nature of ihrm
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SECTION II
Nature of IHRM
Learning Objectives
After reading this chapter, you should be able to
Understand what constitutes IHRM and how it is differentfrom domestic IIRM
Understand the impact of organisational strategy onIHRM
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Nature of IHRM
Global FIRM at Colgate-Palmolive Co.
Opening
Colgate-Palmolive, the $6 billion a year personal products giant. earns nearly two-thirds of its revenues outUnited States. For years. Colgate succeeded, as many US multinationals have, by developing products at ho
then "throwing them over the wall" to foreign subsidiaries. Each major foreign subsidiary was responsible
manufacturing and marketing. Senior management pavilions in these subsidiaries were typically held by Am
and practically all the company's US-based managers were US citizens.
In the early 1980s, Colgate realised that if it was going to succeed in the rapidly changing international b
environment. it would have to develop a more transnational orientation. Its competitors. such as Procter &
Unilever and Kao, were trying to become transnational companies, and Colgate needed to followsuit. Bec
transnational requires developing an international cadre of executive managers who are as at home wo
one culture as In another and who have the ability to rise above their ethnocentric perspectives.
As a first step towards building such a team. Colgate began recnilting college graduates in 1987 andthem through an intensive international training programme. The apical recnrit holds an MBA fro
university speaks at least one foreign language. has lived outside the United States, and has strong co
skills and business experience. Over onequarter of the participants are foreign nationals.
The trainees spend 24 months in a US programme. During three-month stints, they learn global
development secrets of for example. Colgate toothpaste. compiling a guide for introducing a new pr
revamping an existing one in various national markets. Participants also receive additional language instruc
take international business trips. When they have completed the programme, the participants become a
product managers in the United States or abroad. Unlike most US companies, Colgate does not send fore
trainees to their native countries for their initial jobs. Instead, it is more likely that a French national will re
the United States. a US national will be sent to Germany. and a British national will go to Spain. The foreceive the same generous expatriate compensation packages the Americans do, even if they are assigned
home country. This extra pay can create resentment among locally hired managers offoreign subsidiaries.
is trying to resolve this problem by urging its foreign subsidiaries to send their brightest young manage
training programme.
In addition to the management training programme, Colgate has taken a number of other steps to de
International cadre of managers. in Europe. for example. the company Is developing "Euromanagers manag
have experience working in several European countries. This is a departure from the established pra
having managers spend most (if not all) of their working careers in their home country. Also. Colgate now
ensure that project teams contain managers from several different countries.
hup://www.colgate.comSource: J. S Lublin, "Managing Global Younger Managers Learn Global Shills." The Wall Street Journal, M
1992, p. B1: B. Hagerty, "Companies in Europe Seeking Executives Who Can Cross Borders in a Single
The Wall Street Journal. January 25.199!. p. Bl: and CM Solomon. "Global Operations Demand that
think Diversity:" Personnel Journal 73 (1994), pp. 4040.
http://www.colgate.com/http://www.colgate.com/ -
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66 International Human Resource Management
Simply told. IHRM refers to the HR policies and practices applied by an international
across all its subsidiaries located in different countries. The Colgate story told in the ope
case is a true reflection of the status of international human resource management. Sta
more clearly. IHRM is the process of procuring, allocating and effectively utilising hu
resources in a multinational organisation. The definition given by Peter J. Dowling
Denice E. Welch is worth citing in this context. According to them. IHRM contains t
dimensions:'
I. Three broad human resource activities, viz. procurement. allocation and utilisa
These three dovetail with all the activities of the typical domestic human reso
management and
industrial relations.
2. The three national orcountry categoriesinvolved in IHRM activities:
the host country where
a
subsidiary may belocated.
the home country wherethehead office is located,and
'other' countries that
may be suppl iers of
labour, finance and
other resources.
3. The three categories ofemployees of aninternational firm:
host-country nationals
IHRM is the interplay among these three dimensions - -the human resource actin hies. type
employees and countries of operation (See Fig. 3.11.
H R M C O M P A R E D W I T H D O M E S T I C H E M
The nature of IHRM is more clearly understood by comparing global HR functions
domestic HRM (DHRM) functions. First, the similarities between the two. Essentially
activities are the same whether they are specific to one country or extend to sev
countries. The HR manager needs to plan for the human resources, hire the right peop
right numbers. train and develop. compensate, maintain and motivate employees, whe
his or her domain is domestic or global.
