SECTION IINature of IHRM Learning Objectives After reading this chapter, you should be able to • Understand what constitutes IHRM and how it is different from domestic IIRM • Understand the impact of organisational strategy on IHRM • Understand the impact of organisational structure on compiling a guide for introducing a new product or revamping an existing one in various national markets. As a first step towards building such a team. Colgate has taken a number of other steps to develop its International cadre of managers. Colgate now tries to ensure that project teams contain managers from several different countries. This is a departure from the established practice of having managers spend most (if not all) of their working careers in their home country. Colgate is trying to resolve this problem by urging its foreign subsidiaries to send their brightest young managers to the training programme. the $6 billion a year personal products giant." The Wall Street Journal. Colgate-Palmolive. it is more likely that a French national will remain in the United States. Unilever and Kao. pp. Over onequarter of the participants are foreign nationals. Bl: and CM Solomon. the participants become associate product managers in the United States or abroad. such as Procter & Gamble. For years. Colgate toothpaste. Each major foreign subsidiary was responsible for local manufacturing and marketing. S Lublin. Also. The apical recnrit holds an MBA from a US university speaks at least one foreign language." The Wall Street Journal.colgate. earns nearly two-thirds of its revenues outside the United States. in Europe.199!. were trying to become transnational companies. Colgate realised that if it was going to succeed in the rapidly changing international business environment. 1992. Becoming a transnational requires developing an international cadre of executive managers who are as at home working In one culture as In another and who have the ability to rise above their ethnocentric perspectives. Hagerty. has lived outside the United States.com Source: J. Colgate does not send foreign-born trainees to their native countries for their initial jobs. for example. and a British national will go to Spain. "Managing Global Younger Managers Learn Global Shills. During three-month stints. 4040. The foreigners receive the same generous expatriate compensation packages the Americans do. the company Is developing "Euromanagers managers who have experience working in several European countries. When they have completed the programme. and practically all the company's US-based managers were US citizens. Its competitors. as many US multinationals have. In the early 1980s. B1: B. hup://www. by developing products at home and then "throwing them over the wall" to foreign subsidiaries. p. they learn global business development secrets of for example. The trainees spend 24 months in a US programme. March 31. and Colgate needed to followsuit. . January 25. Colgate succeeded. Colgate began recnilting college graduates in 1987 and putting them through an intensive international training programme. Senior management pavilions in these subsidiaries were typically held by Americans. "Companies in Europe Seeking Executives Who Can Cross Borders in a Single Bound. "Global Operations Demand that HR Rethink Diversity:" Personnel Journal 73 (1994). Instead. p. Participants also receive additional language instruction and take international business trips. even if they are assigned to their home country. and has strong computer skills and business experience. This extra pay can create resentment among locally hired managers offoreign subsidiaries. Unlike most US companies.Nature of IHRM 65 Opening Case Global FIRM at Colgate-Palmolive Co. In addition to the management training programme. it would have to develop a more transnational orientation. a US national will be sent to Germany. First. These four elements significantly influence the way HR functions are carried out both in domestic as well as in global businesses. The external constraints include political. IHRM is the process of procuring. Welch is worth citing in this context. IHRM is the interplay among these three dimensions . viz. The three national or country categories involved in IHRM activities: • the host country where a subsidiary may be located. According to them. procurement. economic and cultural. 3.-the human resource actin hies.66 International Human Resource Management Simply told. compensate. the HR function has one overriding objective—ensuring organisational effectiveness . 2. allocation and utilisation. management and industrial relations. Another similarity relates to the environmental forces which impact the functioning of an HR department. Stated more clearly. The definition given by Peter J. IHRM contains three dimensions:' I. whether his or her domain is domestic or global. whether it be domestic business or global business. train and develop. and • 'other' countries that may be suppliers of labour. IHRM refers to the HR policies and practices applied by an international firm across all its subsidiaries located in different countries. allocating and effectively utilising human resources in a multinational organisation. performance management. Essentially.11. employee hiring. IHRM COMPARED WITH DOMESTIC HEM The nature of IHRM is more clearly understood by comparing global HR functions with domestic HRM (DHRM) functions. finance and other resources. Finally. hire the right people in right numbers. • the home country where the head office is located. legal. Three broad human resource activities. The Colgate story told in the opening case is a true reflection of the status of international human resource management. Dowling and Denice E. the similarities between the two. The three categories of employees of an international firm: • host-country nationals FIGURE 3. These three dovetail with all the activities of the typical domestic human resource function: human resource planning. maintain and motivate employees. The HR manager needs to plan for the human resources.1 N a t u r e of IHRM (HCNs). HR activities are the same whether they are specific to one country or extend to several countries. types of employees and countries of operation (See Fig. 3. 