Chapter 3
The Organizational
Context
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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
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Figure
3.1
Demands on Management by
International Growth
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The Global Mindset and Local
Responsiveness
 The aim of global
standardization
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Consistency
Transparency
Ease of administration
Efficiency and
effectiveness
Sense of equity
 The aim of localization
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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
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Figure
3.2
Balancing the standardization and localization
of HRM in MNEs
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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
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Factors Driving Localization
 The host-country context
 The cultural environment
 The institutional environment
 Mode of operation abroad
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Ownership and control
 Subsidiary role
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Greenfield versus IJV
M&A
Implementer, innovator, integrator
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Figure
9-2
Institutional effects on MNEs
 Country of origin effects
 Home-country effects
 Host-country effects
 Reversed diffusion
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Table
3.1
Examples of impact of the cultural &
institutional context on HRM practices
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Table
3.2
Gupta and Govindarajan’s Four
Generic Subsidiary Roles
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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
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Figure
3.4
Stages of Internationalization
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Figure
3.5
Export department structure
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Figure
3.6
Sales subsidiary structure
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Figure
3.7
International division structure
HRM
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Figure
3.7A
International division Structure
Headquarters
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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:
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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
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Figure
3.8A
Global product division structure
HRM
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HRM
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Example of Global Product Division
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Figure
3.8B
Global area division structure
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Example of Global Area Division
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Figure
3.9
Global matrix structure
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Example of the Matrix
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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
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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.
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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
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Figure
3.10
The networked organization
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Five Dimensions of a Less Hierarchical
Structure or Networked MNEs
 Delegation of decision-making authority to
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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
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Beyond Networks: Meta-nationals
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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
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The Place of HR in Response to
Structural Changes
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Centralized HR firms
characterized by large, well-resourced HR departments
responsible for a wide range of functions, typically
within product-based or matrix structures
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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
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Transition HR firms
characterized by medium-sized corporate HR with
small staff at HQ; decentralized, operate mostly in
product-based structure
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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
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The role of MNE culture of origin
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Figure
3.11
Control Strategies for Multinational Firms
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Summary
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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
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Vocabulary
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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
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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
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Discussion Questions
1. What are the stages a firm typically goes through as it
grows internationally and how does each stage affect the
HR function?
2. What are the specific HRM challenges in a networked
firm?
3. 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?
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