Another similarity relates to the environmental forces which impact the functionin
an HR department. whether it be domestic business or global business. The exte
constraints include political. legal, economic and cultural. These four elements significa
nfluence the way HR functions are carried out both in domestic as well as in g
businesses.
FIGURE 3.1 Nature of IHRM
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HawnofIHRM
knowledge management. talent retention and the like. These interventions apply to thedomestic as well as international businesses.
However, the differences between IHRM and DHRM arc more striking than tsimilarities. The main difference stems from the complexity of operating in diffecountries, having different nationals as employees. In particular, the complexity of IHcan be attributed to six factors:1
more HR functions and activities;
need for a broader perspective; molt involvement in employees' personal lives;
changes in emphasis as the work force mix of PCNs and NCNB varies;
risk exposure; and
broader external influences. (see Fig. 3.2).
411)m b i s c o
FIGURE 3.2 DHRM and IHRM Compared
More HR Activities
Each function of HR has new dimensions in IHRM. Described below are how they are
functionally different.
Human Resource Planning
(i) Difficulty in implementing HR procedures in host countries.
(ii) Difficulty in tying strategic business planning to HR planning and vice-versa.(iii) Providing developmental opportunities for international managers.
Employee Hiring
(i) Ascertain cultural-fit with that of the global organisation.
(ii) Ethnocentric, polycentric or geocentric approaches to staffing.
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International Human Resource Management
(iii) Selection of expatriates.(iv) Coping with expatriate failure.(v) Managing repatriation processes.
(vi) Managing female expatriates.
Training and Development
(i) Emphasis on cultural training.(ii) Language training.
(iii) Training in global etiquette and the nuances of the virtual workplace culture.
Compensation
(i)Devising an appropriate strategy to compensate expatriates.
(ii) Minimising discrepancies in pay between parent, host and third country nationals.
Performance Management
(i) Constraints while operating in host countries need to be considered.(ii) Physical distance, time differences and cost of reporting system add to the complexity.(iii) Identification of raters to evaluate subsidiary performance.
ndustrial Relations
(i) Who should handle industrial relations problems of a subsidiary?(ii) What should be the attitude of the parent company towards unions in a subsidiary?(iii) What ought to be the union tactics in subsidiaries?
Be it employee selection, training or compensation. IIIRM adds new dimensions ware not experienced or observed in DHRM.
Broader Perspective
When compared to DHRM, IHRM requires a much broader perspective for aactivities. This divide is primarily because an MNC continues to recruit and select a mdifferent types of employees including host country nationals, third country nationaparent country nationals. International joint ventures, for example, can include as manine different types of employees, each with their own distinct characteristics-foparent expatriates, host parent expatriates, foreign parent annulate, host country nati
hird country nationals, expatriates of foreign parents. third country expatriates ofcountry parents, third country expatriates of the joint venture, foreign headquarter execand host headquarter executives. The various employee groups, each with their own cubackgrounds add to the need for a broader perspective on the part of the manager:Training and development for instance. the tasks involved here are to identiype of overseas assignment for which training is required, determine the specific
cultural training needs and impart training and evaluate its effectiveness. Similarly, dealing with pay issues, the IHR manager needs to coordinate pay systems in diffcountries with different currencies that may change in relative value to one anotheime. While handling fringe benefits too, complications tend to arise. It is a com
practice in most countries to provide health insurance to employees and their famThe interpretation of family however varies across countries In some countries
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Nature of IHR M
randparents, nephews and nieces. The IHR manager finds himself or herself in a diffiituation while determining who to include/exclude as relatives in the family nest.'
Irrespective of whether a country is developed or developing makes the IIrientation different. The establishment of the EU. for instance, had signific
mplications for FIRM. HRM in Europe is in a transition. It can be actively debated whethistinct European HRM culture does exist. In anticipation of the creation of a sinuropean market, prior to 1993, organisations were beginning to review their strategieake advantage of the markets freed from border tariffs, which were opened up. The 19
witnessed an unprecedented number of mergers and acquisitions in Europerganisations sought to develop an integrated Europe. This led HR professionals acrossifferent countries to deliberate first to map what practices prevailed at the national
ndustry level; and second, to find common ground for a European HRM policy.'
