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Chapter 2

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  1. Chapter 2 The organizational context

  2. Chapter objectives In this chapter, we examine how international growth places demands on management, and the factors that impact on how managers of internationalizing firms responds to these challenges. We start with the premise that the human resource (HR) function does not operate in a vacuum, and that HR activities are determined by, and influence, organisational factors. We cover the following areas: • structural responses to international growth • control and coordination mechanisms (cont.)

  3. Chapter objectives (cont.) • mode of operation used in various international markets • effect of responses on human resource management approaches and activities. It builds upon material covered in Chapter 1 to provide a meaningful global and organizational context for drawing out the international dimension of human resource management – the central theme of this book.

  4. Figure 2-1: Management demands of international growth

  5. The path to global status • Causes structural responses, due to: • Strain imposed by growth and geographical spread • Need for improved coordination and control across business units • The constraints imposed by host-government regulations on ownership and equity • Evolution path common but not normative

  6. Figure 2-2: Stages of internationalization

  7. Stages of internationalization: Exporting • Typically the initial stage of international operations • Usually handled by an intermediary (foreign agent or distributor) • Role of HR department unclear at this stage

  8. Figure 2-3: Export department

  9. Sales subsidiary • Replacing foreign agents/distributors with own through sales or branch offices/subsidiaries • May be prompted by: • Problems with foreign agents • More confidence in international activities • Desire for greater control • Give greater support to exporting activities • PCNs may be selected, leading to some HR involvement

  10. Figure 2-4: Sales subsidiary

  11. 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 approach to staffing of key positions • Expatriate management role of corporate HR

  12. Figure 2-5: International division

  13. 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

  14. Figure 2-6a: Global product division Figure 2-6b: Global area division

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

  16. Figure 2-7: The matrix

  17. Dual reporting Proliferation of communication channels Overlapping responsibilities Barriers of distance, language, time and culture Leads to conflict and confusion Creates informational logjams Produce turf battles and loss of accountability Make it virtually impossible to resolve conflicts and clarify confusion Problems with the Matrix Bartlett and Ghoshal

  18. Figure 2-8: The networked organization

  19. Figure 2-9: US, European and Japanese structural changes

  20. 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

  21. Figure 2-10: Control mechanisms

  22. Mode of operation and HRM • Not just subsidiary operations • Firms may also adopt contractual modes • Licensing • Franchising • Management contracts • Projects • And/or cooperative modes (such as joint ventures) (=when two companies do something together)

  23. Figure 2-11: Linking operation mode and HRM

  24. HR factors • HR issues and activities that affect the successful functioning of international joint ventures include: • Assigning mangers to the joint venture • Evaluating their performance • Handling aspects pertaining to career path • Compensation benefits