2 DHRM and IHRM Compared More HR Activities Each function of HR has new dimensions in IHRM. The main difference stems from the complexity of operating in different countries. (iii) Providing developmental opportunities for international managers. (see Fig. the differences between IHRM and DHRM arc more striking than their similarities. changes in emphasis as the work force mix of PCNs and NCNB varies. need for a broader perspective. Employee Hiring (i) Ascertain cultural-fit with that of the global organisation. 3. molt involvement in employees' personal lives.2). However. having different nationals as employees. and broader external influences. m 411) b i s c o FIGURE 3. Human Resource Planning (i) Difficulty in implementing HR procedures in host countries. . Described below are how they are functionally different. risk exposure. talent retention and the like.Hawn of IHRM 67 knowledge management. These interventions apply to the domestic as well as international businesses. (ii) Difficulty in tying strategic business planning to HR planning and vice-versa. the complexity of IHRM can be attributed to six factors:1 • • • • • • more HR functions and activities. In particular. (ii) Ethnocentric. polycentric or geocentric approaches to staffing. While handling fringe benefits too. (ii) Physical distance. third country expatriates of the joint venture. the tasks involved here are to identify the type of overseas assignment for which training is required. however. Similarly. Industrial 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. the IHR manager needs to coordinate pay systems in different countries with different currencies that may change in relative value to one another over time. Performance Management (i) Constraints while operating in host countries need to be considered. In other countries. IHRM requires a much broader perspective for all HR activities. The interpretation of family. third country nationals. (iv) Coping with expatriate failure. host country nationals. (iii) Training in global etiquette and the nuances of the virtual workplace culture. time differences and cost of reporting system add to the complexity. determine the specific crosscultural training needs and impart training and evaluate its effectiveness. the family is understood to include the employee's spouse and children. foreign parent annulate. host parent expatriates. Broader Perspective When compared to DHRM. In some countries. (ii) Minimising discrepancies in pay between parent. the . can include as many as nine different types of employees. third country expatriates of host country parents. It is a common practice in most countries to provide health insurance to employees and their families. complications tend to arise. (ii) Language training. third country nationals and parent country nationals. for example. expatriates of foreign parents. 'Training and Development (i) Emphasis on cultural training. varies across countries. training or compensation. each with their own cultural backgrounds add to the need for a broader perspective on the part of the IHRM manager:Training and development for instance. (vi) Managing female expatriates. host and third country nationals. Compensation (i)Devising an appropriate strategy to compensate expatriates. International joint ventures. This divide is primarily because an MNC continues to recruit and select a mix of different types of employees including host country nationals. (iii) Identification of raters to evaluate subsidiary performance. foreign headquarter executives and host headquarter executives.International Human Resource Management (iii) Selection of expatriates. (v) Managing repatriation processes. The various employee groups. each with their own distinct characteristics-foreign parent expatriates. IIIRM adds new dimensions which are not experienced or observed in DHRM. while dealing with pay issues. health care and all aspects of the remuneration packages provided for the foreign assignment. One such . Krishnan's wife Jaishree came back to India for the delivery of their daughter. had significant implications for FIRM. organisations were beginning to review their strategies to take advantage of the markets freed from border tariffs.' Highly interesting incidents happen in the lives of foreigners working in India. hands-off attitude towards employees and a natural resistance towards trade unions.' Irrespective of whether a country is developed or developing makes the IIIRM orientation different. For them. emphasising on professionalisation of managerial practices. But. as neither of them was comfortable with the experience during check-ups early in her pregnancy. usually from employees of the parent company to accept new ideas and approaches and it is the responsibility of the IHR manager to ensure that they are appropriately redressed. home visits and final repatriation