Week 2,
Module 1
The
Organizati
onal
Context of
IHRM
Objectives
Introduction to organizational context
Standardization and localization of HRM practices
Factors driving standardization
Factors driving localization
The path to global status
Objectives
The HR function does not operate in a
vacuum…HR activities are determined by,
influenced by 4 organizational factors.
1. Issues of standardization and localization
2. Structural responses to international
growth
3. Control and coordination mechanisms,
including cultural control
4. The effect of responses on HRM
approaches and activities
Introduction
How International Growth places
Demands on Management
Focus is on the connection
between organizational
factors, management
decisions and HR
consequences.
How the MNE copes with
HR demands of its various
foreign operations
determines it’s ability to
execute it’s chose expansion
strategies
How International Growth places
Demands on Management
Elements are not mutually exclusive – for example, geographical
dispersion affects firm size, creating pressure among control
mechanisms that, in turn, will influence structural change.
Growth (size of the firm) will affect the flow and volume
information, which may reinforce a control response (such as
which functions, systems, and processes to centralize and which
to decentralize).
The demand of the host country can influence the composition
of the workforce (mix of PCN’s, HCN’s and TCN’s).
Standardization
and Localization
of HRM Practices
Discussion
Why would a MNE want to standardize it’s HRM practices?
Why globally standardize HRM
Consistency
Transparency
Alignment
of a geographically fragmented workforce
around common principles
objectives
Activity
Working in groups, come up with a list of challenges you see with standardizing
HRM practices in an international context.
Challenges with Standardization
Creating a system that operates effectively in multiple countries
by exploiting local differences and interdependencies and at the
same time sustaining global consistency.
Example: Unilever uses the same recruitment criteria and
appraisal system on a worldwide basis to ensure a particular type
of managerial behaviour in each subsidiary. Features of the
national education systems and skill levels must be considered.
Balancing act between standardization (strategy, structure, and
corporate culture, firm size, maturity) and localization
Organizations have Two Options
1. Multi-domestic strategy (decentralization) – subsidiaries
have great autonomy to respond to local needs and norms
(adapt to each market, different HR policies for each
subsidiary
2. Global strategy (centralization) – headquarters determines
global policies and procedures which are integrated
globally, regardless of the local context (Org. culture is
more important than national culture – e.g. Walmart)
Discussion
Why would a MNE want to localize it’s HRM practices?
Why locally responsive HRM
cultural values
traditions
To respect local legislation
government policies
education systems
regarding HRM and work practices.
Activity
Working in groups, come up with a list of challenges you see with localizing HRM
practices in an international context.
When to do what?
The choice depends on:
The extent of differences in national context
Large differences = multi-domestic
Small differences = standardization
The strategy of the organization
need for consistency = global strategy
The approach to internationalization
Start-up = centralization
M&A = decentralization
Balancing the Standardization
and Localization of HRM in
MNE’s
Balancing the standardization
and localization of HRM in MNE’s
The exact balance of a firm’s HRM standardization vs.
localization choice is based on factors of influence such as
strategy, structure, firm size and maturity
The strength of corporate culture plays an important role
on the standardization side, while the cultural and
institutional environment, including features of the local
entity such as operation mode and subsidiary role, play an
important role on the localization side.
Factors driving
Standardization
MNE’s that standardize
Large MNE’s with a 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
Factors driving
Localization
Localization factors include:
Cultural environment (where work is integrated in a more social context)
people who share the same way of life will have common values, attitudes, and
behaviors.
more social relationships are inclined to intrinsic and extrinsic rewards balance
whereas individuals are more inclined extrinsic rewards
Institutional environment
in addition to national or regional culture, institutional settings shape the
behavior and expectations of employees in subsidiaries
affects HRM practices in terms of educational and industrial relations systems.
Localization factors include:
Determination of the Mode of operation abroad
can either inhibit or facilitate work standardization – for example, MNE’s can achieve better
control over standardization and localization balance when they enter as a subsidiary as
opposed to being an international joint venture
Determination of the Subsidiary role:
Global innovators provide significant knowledge for other units and have gained importance
as MNE’s move towards a transnational model. Parent usually develops policy and export
overseas.
Integrated player also creates knowledge but at the same time is the recipient of
knowledge flows. Highly similar practices to parent with localization when needed.
Implementers rely heavily on knowledge from the parent or peer subsidiaries and create a
relatively small amount of knowledge themselves. IHRM decisions are made by the parent
then implemented at the local level.
EXAMPLES OF THE IMPACT OF THE CULTURAL AND INSTITUTIONAL
CONTEXT ON HRM PRACTICES
The Path to
Global Status
Organizational Structures
typically change due to
Strain imposed by growth and geographical spread
Need for improved coordination and control across
business units
Constraints imposed by host-government regulations on
ownership and equity
Stages of International Growth
Number of steps, or stages, along the path to multinational
status varies from company to company, as does the time
involved.
Sequence of stages is not always the same and some
intermediate steps may be leapfrogged.
HR’s place in Structural Forms
Three ways HR develops with international growth:
1. Centralized HR function
large and well-resourced; strategic staffing under central control typically
product-based or matrix structures
2. Decentralized HR function
small group, mostly for senior mgmt. at corp. HQ; mostly product- or
regional-based structures
3. Transition HR function
characterized as medium-sized corp. HR dept with small staff at HQ;
decentralized, product-based structure
Stages of Internationalization
Sta
ge
• Domestic Operations
1
Sta
ge
• Export Operations
2
Sta
ge
• Subsidiaries or International Joint Ventures
3
Sta
ge • Multi-National Operations
4
Sta
ge
• Transnational Operations
5
Stage 1 – Domestic Operations
The company’s market is exclusively domestic
Most international company’s have their origin as domestic
– focus on domestic operations only
Example: Canada Goose, Gildan Activewear, MEC
Stage 2 – Export Operations
The company expands its market by engaging into export
operations and offering the domestic products to other countries
also, but retains production facilities within domestic borders
HR function is unclear at this stage but may involve the selection of
export staff and training of foreign agency staff.
HR department would typically have little involvement, if any, in the
development of policies and procedures
Example: car & automobile manufacturing, meat, beef & poultry
processing, petroleum refining, copper, zinc & lead refining, etc.
Stage 3 – Subsidiaries or
International Joint Ventures
The company physically moves some of its operations out
of the home or parent country
There is “mutually” shared costs, profit sharing and
management
HR is primarily concerned with expatriate management
and some monitoring of the subsidiaries function
Example: Caradigm (Microsoft & GE), Hulu, Samsung &
Spotify, Ford & Toyota, Coca-Cola & Nestle, etc.
Stage 4 – Multinational
Operations
The company becomes a fully fledged MNE with the
assembly of production facilities in several countries and
regions of the world
Some decentralization of decision making is common, but
many HRM decisions are still made at the corporate HQ
level
Example: Apple, McDonald’s, Volkswagen, etc
Stage 5 – Transnational
Operations
Companies that reach this particular stage are often called
transnational because they achieve both global efficiency
and local responsiveness.
They use global market and resources to operate
Example: Coca-Cola, Nestle
Discussion Board
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