The European HRM policy did emerge over time. The distinct features of an European Holicy are: impact of culture, sense of organisational and managerial responsibowards employees, greater involvement of groups and wider support towards trnions and other forms of employee representations.
This pan European HRM policy contrasts with the US policy towards HRM. The hallmaf the latter arc: freedom and autonomy, low interference from state, hands-off attit
owards employees and a natural resistance towards trade unions.The IHR manager operating in developing countries encounters unique problems. In m
eveloping countries that is a paradigm shift in management policies, orientations aractices. Many of the countries are emerging as market driven economics, emphasin professionalisation of managerial practices, including those relating to HR. There woe resistance from within the organisation. usually from employees of the parent compo accept new ideas and approaches and it is the responsibility of the IHR managensure that they are appropriately redressed.
More Involvement in Employees' Personal. Lives
Unlike the domestic HR manager, an IHR manager requires to be involved a lot more in ersonal lives of the employees. It may be enough for the DIIR manager to know rofessional profiles ofemployees. But, the IHR manager should go beyond and knbout spouses. children, relatives, religion, region, culture and a host of other debout the expatriates. The HR department needs to ensure that the expatriate understaousing arrangements, health care and all aspects of the remuneration packages providedhe foreign assignment. Handling banking, investments, home visits and final repatriatioxpatriates are other issues an IHR manager is expected to support.
The IHR manager has additional responsibilities while dealing with expatriates frountries like, India for example. Indians working overseas encounter peculiar, o
npleasant circumstances. Take the instance of a five year old boy (read Smaran, soKartik Kaushik) who returned home from school one day and made a demand: "Dad, doave white paint at home?" A girl in his class at school, it seems, had called the bobrownie", and he wanted to paint himself white? Or take another instance of an Indouple working in Germany (read Venkatachlam Krishnan, CEO of Basics. Ranba
German subsidiary and his wife). For them. social life hardly existed, as Germans nsular people. Even after living there for more than three years. he and his wife haad any local friends. Health care was a big concern. Krishnan's wife Jaishree came bacndia for the delivery of their daughter. Anitra, as neither of them was comfortable whe experience during check-ups early in her pregnancy.'
Highly interesting incidents happen in the lives of foreigners working in India. One s
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0 Unemotional human Resource Management
angalore as anybody else. Bob and his wife had organised an Indian naming ceremony for theirds. The kids were called Mere! Kavitha and Tobias Bhaskaran.7
Situations of the type described above may not require the intervention of the IHR manager, aave to be handled by the expatriates themselves. Nevertheless it is considered a IHR role to be awuch challenges and package some of these into training programme for the expatriates.
Changes In Emphases as the Work Force
Mix ofPCNs and HCNs Varies
he HR policies and practices depend on the constituents of the host country unit. During thetages of a unit, there arc more number of parent country nationals in the host unit and as a result, tctivities are focussed on the PCN. This continues till such time that the host unit is dependent on the ountry nationals who constitute the majority at the subsidiry. As the unit becomes independeriginal emphasis with respect to its HR activities and policies shifts in favour of the HCN. Axample would be a US based company in the health care industry. During the intial phase of seats operations in India. there were a number of expats who were onboard the host unit, hence thernumber of facilities and policies that were put in place to ensure that the expats were well take
f. As the operations of the unit in India stabilised and about three years into its successful operradually the company began to withdraw its parent country nationals from the Indian setup. The HRhich earlier had to provide for a separate set of policies and reimbursements, such as special relolowance, company car and company leased accommodations, was able to withdraw the sam
maintain a single uniform policy that took care of the host country nationals. A balance needs to beetween the need to integrate HR policies with the parent company. alongside the need to havost country HR guidelines, to keep the company competitive at the local country level, as a premployer.
Risk Exposure
isk exposure is high in domestic HRM. Unfair hiring practices may result in a firm being chargeolation of Constitutional provisions and be liable for penalties. Failure to maintain cordial relationnions may result in strikes and other forms of labour unrest. BPO firms are exposed to the remale employees, during night shifts, being sexually abused and killed. Males too are freqobbed of cash and expensive accessories.
