Global Integration

Zahrotush Sholikhah, M.Si

Learning Objectives

 outline the key drivers of global HRM integration in multinational corporations and present arguments why
multinational corporations might pursue more extensive integration in the future;
 identify the tools multinational corporations can use to facilitate global HRM integration, and review how
they are used;
 critically discuss when the global integration of HRM can be regarded as having been effective.
Global Integration

 In essence, global integration can be said to be about the achievement of at least one of three key
objectives:
 the control of foreign subsidiaries;
 the transfer of practices to those subsidiaries; and
 the appropriate adaptation of activities that requires both an understanding of parent practices and local
conditions.
 In terms of subsidiary control, the international management literature depicts
integration as comprising both a formal, direct, control-based dimension and a more
informal, indirect, coordination-based dimension.
 Control has been defined as any process in which a person, group or organization
determines or intentionally affects what another person, group or organization will do
(Baliga and Jaeger 1984: 26), whereas
 coordination is referred to as a means through which the different parts of an
organization (e.g. foreign subsidiaries) are integrated or linked together to
accomplish a collective goal (Van de Ven et al. 1976).
 Global integration from a control perspective is thus both about control and
coordination with these being used in combination to achieve consistency of
international business activities across borders (Kim et al. 2003).
Drivers of
global
integration
Drivers of global integration

 The reasons why global integration in general is becoming more attractive for
MNCs:
 environmental drivers;
 strategic drivers; and
 structural drivers.
Environmental Drivers

 Economies of Scale. Concentrating manufacturing in a few select locations to achieve economie mass
production.
 Capitalize on converging consumer trends and universal needs.
 Uniform service to global customers. Services are easier to standardize when their creation and delivery are
centralized.
 Global sourcing of raw material, components, energy, and labor. Global coordination is necessary to
monitor and respond to global competitive threats.
 Availability of media that reaches customers in multiple markets. Firms now take advantage of the internet
and cross-national television to promote offerings in many countries simultaneously.
Strategic Drivers

 Environmental drivers of global integration put pressure on MNCs to take a course of action
regarding their international strategy and structure. Strategic drivers capture the business
advantages that are realizable by pursuing global integration.
 Evans et al. (2011: 126) list a number of such strategic drivers that they see as supporting the
adoption of a globally integrated approach to managing the MNC:
1. Achieving economies of scale can help a firm to lower its unit costs by centralizing core value chain
activities. This might take the form, for example, of creating a network of specialized operations, which
are then tightly controlled by a central hub.
2. Establishing value chain linkages between, for example, R&D and manufacturing allows the firm to
exploit its position as a leader in innovation and to be at the forefront of any technological and
competitive changes.
3. Serving global customers refers to the need for suppliers of products or services to become as
globally integrated as their clients who determine things such as price, quality and delivery on an
increasingly global basis.
4. Global integration can also facilitate global branding insofar as it allows an MNC to promote a
consistent brand image around the world and to benefit from an efficient application of marketing
tools, such as advertising and merchandising.
5. Leveraging capabilities involves the transfer of valuable capabilities developed in a firm’s
competitive domestic market to its international operations.
6. World-class quality assurance, on the other hand, refers to standardization and central control over
complex core processes, which can help to ensure high quality and a competitive edge.
7. The strategic driver of competitive platforms is based on the idea that if the HQ tightly controls
subsidiaries, it can allow them to respond quickly to shifts in the competitive landscape and also
facilitates a more rapid global expansion of operations via the redeployment of resources.
Structural drivers

