The Organizational Context

Chapter 2

1 Zehra A. Sayyid
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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.)
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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. Zehra A. Sayyid
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Figure 2-1: Management demands of

international growth Zehra A. Sayyid
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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
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Figure 2-2: Stages of Zehra A. Sayyid

internationalization
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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
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Figure 2-3: Export

Department
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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
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Figure 2-4: Sales

Subsidiary
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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

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Figure 2-5:
International division
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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 parent
over subsidiary
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Figure 2-6a:
Global product Figure 2-6b: Global Area Division
division Zehra A. Sayyid
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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

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Figure 2-7: The

Matrix
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Problems with the Matrix

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

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Figure 2-8: The

Networked
Organization Zehra A. Sayyid
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Figure 2-9: US, European

and Japanese Structural Zehra A. Sayyid
Changes
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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

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Figure 2-10: Control

Mechanisms
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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)

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Figure 2-11: Linking

Operation Mode and HRM
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Inter firm Linkages

 Alliance (strategic alliance, cooperative

venture, collaborative venture or corporate
linkage)
 A form of business relationship that:
 Involves some measure on interfirm
integration
 Stops short of a full merger or acquisition

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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
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Chapter Summary
 The purpose of this chapter has been to identify the HR
implications of the various options and responses that
international growth places on the firm. This chapter
focused on:
 The organizational context in which IHRM activities take
place. Different structural arrangements have been
identified as the firm moves along the path to multinational
status – from export department through to more complex
varieties such as the matrix, heterarchy, transnational and
networked.
 Control and coordination aspects. Formal and informal
mechanisms were outlined, with emphasis on control
through personal networks and relationships, and control
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through corporate culture, drawing out HRM implications.
 (cont.)
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Chapter Summary (cont.)

 The various modes – such as wholly owned,
franchising, management contracts and
international joint ventures – used by
multinationals for foreign market entry and
expansion. Again, we attempted to demonstrate
the IHRM implications of these various modes,
although noting that most of the literature focuses
on wholly owned subsidiaries and international
joint ventures.
 (cont.)
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Chapter summary (cont.)

 How international growth affects the firm’s approach to HRM.
Firms vary from one another as they go through the stages of
international development, and react in different ways to the
circumstances they encounter in the various foreign markets. There
is a wide variety of matches between IHRM approaches,
organizational structure and stage of internationalization. For
example, almost half the US firms surveyed by Dowling55 reported
that the operations of the HR function were unrelated to the nature
of the firm’s international operations. A study of nine subsidiaries of
multinationals operating in Ireland by Monks56 found that the
majority adopted a local approach to the HR function, with
headquarters involvement often limited to monitoring the financial
implications of HR decisions.
 (cont.)
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Chapter Summary (cont.)

 Stages of development, organizational forms and mode of
operation should not be taken as normative. Research does
suggest a pattern and a process of internationalization but firms
do vary in how they adapt to international operations – we use
nationality of the parent firm to demonstrate this.
 Through the approach taken in this chapter, we have been able
to
 demonstrate that there is an interconnection between
international HRM 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 would seem
important that HR managers understand the various
international structural options – along with the control and
coordination demands imposed by international growth – and
the HR implications that accompany the range of operation
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modes outlined in this chapter.