In IHRM, there arc additional risks, as for example: terrorism, kidnapping and murd
An American engineer. Paul Johnson, was beheaded in Saudi Arabia in 2004. An Indian labourer,as kidnapped and killed in Afghanistan in 2005. So was Suryanarayan, a telecom engineer, in
errorism poses a great risk to international operations. The cost of kidnapping may run to S2 to S3 mnd it is estimated that there are 10,000 to 15,000 kidnappings a year worldwide. Finns are, theorced to spend one to two per cent of their revenues on protection against terrorism.
The IHR department may also be required to devise emergency evacuation procedures for highly vcations. The invasion of Kuwait by Iraq and the ensuing Gulf wan in 1991 are examples of suventuality.
Then there is the risk of expatriate failure. The failure of an expatriate can have disastrous rubstantial monetary costs are involved while sending expatriates abroad, bringing them back to theountry and finding replacements (between $300,000 and S I million per expatriate per year). One es
that US companies lose S2 billion a year as a result of expatriate failure. Besides, the
erformance of an expatriate may damage the firm's image in the host country There are a
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Nature of IHRM
employees who fail even though they bad been viewed as competent managers withe domestic organisations. These individuals may have sold their homes, left the jthey liked, and uprooted their families to take a foreign assignment, only to find themse
back in the home country. branded as failures. Their early return may also affect tfuture career prospects in the finis
A domestic HR manager may be free from such risks.
External Influences
Domestic HAM is subject to the influence of an environment which comprises such fa
as political-legal, economic, cultural and technological, prevailing within a country
the other hand, IHRM is exposed to several cross-country factors such as:
policy actions of national governments, such as expropriation and changes in
exchange rates; responses of competitors in the host market; and
host countnry stipulations on staff selection.
Multinational companies enjoy high visibility in countries of their operations. Becausthe high visibility, the subsidiary HR managers may have to deal with ministers, polit
leaders and a greater variety of economic and social interest groups than domestic
managers. A host country government can dictate hiring procedures as for example. invol
local employment exchanges in selecting skilled labour. Host country labour laws ough
be complied with while fixing and disbursing salaries and host country laws gov
industrial relations too.
In some cultures. age is held at a premium, even at the cost of merit. Placing a junior
supervisory position over his or her elders often leads to avoidable unplea
consequences. Affirmative actions notwithstanding. employees resent having cer
categories of employees as bosses in sonic societies.
GROWING INTEREST IN IHRM
The following reasons have contributed to the growing interest in IHRM
Globalisation of businesses has added to the number of multinational enterprises acrthe globe. resulting in a greater mobilisation of human resources.
The effective management of human resources is increasingly being recognised
a major determinant of success or failure in international business. Underperformance or failure in overseas assignments is costly, both in human
financial terms, and the indirect costs of poor performance in internatiassignments, such as damage to foreign customer relations, may be particularly cos
The implementation of international strategies is often constrained by the absenccompetent managerial personnel to man overseas assignments, which result
decreased interest in setting up subsidiaries.
The movement away from more traditional hierarchical organisational structu
towards a networked MNC organisation has been facilitated by the developmen
networks of personal relationships and horizontal communication channels. It i
secret that HR plays a more significant role in network organisations.
Finally. HR plays a significant rote in the implementation and control ofstrategies i
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72 International Human Resource Management
F U N C T I ON A L P OS I T I ON I N G OF I H R M
IHRM is positioned globally depends on the global strategy pursued by an MNC. It is a conscious dec
made by every enterprise about how it plans to expand its operations overseas and how it strategis
run its day-to-day operations in the host country. Organisations use four basic strategies to compete i
international environment: an international strategy, a multidomestie strategy, a global strategy a
transnational strategy (see Fig. 3.3).
