarchy & no structure is considered inherently superior IHRM, Dr. N. Yang

The networked organization Figure 3.10 The networked organization IHRM, Dr. N. Yang

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 IHRM, Dr. N. Yang

Beyond Networks: Meta-nationals Locally imbedded sensing units Uncover widely dispersed sources of engineering & market insights Magnet units Attract innovative processes and create a business plan to convert innovations into products & services Marketing & production units Market 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. IHRM, Dr. N. Yang

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 firms characterized by devolving HR responsibilities to a small group, mostly for senior mgmt at corporate HQ; mostly within product- or regional-based structures Transition HR firms characterized by medium-sized corporate HR with small staff at HQ; decentralized, operate mostly in product-based structure IHRM, Dr. N. Yang

Different Countries, Different Paths European MNEs: ‘mother-daughter’  global with product/area divisions or matrix structure Swedish MNEs: Tend to adopt mixture of mother-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 IHRM, Dr. N. Yang

The role of MNE culture of origin IHRM, Dr. N. Yang

Control Strategies for Multinational Firms Figure 3.11 Control Strategies for Multinational Firms IHRM, Dr. N. Yang

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 IHRM, Dr. N. Yang

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 IHRM, Dr. N. Yang

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 628 Dr. N. Yang