The Organizational Context

(Chapter 2)

Management Demands of International Growth:

Size Structure Geographical dispersion Control mechanism National culture and language Host country demands Operation modes Flow and volume of information

The Path to Global Status

As the firms go through the evolutionary stages of internationalization process, their organizational structures change, due to the growth and geographical spread,, the need for improved coordination and control across business units and the constraints imposed by host-government regulations on ownership and equity. Internationalization is a common process but not exactly the same for all firms

Stages of internationalization
Foreign Production Sales Subsidiary Exporting Network of Subsidiaries

Licensing

Subcontracting

Export department:
Managing director

Production Manager

Finance Manager

Marketing/ Sales Manager

HR Manager

Domestic Sales

Export Sales

Sales Subsidiary:
replaces agents and distributors owing to certain problems, more confidence in the international sales activity, desire to have greater control and/or decision to give greater support to export activity usually due to its increasing importance to overall success of the organization The export manager is given the same authority as other functional managers Exporting is still controlled at headquarters but the firm may decide about the coordination of subsidiary including staffing

International Division:
A foreign production or service facility is established to take advantage of cheap labor or to save shipping costs or tariffs; to take advantage of host-governments incentives or counter their control on foreign imports Triggers the creation of a separate international division in which all international activities are grouped The subsidiary managers report to the head of the international division or informal reporting directly to the functional heads

Global Product / Area Division: Characterizes growth stage and accompanied challenges of increased size, need for national responsiveness and global integration Two major issues of structure:
The extent and degree of key decision making at parent headquarters or at the subsidiary units (centralization vs decentralization) The type or forms of control (bureaucratic vs normative)

To facilitate the challenge of meeting these conflicting demands, an appropriate structure is vital and the choice appears to be:
The Matrix structure The Mixed structure The Heterarchy The Transnational The Multinational network

The Matrix
Integrates operations across more than one dimension Product division and geographical division share joint authority Only organizational form that fits the strategy of simultaneous pursuit of multiple business dimensions, with equal priority Dual reporting line for functional staff (HR)

Area managers are responsible for the performance of all three products within the various countries that comprise their region while the product managers are responsible for the sales of their specific product ranges across the areas Contradictions: global/ / local, big / small, and decentralized with centralized reporting and control

Problems with Matrix

1. Dual reporting leads to conflict and confusion 2. Proliferation of communication channels create informational logjams 3. Overlapping responsibilities; create lack of accountability 4. The barriers of distance, language, time and culture

Mixed structure
According to research by Dowling, 35% of the MNEs have mixed structure while 18% have matrix More complex and harder to implement and control Employees mind-set is important

The Heterarchy: (by Hedlund)

Resource, people and information flow can be multi-directional Recognizes that a multinational may have a number of different centers apart from the traditional center referred to as headquarters. Based on the philosophy that competitive advantage does not necessarily reside in any one country

Control is less reliant on the top-bottom mechanisms of previous hierarchical modes and more reliant on normative mechanisms such as the corporate culture and widely shared awareness of goals and strategies. Demands skillful and experienced personnel as well as sophisticated reward and punishment systems to follow normative controls Proposed a structural model termed the N-form (knowledge management)

The Transnational: A new organizational form that is characterized by an interdependence of resources and responsibilities across all business units regardless of national boundaries. Demands a complex system of coordination and cooperation involving strong cross-unit integrating devices, a strong corporate identity and worldwide management perspective.

Multinational company operates as decentralized federations of units able to sense and respond to diverse international needs and opportunities Global company manages operations on a tightly controlled worldwide basis through its centralized hub structure Transnationals manage across national boundaries, retaining local flexibility while achieving global integration.

The multinational as a network: Intraorganizational network comprises of headquarters and the numerous subsidiaries; Interorganizational network comprises of external relationships involving local suppliers, customers, competitors, host governments and alliance partners The management of both spheres and of the total integrated network is crucial to global corporate performance

A less hierarchical structure featuring five dimensions:

Delegation of decision making authority to 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.

Different countries take different paths Control and coordination: is crucial and is aimed by HRM through informal contact or communication, staffing decisions, movement of key staff within organization, expatriates Control mechanisms in the networked MNEs: Formal / Informal

Mode of Operation
Can be contractual (such as, licensing, franchising, management contracts and projects) and cooperative ( such as joint ventures) modes in order to enter and develop foreign markets. HRM activities such as staff placement, simultaneously link and influence the choice of market entry mode.

Interfirm Linkages:
A corporate alliance is a formal and mutually agreed commercial collaboration between companies. The partners pool, exchange or integrate specified business resources for mutual gains. Yet the partners remain separate businesses. Stops short of a full merger or acquisition though some alliances may develop into that later

The strategic importance of the venture for the parent company determines the extent of parent company control over its operations. Staffing the joint ventures with managers who are flexible in terms of different management styles and philosophies is the most important task of HR function.

Mergers and acquisitions: The preferred mode of entry by firms from developed countries when entering other developed countries Integration of human resource is important