High
Cost Pressures
Low
Low Pressure roe Lo al Responsiveness High
FIGURE 3.3 Four Basic Strategies
Internat iona l St rategy
Organisations that follow an international strategy attain business efficiency by transferring val
skills and products to host county markets where indigenous competitors lack those skills and prod
Most international firms have derived value by transferring a new and varied range of its pro
offerings developed at home, to new markets overseas. They tend to centralise product develop
functions at home (e.g. R&D). However, they also tend to establish manufacturing and mark
functions in each major country in which they do business. But while they may undertake some
country custommarketing strategyts and marketingstrategy, this tends to be limited. Ultimately, in
international organisations, the head office retains tight control over the marketinMultidomestic stra
Multidomestio Strategy
Ormultidomestieollowing a multidomestic strategy orient themselves toward achieving maximumresponess. Multidomestic tinnsfirms extensively customise both their product ranges and their mark
strategy to match different national conditions. They also tend to establish a complete set of value cre
activitiesincluding production, marketing and R&Din each major national market in which the
business. As a consequence, such organisations generally fail to realise value from the parent comp
learning curve and location economultidomestiengly, many multidomestic organisations have a high
structure. They also tend to do a poor job of leveraging core competencies within the organisation. Ge
Motors is a good example of a company that has histomultidomestieioned as a multidomestic corpora
particularly with regard to its extensive European operations, which are largely sHrghcontained ent
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Global Strategy
Organisations that pursue a global strategy focus on increasing profitability by reapthe cost advantage that come from the experience curve effects and location economics. Tpursue a low-cost strategy. The production, marketing and R&D activities of organizatipursuing a global strategy arc concentrated in a few favorable locations. Global organizatitend not to customise their product offering and marketing strategies to local conditi
because customisation raises costs (it involves shorter production runs and the duplicatiofunctions). Instead, global organisations prefer to market a standardised proworldwide so that they can reap the maximum benefits from the economies of scale underlie the experience curve of the parent company. They also tend to use their cadvantage to suppon aggressive pricing in world markets.
Transnational Strategy
Christopher Bartlett and Sumantra Ghoshal have argued that in today's environmcompetitive conditions are so intense that to survive in the global marketplaorganisations must exploit experience-based cost economies and location economies, tmust transfer core competencies within the firm, and they must do all this while payattention to pressures for local responsiveness. They note that in the modem multinatienterprise, core competencies do not reside just in the home country. They can develoany of the firm's worldwide operations. Thus, they maintain that the flow ofskills and proofferings should not be all one way, from home firm to foreign subsidiary, as in the casfirms pursuing an international strategy. Rather, the flow should also be from foresubsidiary to home country, and from foreign subsidiary to foreign subsidiary-a process trefer to as global learning. Bartlett and Ghoshal refer to the strategy pursued by firms are trying to achieve all these objectives simultaneously, as a transnational strategy.
Each strategy has its advantages and disadvantages and invites appropriate interventions, as Table 3.1 shows. During the initial phase of an MNC's entry multinational locations. the approach is either
Strategy
International Strategy
Advantages
Transfer distinctive
competencies toforeign markets
A hrgh degree of control
and coordination ensures
that all Subsidiaries,
irrespective of country
of location, are similarly
managed
A high associatron
with a common
corporate vision,
mission and value
system. Corporate
Disadvantages
Lack of localresponsiveness
Inability to realiselocation economies
Failure to exploit
IHRM Strategy
Approach could be
ethnocentric or
polycentric usually th
ethnocentric approach
preferred for greater
control
Key posrtions occupied by par
country nationals of
%MNC
UKpolrcies arc either
centralised or complet
decentralised, with
macro level activitie
globally standardrsed,
(C
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74 International Human Resource Management
TABLE 3.1 (Contd.)
Strategy Advantages Disadtuniages I I I R M Strategy
Multidomesti
c Strategy
Customisecompetenc
ies.ferings and
marketing in
accordance withlocal responSivenas
Inability to realise
location economies
Failure to exploitexperience curve effects
Usually adopts a
completely
polycentricpolyecnt
approach
Failure to transfer
distinctive competencie.