 These are referred to here as structural drivers. Unlike strategic drivers, these characteristics can act as either
facilitators or inhibitors of global integration:
 MNC’s country of origin, and the corresponding ‘country-of-origin effect’ on an MNC’s tendencies, among other
things, to transfer its HRM practices
 nature of an MNC’s international management structures.
 The third structural driver is a characteristic of foreign subsidiaries, namely their mode of establishment. (Example:
merger/acquisition)
 the extent and nature of the integration of subsidiary operations.
 The first-order level (or ‘upstream’ level) comprises firm strategy and how business activities are interlinked, the second-order
level includes issues relating to internal operating structures, and the third-order level (or ‘downstream’ level) concerns how
functions such as HR are organized internationally.
Drivers of global
HRM
integration
 In their survey of HR professionals, Sparrow et al. (2004: 59–60) identified six ‘organizational drivers’
behind the globalization and functional re-alignment of HRM.
 Efficiency orientation (centralization and outsourcing of business processes),
 the creation of core business processes,
 building a rapid global presence (including the e-enablement of management),
 information exchange,
 organizational learning and partnership (including knowledge management), and
 the localization of decision-making.
 Three of the most commonly cited ‘business case’ drivers of these globally integrated e-HRM
systems are;
 the reduction of HR transaction costs and headcount;
 the substitution of physical capability by leveraging digital assets in the sense that HR information can be used flexibly
on an infinite number of occasions at little or no marginal cost;
 and third, the transformation of the HR ‘business model’ by e-enabling the HR function to provide strategic value to the
business that it previously could not do, thus facilitating a movement away from transactional tasks to more strategic,
business-driven roles (Martin et al. 2008).
 In reference to the ‘control’ objective of global HRM integration, three ‘control-based’ benefits of globally
integrated e-HRM systems are:
 bureaucratic control by establishing procedural standards about how the system is used and thus how core HRM
processes should be carried out;
 output control by communicating goals and monitoring them through an array of sophisticated management reporting
tools;
 control via centralization by restricting access rights and introducing layers of electronic transaction authorization
(Smale, 2008).
Types of global integration tool
Kim et al. (2003), present four ‘global integration modes’ – centralization-, formalization-,
information- and people-based modes – which we will discuss in more detail in connection with the
research on their usage in integrating HRM.
 CLASSIFICATION OF CONTROL MECHANISMS
Personal/cultural (founded on social Impersonal/bureaucratic/technocratic
interaction) (founded on instrumental artefacts)
Direct/explicit Centralization, Direct Supervision, Standardization, Formalization
Expatriate control
Indirect/implicit Socialization, Informal Communication, Output Control, Planning
Management Training
 1. Centralization-based integration mechanisms

 Centralization-based integration mechanisms (cf. Harzing and Sorge’s centralization and direct
supervision)r efer to where decision-making authority resides at MNC headquarters and are argued to
be particularly effective in producing global scale, scope and learning efficiencies.
 HQ authority to be most frequently exercised in determining senior management pay, recruitment and
development (Edwards et al. 1996) as well as in making decisions on financially sensitive HRM issues
like headcount and salary expenditure (Martin and Beaumont 1999).
 However, It has been noted that the source of centralization in large MNCs can in fact lie at the
regional, not global level (Ferner et al. 2004).
 2.  Formalization-based integration mechanisms (cf. Harzing and
Sorge’s standardization and formalization) refer to the codification
Formalization- and standardization of work procedures and policies on a global
basis.
based  some studies describe global HRM policies as a means of creating a
common language across foreign subsidiaries (Hetrick 2002), others
integration argue that formalization efforts are dependent on other less formal
‘social’ control mechanisms for their overall effectiveness (Ferner
mechanisms 2000).
3. Information-based mechanisms

 Information-based mechanisms (cf. Harzing and Sorge’s output control and planning) include those tools
which facilitate the international flow of information, whether it is via simple databases or via more complex
electronic data interchanges.
 information-based integration is intended to be a means for HQ to communicate and regulate information
that is central to strategic decision-making and thereby influencing the choices made by subsidiary
managers.
 This tool of integration is likely to be most effective when the parent has to transmit information in large
quantities, in a short period of time or when the information can be easily interpreted.
4. People-based integration

 people-based integration (cf. Harzing and Sorge’s expatriate control and informal communication) involves
person-to-person interaction facilitated through meetings, teams, committees, the use of integrators, and the
transfer of people across units.
 People-based integration is considered most effective when involving tacit forms of knowledge that are best
conveyed face-to-face.
 While classifications like the
above make us aware of the
Patterns of
range of integration mechanisms
at the MNC’s disposal, they do
not provide us with answers to
HRM
the questions of:
integration
  MNCs use multiple mechanisms in
combination at different levels of intensity,
How they are used otherwise referred to as a ‘systems’ approach
collectively (i.e. are (Kim et al. 2003).

they  Also in the HRM literature, we see MNCs

using a diverse array of direct and indirect
complementary or mechanisms in combination and at varying
substitutes?) strengths (Smale 2008; Morris et al. 2009),
suggesting that HRM integration mechanisms
too are used as complements, not substitutes.
which ones are most
important in the
integration of HRM?

 centralization-based methods are relatively

uncommon and are generally reserved for a few
selected areas of HRM.
 information-based mechanisms in the shape of
‘integrative’ e-HRM technologies are on the rise.
 In addition, the role of expatriates as a people-
based mechanism has been shown to be pivotal,
and potentially problematic, in their role of
HRM knowledge and practice transfer
why MNCs are likely to place different
emphasis on their use?

 Although there is evidence of some country-of-origin effect (Harzing and Sorge 2003), we are not sure of the
selection criteria MNCs use when configuring their tools of integration. One potential reason for this is the
arguably false assumption that management at HQ alone decide how integration will take place.
 In reality, integration is argued to be a highly contested and political process, characterized by the use of
power resources by both HQ and subsidiary management (Martin and Beaumont 1999; Ferner et al. 2005).
https://www.youtube.com/watch?v=r1WzcxtEUps