Chapter 2
The organizational context
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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.
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Figure 2-1: Management demands of international growth
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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 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 division
Figure 2-6b: Global area division
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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
 Produce turf battles and loss of
• Overlapping
accountability
responsibilities
• Barriers of distance,
 Make it virtually impossible to
language, time and
resolve conflicts and clarify
culture
confusion
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Figure 2-8: The networked organization
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Figure 2-9: US, European and Japanese structural 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)
(=when two companies do something together)
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Figure 2-11: Linking operation mode and HRM
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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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