to foreign markets
HR policies are
usually
compPCN/HCN/TCN
ed and independent
managed at the un
level. benchmarke
Global Strategy Exploits experience curveLack of local responsiveness Geocentriciregioce
effects approach
Expresponsivenessn economies Key positions are occu
by FICNAICTIfTCN
lift policies arc
largely centralised
and
stanpolyccntricrat
n of global best
practices and global
benchmarking
Transnation
al Strategy
Exploits experiencecurve effects
Difficult to implement dueto organisational problems
Geocentric/regiocen
tric approach
Exploits location economies
Customise product
offerings and marketing
in accordance with local
responsiveness
Reaps benefits of
global teaming
Key positions are
occupied by a bree
of global manager
from within the
organisation
HR policies are
largely centralised
and
standardised, wit
integration of glob
best practices and
global benchmarki
insisting on total
compliance with
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NatureofIHRM
multi-domestic or international and they differ in the organisational predispos(discussed earlier in Chapter 2). lithe approach is ethnocentric, the organisational stratusually international, The IHRM focus revolves around highly centralised HR practiceprocesses. Customisation would be restricted to statutory/ legal/ government stipulationsfew distinct local attribute. That is a large amount of dependence on the parent unit to decisions. approve policy changes and control production/research/marketing and financexample, companies like Pepsi, Coca-Cola, IBM. Kellogg, Procter& Gamble and Wal-Mart c
classified as practising the international strategy. Coke allows its national subsidiaries to and sell according to their own marketing and distribution strategies develop so as to meocal challenges, while the core activity of syrup/concentrate preparation and product innoremains centralised at its global headquarters at Atlanta, USA.
An organisation with a multi-domestic strategy most definitely adopts a polycapproach towards its HR functions. The policies are highly decentralised and each locahas the freedom to set and follow its own policies suitable for hiring and retaining its n the home country. Key positions are staffed by the HCN and the unit operates lindependent profit centre by itself.
Organisational strategies like the global and the transnational strategics benefit f
geocentric/ regiocentric approach. While they merit a high amount of integratiocoordination efforts, the benefits from having a centralised set of policies which incorpthe best of practices. that arc uniformly followed by units across the globe, are many. ike GE and IBM are examples of organisations that arc run with corporate HR functionare benchmarked with global practices.
ORGANISATIONAL CONTEXT OF IHRM
HRM needs to be organised and the organisational structure depends on the HR strategwhich in turn, depend on corporate strategy. Some preferred structures are described i
following pages.
Internaticnal Divisicn Structure
n the international division structure, an overseas unit is an adjunct to the parent comt handles all the overseas activities, which may be organised by functions, product ostructure. All the international activities arc under the authority of the international dihead (of the rank of Vice-President), who coordinates the overseas activities. Anternational activities are under one head, control and communication arc easy anstructure can respond to changing local needs quickly. But the drawback of this struct
Home-MiceDopautnents Chia Exact
OverseasSuHome-
VP internationaloperations
Egypt A t li
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76 International human Resource Management
Functional Structure
Also called worldwide functional structure, in this type each function is responsible
activities around the world. The manufacturing department, for example, would
responsible for worldwide production activities, so also with finance, marketing, R&D
HRM. This design is used by international businesses that have narrow or similar prod
lines.
Since each functional area deals with the global market, specialisation and concentratiofunctional expertise can be taken advantage of. Control of various functions can be exerci
relatively easily. But the drawback with this structure is the delay in responding to lo
needs. Figure 3.5 typifies a functional structure.
(MoritalinEur(Finance)
LoCIISC)ans
(Otbeatiections)
\Cui )NMI= (Etecc
FIGURE 3.5 Worldwide Functional
Structorganrsedaphic Area Structure
In this, worldwide activities arc organised by dividing the globe into different geographic
areas. The regional manager is responsible for all business acts within that geographic are
( Europe and
La* ArnetineAmerica N. America andPacificWW1
LLU vsnazu,sad Malyus I 17Ianan RI irnada
lecturing
Menu- $17
Minding Faience
FIGURE 3.6 Geographic Area Structure
A geographic division can respond to the market conditions of a particular area much m
effectively than any other structure. But there tends to be a duplication of functions as there
different divisions catering to different areas. Communication among the divisions may
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Nature of IHRM
rcduct Structure
is is the most common organisational structure followed by MNCs. The p
ucture assigns worldwide responsibility for specific products or product grou
parate operating divisions within a firm. As Fig. 3.7 shows, the manager who is inc
a product division has authority for this product line on a global basis.
( C I O )
t
ProductDivision
8rproductovistook A
ProductDivision
C
i-
t
ArIONTal t Ainco
Menu- \ Menu/7 \ Maw' Menu-A Manu.
factoring lecturing I festering ,tacturIngMarketing M a r k e t i n g
Median Marketing I MarketingFinance Finance Finance Finance Finance
FIGURE 3.7 Global Product Structure
The global product divisions operate as profit centres. Managers of product divisiohe operations with considerable autonomy. They have the authority to make imp
ecisions. But, corporate headquarters usually maintain control through bud
onstraints and home office approvals for key decisions.
