International

Human
Resource
Management -
Chapter 3
THE ORGANIZATIONAL CONTEXT
COMPREHENSIVE OVERVIEW OF KEY TOPICS AND TERMS
Introduction
-HR practices are embedded in
the strategic, structural, and
technological context of MNEs.
-International growth influences
HRM through factors like
geography, culture, and
structure.
- The chapter explores
managerial responses to these
influences.
Standardization vs.
Localization
-Standardization: Ensuring
uniform HRM practices across all
subsidiaries.
- Localization: Adapting HRM to
local cultural and institutional
requirements.
-Finding the right balance is
crucial for MNE success.
Standardization
 Standardization in IHRM refers to the practice of
implementing uniform HR policies, procedures,
and practices across all international branches of
a multinational company. It ensures consistency
in employee management, corporate culture, and
operational efficiency worldwide.
 Example:
A multinational company like Google applies standardized
HR policies globally, such as:
 A uniform code of conduct for all employees, regardless
of location.
 A global training program to maintain a consistent skill
level among employees.
Localization
 Localization in IHRM refers to adapting HR
policies and practices to fit the cultural, legal, and
economic conditions of each country where a
multinational company operates. This approach
ensures better alignment with local labor laws,
employee expectations, and market conditions.
 Example:
A multinational company like McDonald's localizes its HR
policies by:
 Hiring local managers and staff who understand the regional
culture and customer preferences.
 Modifying employee benefits based on country-specific labor
laws (e.g., different healthcare policies in the U.S. vs. Germany).
Factors Influencing
Standardization &
Localization
 - Corporate culture: Determines the level of
global consistency.
 - Institutional environment: Includes labor
laws, education systems, and business norms.
 - Host-country culture: Impacts employee
behavior and expectations.
 - Subsidiary role: Some act as centers of
excellence while others implement HQ
policies.
Structural Responses to
International Growth
-Export department (Initial stage
of internationalization).
-Sales subsidiary (More control
over local operations).
-International division (Grouping
of all international activities).
-Product or area divisions (Further
expansion and standardization).
EXPORT DEPARTMENT
 This is the first step in a company’s
international expansion. It involves
selling products or services to
foreign markets through exports
while managing operations from the
home country. A dedicated export
department is set up to handle
international sales, logistics, and
compliance.
 SALES SUBSIDIARY

A sales subsidiary is a foreign branch or a

separate legal entity established by a
company in a target market. It allows the
parent company to have greater control over
sales, marketing, and customer relationships in
that region. Unlike exports, a sales subsidiary
operates as part of the local business
environment.
INTERNATIONAL DIVISION
 An international division is a
business unit within a company
that consolidates all foreign
operations, including exports, sales
subsidiaries, and international
marketing. This structure helps in
coordinating global strategies while
maintaining a centralized approach
to international expansion.
PRODUCT OR AREA
DIVISIONS
 At this stage, a company organizes its
international business either by product
lines or geographic areas.

Product Division: Focuses on managing

different product categories across multiple
markets, ensuring consistency and
efficiency.
 Area Division: Organizes operations by regions
(e.g., North America, Europe, Asia), allowing for
localized decision-making and adaptation to regional
market conditions.
Control & Coordination
Mechanisms
-Centralization vs.
Decentralization of HR functions.
- Structural control: Hierarchy,
functional authority, and
reporting.
-Cultural control: Socialization,
shared values, and corporate
norms.
Centralization vs.
Decentralization of HR
Functions
 Centralization of HR Functions
 In a centralized HR model,
decision-making, policies, and HR
activities are managed from a
single, central authority—typically
the corporate headquarters.
 Advantages of
Centralized HR:
 Consistency & Standardization – Ensures uniform HR
policies, procedures, and compliance across all locations.
 Cost Efficiency – Reduces redundancies by consolidating
HR functions, leading to lower administrative costs.
 Improved Technology Utilization – Centralized HR
systems (HRIS) ensure smooth data integration and
analytics.
Disadvantages of Centralized
HR:
 Less Flexibility – Limited ability to adapt
HR policies to local cultural, legal, or
market conditions.
 Slower Decision-Making – HR processes
may take longer as decisions must go
through corporate approval channels.
 Lower Employee Engagement –
Employees and managers in different
locations may feel disconnected from HR
support.
Decentralization of HR
Functions

 Ina decentralized HR model,

HR responsibilities are
distributed across different
business units, regions, or
departments, allowing for
more localized decision-
making.
Advantages of
Decentralized HR:
 Faster Decision-Making – HR
functions operate closer to employees,
enabling quicker responses to issues.
 Better Talent Management – Local
HR teams can tailor recruitment,
training, and retention strategies to
regional needs.
Disadvantages of
Decentralized HR:
 Inconsistencies in HR Policies
– Different locations may
implement HR policies
inconsistently, leading to fairness
and compliance issues.
 Higher Operational Costs –
Maintaining HR teams in multiple
locations can be more expensive.
HRM in Different
Organizational Structures
-Matrix structure: Dual reporting,
complex management.
-Transnational structure: Balances
global integration with local
responsiveness.
- Networked MNEs: Decentralized,
flexible, and knowledge-sharing.
-Mixed structures: Custom
solutions based on organizational
needs.
Matrix Structure
 A matrix structure combines functional and
product-based reporting, meaning employees
report to multiple managers.
 Example: An engineer in a multinational tech
company may report to both the R&D
department head and the regional project
manager simultaneously.
 Pros: Encourages collaboration and efficient
resource use.
 Cons: Can create confusion due to multiple
reporting lines.
 Transnational Structure

•A transnational structure aims to integrate global

efficiency with local market needs. It allows subsidiaries to
adapt while maintaining company-wide policies
.
•Example: Unilever operates globally but customizes its products (e.g.,
different shampoo formulas for different regions).

•Pros: Flexible, responsive, and globally coordinated.

•Cons: Requires strong coordination between headquarters

and local branches.
 Networked MNEs
•A networked multinational enterprise (MNE) relies on
decentralized decision-making and seamless knowledge-
sharing across locations.

•Example: IBM uses a networked structure, where different

units worldwide collaborate on innovation and R&D.

•Pros: Encourages innovation and local autonomy.

•Cons: Can be difficult to manage without strong

communication systems.
 Mixed Structure

•A mixed structure combines elements of different

organizational models based on the company’s specific
requirements.

•Example: A global retail chain like Walmart may use a

mix of centralized purchasing (standardized supply chain)
and decentralized store management (local
responsiveness).

•Pros: Tailored to business needs, highly adaptable.

•Cons: Complex to manage due to varying structures

within the company.
Key HRM Challenges in
MNEs
-Managing expatriates and cross-
border employees.
- Balancing corporate culture with
local work practices.
-Developing leaders for global
operations.
- Ensuring compliance with
international labor laws.
Conclusion
-The internationalization of firms
impacts HRM structures and policies.
-Companies must balance
standardization and localization.
-Effective control and coordination
mechanisms ensure smooth
operations.
-HRM plays a strategic role in
multinational success.