of expatriates are other issues an IHR manager is expected to support. sense of organisational and managerial responsibility towards employees. CEO of Basics. Take the instance of a five year old boy (read Smaran. It can be actively debated whether a distinct European HRM culture does exist. In anticipation of the creation of a single European market. This led HR professionals across the different countries to deliberate first to map what practices prevailed at the national and industry level. The IHR manager has additional responsibilities while dealing with expatriates from countries like. The IHR manager operating in developing countries encounters unique problems. prior to 1993. HRM in Europe is in a transition. The IHR manager finds himself or herself in a difficult situation while determining who to include/exclude as relatives in the family nest. and he wanted to paint himself white? Or take another instance of an Indian couple working in Germany (read Venkatachlam Krishnan. Ranbaxy's German subsidiary and his wife). The distinct features of an European HRM policy are: impact of culture. he and his wife hardly had any local friends. It may be enough for the DIIR manager to know the professional profiles ofemployees. Health care was a big concern. the IHR manager should go beyond and know about spouses. In most developing countries that is a paradigm shift in management policies. which were opened up. to find common ground for a European HRM policy. region. do we have white paint at home?" A girl in his class at school. relatives. greater involvement of groups and wider support towards trade unions and other forms of employee representations. The hallmarks of the latter arc: freedom and autonomy. More Involvement in Employees' Personal. it seems. India for example. nephews and nieces. Anitra. investments. low interference from state. Indians working overseas encounter peculiar. culture and a host of other details about the expatriates. social life hardly existed. often unpleasant circumstances. religion. The HR department needs to ensure that the expatriate understands housing arrangements. The 1990s witnessed an unprecedented number of mergers and acquisitions in Europe as organisations sought to develop an integrated Europe. Many of the countries are emerging as market driven economics. had called the boy a "brownie". There would be resistance from within the organisation. Handling banking. including those relating to HR. The establishment of the EU. an IHR manager requires to be involved a lot more in the personal lives of the employees. Even after living there for more than three years. son of Kartik Kaushik) who returned home from school one day and made a demand: "Dad. and second. Lives Unlike the domestic HR manager. This pan European HRM policy contrasts with the US policy towards HRM. as Germans arc insular people.' The European HRM policy did emerge over time. for instance.Nature o f IH R M 69 grandparents. children. orientations and practices. Bob and his wife had organised an Indian naming ceremony for their grand kids. This continues till such time that the host unit is dependent on the parent country nationals who constitute the majority at the subsidiry. The IHR department may also be required to devise emergency evacuation procedures for highly volatile locations. Nevertheless it is considered a IHR role to be aware of such challenges and package some of these into training programme for the expatriates. Then there is the risk of expatriate failure. BPO firms are exposed to the risks of female employees. kidnapping and murders. An American engineer. During the early stages of a unit.000 kidnappings a year worldwide. during night shifts. was able to withdraw the same and maintain a single uniform policy that took care of the host country nationals. Terrorism poses a great risk to international operations. An Indian labourer.7 Situations of the type described above may not require the intervention of the IHR manager. Substantial monetary costs are involved while sending expatriates abroad. As the unit becomes independent. Besides. Unfair hiring practices may result in a firm being charged with violation of Constitutional provisions and be liable for penalties. A balance needs to be struck between the need to integrate HR policies with the parent company.000 and S I million per expatriate per year). the HR activities are focussed on the PCN. Failure to maintain cordial relations with unions may result in strikes and other forms of labour unrest. such as special relocation allowance. The invasion of Kuwait by Iraq and the ensuing Gulf wan in 1991 are examples of such an eventuality. The failure of an expatriate can have disastrous results. in 2006. hence there were a number of facilities and policies that were put in place to ensure that the expats were well taken care of. The cost of kidnapping may run to S2 to S3 million. Finns are. In IHRM. bringing them back to the home country and finding replacements (between $300. a telecom engineer. One estimate is that US companies lose S2 billion a year as a result of expatriate failure.000 to 15. During the intial phase of seating up its operations in India. company car and company leased accommodations. as they have to be handled by the expatriates themselves. there arc additional risks. There are also the personal setbacks for . therefore.70 Unemotional human Resource Management Bangalore as anybody else. gradually the company began to withdraw its parent country nationals from the Indian setup. the poor performance of