Several benefits accrue to a worldwide product structure. If the firm produces a large n
f diverse products, the structure allows each product line to focus on the specific ne
scustomers. This structure also helps develop a cadre of experienced, well-t
anagers who understand a particular product line. A third benefit of the product str
that it helps the company match its marketing strategy to the specific needs
ustomer. Finally, because managers possess extensive product knowledge, they are
ble to incorporate new technologies into their products and respond quickl
asily to technological changes that affect their markets.
There arc some problems associated with product structure too. First is the neces
uplicating facilities and staff within each division. Second, products that sell w
ften given more importance than others. Finally, coordination among product g
ecomes difficult.
Matrix Structure
he matrix structure emerges when one design is superimposed on top of an existin
ff t f Th lti t t i fl id ith t i di i b i
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78 International Human Resource Management
The matrix structure permits a firm to form specific product groups, using members f
existing functional departments. These product groups can then plan, design, deve
produce and market new products with appropriate inputs from each technical area. In
way, the firm can draw on both the functional and the product expertise of its employ
After a given product development task is completed. the product group may be dissolved
members will then move on to new assignments.
GlobalMarke Global Global GManage
Finance OpPextrcts HR
GlobalProduct
Manage-lj
[ GlobalPextictManager-9
FIGURE 3.8
Three features make the matrix structure different from other single dimen
structures. First, there are managers who report to two different matrix bosses. Second, thermatrix managers who share the subordinates: and third. there is the top manager wexpected to head the dual structure and balance and adjudicate disputes."
What are the strengths of the matrix structure? First, communication flow is fast becau
the dual interaction. Before key decisions arc made. the structure brings to the table
intersecting perspectives. Second, a global matrix structure promotfirmsganisational ffirtn
It allows finns to take advantage of functional. area and product structures. as needed, w
minimising the disadvantages of each.
The disadvantages arc equally strong. The matrix structure is not suitable fora Finn thafew products and operates in a relatively stable market. Second. the structure is clumsy
bureaucratic. It may require so many meetings that it might become difficult to get any done. Finally, the dual hierarchy structure can lead to conflict and perpetual postruggles between the area and the product divisions.
Given the new breed of firms being born due to the surge in internalisation. tod
organisations cannot be clearly slotted into any one of the above structures. The struct
discussed above are traditional structures that provide the basic framework on which
MNC builds and then innovates, so as to balance the pressures for internationalisation ve
the head of the organisation to control and coordinate, with the primary objective of mee
global challenges in the most optimum manner.
If there is any single function in an organisation that is impacted by changes in
GobsProduct
Marketrng
GlobalProduct
Manager-O
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Nature ofIHRM
TABLE 3.2 Comparative Picture of Organisational St rUCIUMS
Structure Advantages Disadnantages IHRM Strategy
Internation
al Division
Structure
Functional
GeographicArea Structure
Product
As the internationalactivities are under one
head, control and
communication are easy and
the structure can respond tochanging local needs
quickly. This structure is
preferred when a business is
making its foray into
international business for the
first time.
Each function is responsiblefor activities around theworld. This design is used
by international businessesthat have narrow or similarproduct lines.
Since each functional area
deals with the global market.
specialisation and
concentration of functional
expertise can be taken
advantage of. Control of
various functions can be
exercised relatively easily.
A geographic division can
respond to the market
conditions of a particular
area much more effectively
than any other structure.
lithe firm produces a
large number of diverse
products, the structure
allows each product
line to focus on the
specific needs of its
customers.
The drawback of this
structure is that
overseas activities
arc given a
perfunctorytreatment.
The drawback with
this structure is thedelay in responding to
local needs.
But there tends to be
duplication of functions as
there arc different divisions
catering to different areas.
Communication among
divisions may not be quick.
Necessity of duplicating
facility and staff within
each division.
