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Master of International Business HRM in Global Economy IBU5HRM

Semester 2, 2012 Lecture 2 Week 2

Lecturer: Dr Jerome Choy Contact: j.choy@latrobe.edu.au

Consultation: 2 pm - 3 pm Wednesday DWB 129

International Organisations (IOs): Strategy and Structure

Lecture Outline:
o Evolution of the MNE
Degree of internationalisation Choice of method for entry into IO Global Mind-set (orientation)

o Organisational structure and design o IHRM and global organisational design o Research on structure and performance of the MNE o The global learning organisation: The tie that binds

Factors contribute to the complexity of international business (IB) o Number of countries involved o Protection of foreign investments o Political uncertainty o Competitors o Operational differences abroad

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Opportunities for IB to take advantage of its global presence

o Adapt to local market differences o Exploit global economies of scale o Exploit economies of global scope o Tap into the best locations for activities and resources o Maximize knowledge and experience transfer between locations.

Three issues central to IB strategy

1. The degree of internationalisation and geographic scope 2. The basic choice of method for entry into international business 3. The extent of global mind-set (orientation) of the firm and its executives in internationalisation

Eight forms of internationalisation 1. Internationalisation through export 2. International division or global product division 3. Multi-country/multi-domestic strategy 4. Regionalisation 5. The global firm 6. The transnational firm 7. The born global firm 8. The globally integrated enterprise

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Export oThe initial decision to go international

exporting one or two products to one country, or importing one or a few products from one country

oLittle impact on HR and the overall business of the firm

International / global product division o International division (service-oriented) o Global product division (productoriented) o International responsibilities of the HR department can expand dramatically and become much more complex, including:
International assignment, development of HRM policies, practices, strategic decisions for foreign operations

Multi-country/ multi-domestic strategy

o Subsidiaries in multiple countries o Operating independently within each country and in other countries o Operating independently of the parent-company HQs except finance, HRM, marketing, R&D o A global division in parent-company HQs, or a regional HQs, integrating & coordinating these basic business functions o HRM coordinates HRM activities and practices of the subsidiaries and is responsible for relocation, compensation, and benefits for a large number of international assignees

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Regionalisation
o Conducting an international business on a regional basis o In only one or two regions, e.g., Europe or Asia o Manage HR from a regional headquarters

The global firm

o The world is one market products / services marketed to customers all over the world o Products / services are created in countries whichever do the job best. o Dominant HQs o Strong organizational culture o Global organizational branding

The transnational firm

o Final stage of globalization (Bartlett & Ghoshal) o Balance of global integration, local responsiveness and knowledge sharing

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The born global firm

o Operate instantly around the globe o IT focus o HR activities in this kind of firms include Frequent international business travel of key personnel Legal protection of intellectual property rights (patents and trademarks) Hiring of key local staff Management of international project teams for local client service.

The 21st Century globally integrated enterprise oIntegrated approach to deliver value to employees and customers worldwide oTalent and expertise within the MNE flow to where it creates most value

Business Forms (Entry Methods) for entering into international business

o Licensing and sub-contracting o Outsourcing o Off shoring o Wholly-owned subsidiary o Mergers and acquisitions (M&As) o International joint ventures (IJVs) o Strategic alliances, partnerships (e.g. research) and consortia

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Licensing & sub-contracting

o To take advantage of lower labour and operating costs by
Licensing the rights to manufacture and/or market ones product abroad Sub-contracting to an overseas contractor the manufacture or assembly of a firms products

o Not involving in setting up of directly owned subsidiary o IHR makes sure human rights of workers and OH&S are maintained in the productions

Outsourcing
Another form of subcontracting Contract out a/number of business process(es) to overseas firms Reasons for reducing costs, improving quality, freeing firms resources for greater focus on core competencies Directly linked to business management due to importance of the outsourced operations Very much involving IHR in planning, managing and execution of international assignments, business travel, training

Off shoring
Involving relocation of one or more business processes of a firms to another country For lowering costs Offshore process is still operated by the firms personnel but in an offshore location Same HR responsibilities as those in the parentfirm except under different legal system and influence of other national culture HR mostly dealing with employee satisfaction, recruitment & retention in wake of damaged staff morale caused by threats of off-shoring

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Wholly-owned subsidiary
o Own sale offices in foreign countries where sales are large o Own manufacturing factories in foreign countries to assemble and/or manufacture products o Managed by a sales manager from parentcompany o HR in HQs involved in matters related to international assignees and foreign employees

Mergers & Acquisitions oA preferred entry method oTo consolidate the scope of business activities and parent-firms position in global market oIHR input is important in:
pre-merger due diligence post merger integration

International joint ventures

o Involving 2 or more firms from 2 countries to create a NEW business entity with shared ownership and managerial responsibilities o the NEW entity are operated by employees from both partners. o HR needs to adopt or develop HR practices for the multi-national workforce. o HR specifically is responsible for merger /interaction of two or more national and corporate cultures

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Strategic alliances, partnerships (e.g. research) and consortia

o Not a replacement of other international business forms (e.g., multi-domestic, transnational) o Providing additional flexibility in a fast-moving global economy o Firms adopting these forms to gain access to technology, research, laboratories o HR issues in coordinating different workforces and managements in different countries, thus detremental to desired edges.

Designing the organizational structure of global firms

o Integrates activities o Coordinates policies and practices o Organizational components
Product lines Regional & home country HQs Country subsidiaries & alliances Global business functions Firms stage & forms of international development Standardisation vs localisation Host government involvement in economic process Diversity and complexity of MNE operations

o Additional factors

Coordination mechanisms
o Balance parent-firm HQs policies with local approaches o Reduced size of business units o Informal linkages o Global networks

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IHRM and the management of global organization structure

o Shared services model o Linkages o Networks

Research on structure and performance of the MNE - Empirical shortcomings o Manufacturing industry slant o More emphasis placed on strategy issues rather than management and organization issues o Failure to capture temporal context

The global learning organization: The tie that binds - Knowledge is power o Intellectual and social capital o Knowledge sharing o Facilitate learning on a global basis o Utilise full skill sets

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Chapter 2: Guided discussion questions

o How has the MNE evolved? How have the changes in MNEs affected HR? o What are the various choices that MNEs have for entry into international business? How do the functions of HR vary with these various choices? o How can IHR help to ensure the success of cross-border acquisitions and joint ventures? o How do networks and learning organizations help to ensure an MNEs competitive advantage?

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