an expatriate may damage the firm's image in the host country. Kutty. Changes In Emphases as the Work Force Mix of PCNs and HCNs Varies The HR policies and practices depend on the constituents of the host country unit. the original emphasis with respect to its HR activities and policies shifts in favour of the HCN. Risk Exposure Risk exposure is high in domestic HRM. A good example would be a US based company in the health care industry. was kidnapped and killed in Afghanistan in 2005. being sexually abused and killed. So was Suryanarayan. there were a number of expats who were onboard the host unit. As the operations of the unit in India stabilised and about three years into its successful operations. was beheaded in Saudi Arabia in 2004. there arc more number of parent country nationals in the host unit and as a result. Males too are frequently robbed of cash and expensive accessories. as a preferred employer. Paul Johnson. and it is estimated that there are 10. The kids were called Mere! Kavitha and Tobias Bhaskaran. to keep the company competitive at the local country level. as for example: terrorism. forced to spend one to two per cent of their revenues on protection against terrorism. alongside the need to have local host country HR guidelines. The HR team which earlier had to provide for a separate set of policies and reimbursements. prevailing within a country.Nature of IHRM 71 employees who fail even though they bad been viewed as competent managers within the domestic organisations. which results in decreased interest in setting up subsidiaries. On the other hand. and • host countnry stipulations on staff selection. External Influences Domestic HAM is subject to the influence of an environment which comprises such factors as political-legal. Host country labour laws ought to be complied with while fixing and disbursing salaries and host country laws govern industrial relations too. A host country government can dictate hiring procedures as for example. Their early return may also affect their future career prospects in the finis A domestic HR manager may be free from such risks. • responses of competitors in the host market. Affirmative actions notwithstanding. It is the implementation of strategics that is more crucial than • • • . Placing a junior in a supervisory position over his or her elders often leads to avoidable unpleasant consequences. Because of the high visibility. left the jobs they liked. political leaders and a greater variety of economic and social interest groups than domestic HR managers. towards a networked MNC organisation has been facilitated by the development of networks of personal relationships and horizontal communication channels. even at the cost of merit. cultural and technological. The movement away from more traditional hierarchical organisational structures. employees resent having certain categories of employees as bosses in sonic societies. In some cultures. only to find themselves back in the home country. 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 across the globe. involving local employment exchanges in selecting skilled labour. Underperformance or failure in overseas assignments is costly. economic. Multinational companies enjoy high visibility in countries of their operations. such as damage to foreign customer relations. resulting in a greater mobilisation of human resources. both in human and financial terms. IHRM is exposed to several cross-country factors such as: • policy actions of national governments. The implementation of international strategies is often constrained by the absence of competent managerial personnel to man overseas assignments. and the indirect costs of poor performance in international assignments. Finally. It is no secret that HR plays a more significant role in network organisations. The effective management of human resources is increasingly being recognised as a major determinant of success or failure in international business. such as expropriation and changes in exchange rates. age is held at a premium. the subsidiary HR managers may have to deal with ministers. and uprooted their families to take a foreign assignment. These individuals may have sold their homes. may be particularly costly. branded as failures. HR plays a significant rote in the implementation and control of strategies in an international business. They tend to centralise product development functions at home (e. They also tend to establish a complete set of value creation activities—including production. . As a consequence.3). Organisations use four basic strategies to compete in the international environment: an international strategy. High Cost Pressures Low Low Pressure roe Lo al Responsiveness High FIGURE 3.3 Four Basic Strategies International Strategy Organisations that follow an international strategy attain business efficiency by transferring valuable skills and products to host county markets where indigenous competitors lack those skills and products. It is a conscious decision made by every enterprise about how it plans to expand its operations overseas and how it strategises to run its day-to-day operations in the host country.g. in most international organisations. 