Chapter 2
The Organizational
Context
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Chapter Objectives
Examine how international growth places demands on
management and HRM
Identify factors that impact on how managers of
internationalizing firms respond to these challenges
We cover the following areas:
Structural responses to international growth
Control and coordination mechanisms
Mode of operation used in various international markets
Effect of responses on HRM approaches and activities.
We start with the premise that the HR functions do not operate in
a vacuum, and that HR activities are determined by and influence
organisational factors.
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Demands on Management by
International Growth
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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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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 the HR department is unclear at
this stage
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Export Department
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Sales Subsidiary
 Replacing foreign agents/distributors with
own sales subsidiaries or branch offices in
the market countries
 May be prompted by:
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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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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 approaches to staffing of key
positions

Expatriate management role of corporate HR
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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:
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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 parent
over subsidiary
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Global Product Division
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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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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 virtually
impossible to resolve
conflicts and clarify
confusion
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Beyond the Matrix
 Less hierarchical structural forms:
 Heterarchy
 Transnational
 Multinational as a network
 Networked firms
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Delegation of decision-making authority
Geographical dispersal of key functions
Delayering organizational levels
Debureaucratization
Differentiation of work, responsibility and authority
across subsidiaries
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The Networked Organization
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US, European and Japanese Structural Changes
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Control Mechanisms
“Globalization brings considerable
challenges which are often underestimated….
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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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 cooperative modes (such as joint
ventures)
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Linking Operation Mode and HRM
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Interfirm Linkages
 Alliances (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 and benefits

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Chapter Summary
The purpose of this chapter is to identify the HR implications of
the various options and responses that international growth places
on the firm. The chapter focused on:
 The organizational context in which IHRM activities
take place;
 Different structural arrangements 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;
(cont.)
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Chapter Summary (cont.)
 Control and coordination aspects – Formal and informal
mechanisms were outlined, with emphasis on control
through personal networks and relationships, and control
through corporate culture, drawing out HRM implications;
 The various modes of operation – 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
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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. We compared examples of
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U.S. firms
European firms
Japanese firms
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Implications to IHRM
 Stages of international 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.
 Cont.
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Implications to IHRM (cont.)
 Through the approach taken in this chapter, we
have been able to demonstrate that there is an
interconnection between IHRM 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 is important
that HR managers understand the various
international structural options – along with the
control and coordination demands imposed by
international growth.
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