Et hnocentric approac
!y positions
occupied by p
country nationals o
H t policies are u
centralised
anPCN/HCN/TCNsed
minimal statutory
Et hnocentric appro
Kt :y positions are occby PCN4ICN/TCN
t policies are largcentralised and standawith incorporation of gbest practices and globcnchmarking. insistitotal compliance
withKeylobally setprocesses and
NormaHR regiocentricapproach, operati
ey positions arenormally oc cupied
IIR policies are largecentralised and standa
with incorporation oglobal best practices global benchmarking
Usually an ethnocentrapproach is
Key positions arenormallDisadvanta
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80 International Human Resource Management
TABLE 3.2 (Contd.)
Structure Advantages Disaluntages IHRMStrategy
Helps develop a cadre of
experienced well-trained
managers who understand a
particular product line.
Also helps the company
match its marketing strategy
to the specific needs of the
customer
Finally, becausemanagers possessextensive productknowledge. they arcmore able toincorporate new
technologies into
their products andrespond
quickly and easily to
Products that sell well are
often given more importance
than others.
Coordination amongproduct groupsbecomes difficult.
HR policies are usuallycompletely decentralisand independently manaat the unrt level,
benchmarked agarnst land industry standards
MatrixStructure
Communication flow is fastbecause of the dualinteraction. Before keydecisions are functionalstructure brings to bear thetwo intersecting
perspectives.
The disadvantages arcequally strong.
The mainxstructure is notsuitable for a firm that hasfew products and operates ina relatively stable market.
Clearly a
Geocentric
approach
Key positions are occupby a breed of globalmangers from within/out
the organisation
The global matrix structure
promotes organisational
flexibility. It allows firms to
take advantage of fundional,
area and product structures
as needed, while minimising
disadvantages of each.
The structure is clumsy and
bureaucratic. It may require
so manyinteractron.at it
might become difficult to
get any work done.
The dual hierarchystructure can lead toconflict and aperpetual powerstrugglebetweenmatrixarea
HR policies are larcentralised and
standardised with
incorporation of glob
best practices and
global benchmarking
insisting on total
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82 international Human Resource Management
An MNC's organisational structure today is one that is constantly evolving. New wayreporting, control and coordination are constantly replacing the existing ones. And this treevidently what is happening. What is therefore emerging is that structures arc becoming speto industry segments and these am being innovated and becoming industry-spebenchmarks. This flexibility allows the MNC to ensure that no 'one size fits all' philosorestricts its global initiatives.
The challenge for !HRM in this scenario is the ability to quickly enable HR processe
that would support the new structure. It would involve Modifying existing policies and HR processes.
Establishing new policies and HR processes,
Carrying out industry specific HR surveys, and
Networking within the specific industry through appropriate forums in order toconceive and propagate more effective and competitive structures.
The subsequent chapter on Strategic International Human Resources Management deawith these challenges of the MNC in greater depth.
SUMMARY
IHRM refers to the HR policies and practices applied by an international firm acroall its subsidiaries located in different countries. The nature of the HR functions anactivities in an international context is determined by both the parent company's policeand practices and the degree of customisation of the HR policies to locrequirements. The IHR activities have a broader perspective with reference to eacfunction of HR, be it human resource planning, employee hiring, training andevelopment. compensation. performance management or industrial relations. In brieIHRM implies more involvement in employees' personal lives, changes in emphases HR policies as the work force mix of PCNs and HCNs varies and lot more risk exposudue to larger external influences.
There is significant impact on IHRM functions ofthe organisational strategy andorganisational structure, which is discussed in-depth.
HRM policies and processes are impacted by the MNC's organisational strategy witreference to going global at the host locations. The path to globalisation adopted bthe MNC determines the HRM approach to hiring, compensating, training anmanaging performance of its employees.
HRM policies and processes are also impacted by the organisational structure thprevails in an MNC. The decision to centralise core functions like marketing, researcand development, HR, finance, production or sales impact the HR poliimplementation from a very centralised to a completed decentralised workflow.
It is a challenge for MNCs to strike the right balance of' IHR philosophy to drive HR
As %. r:411' qt . 4 14
Closing Case >--ahte v.. .
Human Re s44 Practice at Disney
The IF Disney Company was founded in /922 by 21 year-old Wall Disney and his older brother
Walt Disney was the creative producer. Roy the 'business brain' behind the company (Ellwood. 19
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