3. Multidomestio Strategy Ormultidomestieollowing a multidomestic strategy orient themselves toward achieving maximum local responess. the head office retains tight control over the marketinMultidomestic strategy. Ultimately. particularly with regard to its extensive European operations. However. they also tend to establish manufacturing and marketing functions in each major country in which they do business. But while they may undertake some host country custommarketing strategyts and marketingstrategy. Multidomestic tinnsfirms extensively customise both their product ranges and their marketing strategy to match different national conditions. to new markets overseas. R&D). this tends to be limited. many multidomestic organisations have a high cost structure. General Motors is a good example of a company that has histomultidomestieioned as a multidomestic corporation. a global strategy and a transnational strategy (see Fig. They also tend to do a poor job of leveraging core competencies within the organisation. which are largely sHrghcontained entities. such organisations generally fail to realise value from the parent company's learning curve and location economultidomestiengly. Most international firms have derived value by transferring a new and varied range of its product offerings developed at home.72 International Human Resource Management FUNCTIONAL POSITIONING OF IHRM IHRM is positioned globally depends on the global strategy pursued by an MNC. a multidomestie strategy. marketing and R&D—in each major national market in which they do business. as a transnational strategy. Global organizations tend not to customise their product offering and marketing strategies to local conditions because customisation raises costs (it involves shorter production runs and the duplication of functions). as Table 3. They pursue a low-cost strategy. Instead. with macro level activities globally standardrsed. global organisations prefer to market a standardised product worldwide so that they can reap the maximum benefits from the economies of scale that underlie the experience curve of the parent company.1 shows. Bartlett and Ghoshal refer to the strategy pursued by firms that are trying to achieve all these objectives simultaneously. Rather. and they must do all this while paying attention to pressures for local responsiveness. organisations must exploit experience-based cost economies and location economies. from home firm to foreign subsidiary. the approach is either Strategy Internation al Strategy TABLE 3.) . the flow should also be from foreign subsidiary to home country. irrespective of country of location. they maintain that the flow of skills and product offerings should not be all one way. they must transfer core competencies within the firm. Thus. They note that in the modem multinational enterprise. and from foreign subsidiary to foreign subsidiary-a process they refer to as global learning. (Contd. Transnational Strategy Christopher Bartlett and Sumantra Ghoshal have argued that in today's environment. core competencies do not reside just in the home country. They can develop in any of the firm's worldwide operations. Each strategy has its advantages and disadvantages and invites appropriate IHR interventions. competitive conditions are so intense that to survive in the global marketplace. marketing and R&D activities of organizations pursuing a global strategy arc concentrated in a few favorable locations. as in the case of firms pursuing an international strategy. Corporate culture is standardised Lack of local responsiveness Approach could be ethnocentric or polycentric usually the ethnocentric approach is preferred for greater control Key posrtions arc occupied by parent country nationals of the %MNC Inability to realise location economies Failure to exploit experience curve effects UK polrcies arc either centralised or completely decentralised.Nature of IHRM Global Strategy Organisations that pursue a global strategy focus on increasing profitability by reaping the cost advantage that come from the experience curve effects and location economics. The production.1Advantages Merits and Demerits of Strategies and IHR IHRM Strategy Interventions Disadvantages Transfer distinctive competencies to foreign markets A hrgh degree of control and coordination ensures that all Subsidiaries. They also tend to use their cost advantage to suppon aggressive pricing in world markets. mission and value system. During the initial phase of an MNC's entry into multinational locations. are similarly managed A high associatron with a common corporate vision. with integration of global best practices and global benchmarking.1 (Contd.74 TABLE 3.) Strategy Multidomesti c Strategy International Human Resource Management Advantages Customisecompetenc ies.ferings and marketing in accordance with local responSivenas Disadtuniages Inability to realise location economies Failure to exploit experience curve effects Failure to transfer distinctive competencie. benchmarked against local and Exploits experience curveLack of local responsiveness Geocentriciregiocentric effects approach Expresponsivenessn economies Key positions are occupied by FICNAICTIfTCN lift policies arc largely centralised and stanpolyccntricratio n of global best practices and global benchmarking Transnation al Strategy Exploits experience curve effects Difficult to implement due to organisational problems Geocentric/regiocen tric approach Key positions are occupied by a breed of global managers from within the organisation Exploits location economies Customise product offerings and marketing in accordance with local responsiveness Reaps benefits of global teaming HR policies are largely centralised and standardised. to foreign markets I I I R MStrategy Usually adopts a completely polycentricpolyecntric approach Global Strategy Key positions arc HR policies are usually compPCN/HCN/TCNralis ed and independently managed at the unit level. insisting on total compliance with . Key positions are staffed by the HCN and the unit operates like an independent profit centre by itself. Some preferred structures are described in the following pages. who coordinates the overseas activities. An organisation with a multi-domestic strategy most definitely adopts a polycentric approach towards its HR functions. the organisational strategy is usually international. the benefits from having a centralised set of policies which incorporate the best of practices. Firms like GE and IBM are examples of organisations that arc run with corporate HR functions that are benchmarked with global practices. The policies are highly decentralised and each local unit has the freedom to set and follow its own policies suitable for hiring and retaining its talent in the home country. Coca-Cola. approve policy changes and control production/research/marketing and finance. All the international activities arc under the authority of the international division head (of the rank of Vice-President). But the drawback of this structure is that overseas activities arc given a perfunctory treatment. are many. Customisation would be restricted to statutory/ legal/ government stipulations and a few distinct local attribute. Procter& Gamble and Wal-Mart can be classified as practising the international strategy. that arc uniformly followed by units across the globe. control and communication arc easy and the structure can respond to changing local needs quickly. companies like Pepsi.4 International Division Structure . That is a large amount of dependence on the parent unit to make decisions. For example. It handles all the overseas activities. Coke allows its national subsidiaries to bottle and sell according to their own marketing and distribution strategies develop so as to meet the local challenges. ORGANISATIONAL CONTEXT OF IHRM IHRM needs to be organised and the organisational structure depends on the HR strategies which in turn.Nature of IHRM 75 multi-domestic or international and they differ in the organisational predispositions (discussed earlier in Chapter 2). USA. Organisational strategies like the global and the transnational strategics benefit from a geocentric/ regiocentric approach. Internaticnal Divisicn Structure In the international division structure. As the international activities are under one head. lithe approach is ethnocentric. while the core activity of syrup/concentrate preparation and product innovation remains centralised at its global headquarters at Atlanta. The IHRM focus revolves around highly centralised HR practices and processes. depend on corporate strategy. IBM. This structure is preferred when Home-Mice Dopautnents C hia Exact Overseas SuHomeOfficDopartment ( VP international operations Egypt ) Australis FIGURE 3. While they merit a high amount of integration and coordination efforts. product or arca structure. an overseas unit is an adjunct to the parent company. which may be organised by functions. Kellogg. Control of various functions can be exercised relatively easily.76 International human Resource Management Functional Structure Also called worldwide functional structure. But the drawback with this structure is the delay in responding to local needs.$17 vsnazu. ( Europe and La* ArnetineAmerica N. would be responsible for worldwide production activities. for example. Since each functional area deals with the global market. Figure 3. worldwide activities arc organised by dividing the globe into different geographic areas. so also with finance.6). This design is used by international businesses that have narrow or similar product lines.sad Maly us I 17Ianan RI irnada Minding Faience FIGURE 3. (MoritalinEur ope) (Finance) (Otbeatiections) C u i Structorga nrsedaphic \ LoCIISC)ans )NMI= (Etecc (Lecons FIGURE 3. specialisation and concentration of functional expertise can be taken advantage of.6 Geographic Area Structure A geographic division can respond to the market conditions of a particular area much more effectively than any other structure.5 typifies a functional structure.5 Worldwide Functional Area S t r u c t u r e In this. But there tends to be a duplication of functions as there are different divisions catering to different areas. marketing. R&D and HRM. The regional manager is responsible for all business acts within that geographic area (See FiUK3. in this type each function is responsible for activities around the world. Communication among the divisions may not . The manufacturing department. America and Pacific W 1 W LLU lecturing Menu. the structure allows each product line to focus on the specific needs of itscustomers. A third benefit of the product structure is that it helps the company match its marketing strategy to the specific needs of the customer. 3. the global matrix structure as shown in Fig. because managers possess extensive product knowledge. There arc some problems associated with product structure too. the manager who is inchargc of a product division has authority for this product line on a global basis. escalated. has been created by superimposing a global product structure (shown . corporate headquarters usually maintain control through budgetary constraints and home office approvals for key decisions. tacturIng / Marketing M a r k e t i n g Median ° Marketing I Marketing Finance Finance Finance Finance Finance FIGURE 3. reduced. (C IO ) t r product i- ovistoo kA Product Division 8 Product Division C F ArIONTal Menu\ t t Ainco Germa n71 Spain Pom/gS I Menu/7 \ Maw' Menu-A Manu.Nature of IHRM 77 Prcduct Structure This is the most common organisational structure followed by MNCs. or elimrnated as needed. They have the authority to make important decisions. Second. Matrix Structure The matrix structure emerges when one design is superimposed on top of an existing.7 shows. Several benefits accrue to a worldwide product structure. 3. As Fig. For example. The resulting structure is fluid with new matrix dimensions being created. Finally.7 Global Product Structure The global product divisions operate as profit centres. If the firm produces a large number of diverse products. Finally. Managers of product divisions run the operations with considerable autonomy. The product structure assigns worldwide responsibility for specific products or product groups.8. But. they are more able to incorporate new technologies into their products and respond quickly and easily to technological changes that affect their markets. but different form. to separate operating divisions within a firm. First is the necessity of duplicating facilities and staff within each division. This structure also helps develop a cadre of experienced. factoring lecturing I festering . well-trained managers who understand a particular product line. coordination among product groups becomes difficult. products that sell well arc often given more importance than others. the structure is clumsy and bureaucratic. area and product structures." What are the strengths of the matrix structure? First. communication flow is fast because of the dual interaction. so as to balance the pressures for internationalisation versus the head of the organisation to control and coordinate. First. the dual hierarchy structure can lead to conflict and perpetual power struggles between the area and the product divisions.8 Three features make the matrix structure different from other single dimensional structures. while minimising the disadvantages of each.78 International Human Resource Management The matrix structure permits a firm to form specific product groups. it's the HR policies and processes.2 explores the IHRM . today's organisations cannot be clearly slotted into any one of the above structures. The matrix structure is not suitable fora Finn that has few products and operates in a relatively stable market. The disadvantages arc equally strong. If there is any single function in an organisation that is impacted by changes in the organisation structure. Finally. Second. two intersecting perspectives. develop. Second. Table 3. Given the new breed of firms being born due to the surge in internalisation. with the primary objective of meeting global challenges in the most optimum manner. After a given product development task is completed. The structures discussed above are traditional structures that provide the basic framework on which the MNC builds and then innovates. there are matrix managers who share the subordinates: and third. Gobs Product Marketrng Global Product Manage•lj G lobal Pextict Manager-9 [ GlobalMarke ting Marketing Global Finance Global OpPextrcts GManage --B HR Global Product Manager-O FIGURE 3. Before key decisions arc made. using members from existing functional departments. the product group may be dissolved. as needed. It may require so many meetings that it might become difficult to get any work done. a global matrix structure promotfirmsganisational ffirtnsility. These product groups can then plan. Second. produce and market new products with appropriate inputs from each technical area. there is the top manager who is expected to head the dual structure and balance and adjudicate disputes. there are managers who report to two different matrix bosses. In this way. Its members will then move on to new assignments. design. the structure brings to the table. It allows finns to take advantage of functional. the firm can draw on both the functional and the product expertise of its employees. specialisation and concentration of functional expertise can be taken advantage of. Et hnocentric approach. The drawback of this structure is that overseas activities arc given a perfunctory treatment. Since each functional area deals with the global market. This design is used by international businesses that have narrow or similar product lines. Control of various functions can be exercised relatively easily. Necessity of duplicating facility and staff within each division.Nature of IHRM 79 rUCIUMS TABLE 3. Each function is responsible for activities around the world. !y positions are occupied by parent country nationals of the MNC. This structure is preferred when a business is making its foray into international business for the first time.2 Structure Comparative Picture of Organisational St Disadnantages Advantages IHRM Strategy Internation al Division Structure As the international activities are under one head. insisting on total compliance withKeylobally set processes and guidelinHCNTICN Geographic Area Structure But there tends to be duplication of functions as there arc different divisions catering to different areas. NormaHR a regiocentric approach. control and communication are easy and the structure can respond to changing local needs quickly. ) . H t policies are usually centralised anPCN/HCN/TCNsed with minimal statutory Function al Structur Et hnocentric approach. operating in independent silos ey positions are normally oc cupied by IIR policies are largely centralised and standardised with incorporation of global best practices and global benchmarking Product Structure lithe firm produces a large number of diverse products. Kt :y positions are occupied by PCN4ICN/TCN t policies are largely centralised and standardised with incorporation of global best practices and global bcnchmarking. the structure allows each product line to focus on the specific needs of its customers. A geographic division can respond to the market conditions of a particular area much more effectively than any other structure. Communication among divisions may not be quick. The drawback with this structure is the delay in responding to local needs. Usually an ethnocentric approach is folloructures Key positions are normallDisadvantages (Contd. 2 (Contd. area and product structures as needed. because managers possess extensive product knowledge. insisting on total compliance with global The dual hierarchy structure can lead to conflict and a perpetual power struggle betweenmatrixarea . It may require so manyinteractron.at it might become difficult to get any work done. The mainxstructure is not suitable for a firm that has few products and operates in a relatively stable market. they arc more able to incorporate new technologies into their products and respond quickly and easily to technological changes that Matrix Structure Communication flow is fast because of the dual interaction. Before key decisions are functional structure brings to bear the two intersecting perspectives. Also helps the company match its marketing strategy to the specific needs of the customer Products that sell well are often given more importance than others.80 TABLE 3.) Structure• International Human Resource Management Advantages Disaluntages IHRM Strategy Helps develop a cadre of experienced well-trained managers who understand a particular product line. The structure is clumsy and bureaucratic. benchmarked agarnst local and industry standards Finally. It allows firms to take advantage of fundional. The disadvantages arc equally strong. Coordination among product groups becomes difficult. Clearly a Geocentric approach Key positions are occupied by a breed of global mangers from within/outside the organisation HR policies are largely centralised and standardised with incorporation of global best practices and global benchmarking. The global matrix structure promotes organisational flexibility. HR policies are usually completely decentralised and independently managed at the unrt level. while minimising disadvantages of each. which is discussed in-depth. ••• 4 • 14 Closing Case > •-ahte• • v. research and development. the Walt Disney . HRM policies and processes are also impacted by the organisational structure that prevails in an MNC. The challenge for !HRM in this scenario is the ability to quickly enable HR processes that would support the new structure. r:°411—' - qt• • . It would involve — Modifying existing policies and HR processes. There is significant impact on IHRM functions of the organisational strategy and organisational structure. compensating. control and coordination are constantly replacing the existing ones. The path to globalisation adopted by the MNC determines the HRM approach to hiring. And this trend is evidently what is happening. • • • • SUMMARY IHRM refers to the HR policies and practices applied by an international firm across all its subsidiaries located in different countries. Human Re s44 Practice at Disney The IF Disney Company was founded in /922 by 21 year-old Wall Disney and his older brother Roy Walt Disney was the creative producer. training and development. 1998). HRM policies and processes are impacted by the MNC's organisational strategy with reference to going global at the host locations. As %. changes in emphases of HR policies as the work force mix of PCNs and HCNs varies and lot more risk exposure due to larger external influences. HR. • . and Networking within the specific industry through appropriate forums in order to conceive and propagate more effective and competitive structures. performance management or industrial relations. The nature of the HR functions and activities in an international context is determined by both the parent company's polices and practices and the degree of customisation of the HR policies to local requirements.. be it human resource planning. Establishing new policies and HR processes. finance. The partnership ended only with Walt Disney's death in /966. training and managing performance of its employees. Carrying out industry specific HR surveys. It is a challenge for MNCs to strike the right balance of' IHR philosophy to drive HR activities across countries of existence. The decision to centralise core functions like marketing.82 international Human Resource Management An MNC's organisational structure today is one that is constantly evolving. In brief. IHRM implies more involvement in employees' personal lives. employee hiring. production or sales impact the HR policy implementation from a very centralised to a completed decentralised workflow. New ways of reporting. By the end of the 1990s. What is therefore emerging is that structures arc becoming specific to industry segments and these am being innovated and becoming industry-specific benchmarks. This flexibility allows the MNC to ensure that no 'one size fits all' philosophy restricts its global initiatives. The subsequent chapter on Strategic International Human Resources Management deals with these challenges of the MNC in greater depth. compensation. The IHR activities have a broader perspective with reference to each function of HR. Roy the 'business brain' behind the company (Ellwood.