CHAPTER 2 msdm dowling

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CHAPTER 2THE ORGANIZATIONAL CONTEXT

The human resource (HR) function does not operate in a vacuum.As with other areas of the organization, the shift from a domestic to a global focus affects the HR activities described in Chapter 1.As a consequence, HR activities are determined by. and influence, various organizational.factors, such as: * Stage of internationalization; * Mode of operation used in the various foreign markets;* method of control and coordination; and * Strategic importance of the overseas operations to total corporate profitability.

To a certain extent, how the internationalizing firm copes with. the HR demands of its various foreign operations determines its ability to execute Its chosen expansion strategies. indeed Finnish research suggests that personnel policies should lead rather than follow international operation decisions, yet one could argue that most companies take the opposite approich that is, follow 'market driven strategies. For example, after reading the cases in Exhibit 2-1, one could ask whether GE's top managers fully anticipated the HR investment that the Tungsram acquisition would entail prior to its decision to purchase the Hungarian firm GE is a large multinational with experience and resources to draw on- For smaller, newly internationalizing firms, lack of suitable staff may be a major constraint, as the experience of the Australian firm in Exhibit 2-1demonstrates.

EXIBIT 2-1 In January 1990 the U.S. multinational, general tungsram a hungarian lighting company, as part Of its European market expansion strategy. By 1994 its equity had risen to 99.6 Percent. the expansion hungarian operation had 13 existing factories employing 17,600 workers.GE initially appointed a hungarian born U.S. expatriate as its lop manager, though he was loner replaced when tungsram was brought under the direct control of GE Lighting europe in 1993 . Staff transfers played on important role in training and developing the hungarian staff. Key executives were brought over from the united states for varying lengths of time (three to six months) to assist in knowledge and skills transfer. Management training also involved sending tungsram staff to the united States, giving selected Hungarian exposure to GE's working environment, and American life in General In oeder to improve tungsram's competitivenes GE reduced staff levels by almost half and closed five plants, despite the unionized environment it also invested heavily in training (quality programs) to improve production workers' output- During this period its european market share increased from 5 percent in 1989 to 15 percent in 1994

Australian Systems Limited Australian Systems Limited (ASL) is a subsidiary of a UK project firm, opera ting in the highly competitive construction industry. In 1994, ASL was one of nine companies out of 200 applicants, judged prequalified to bid for work connected with the extension and modernization of a motor airport in south east asia . ASL's managing director was pleased that his small company was internationally competitive but commented that there were olways twc constraints in international project operations finance and people. He explained: finance is always on issue in terms of how much you can put into it. And the other thing is available resources pie. Finding good people is always difficult. We used to think it was our specialized part of the industry, but most of the business people! talk to bemoan the fact of getting good people good marketing good engineering, whatever''

He added " when we started to look at resources, the bottom line is that if we had won (the south east asian airport project ) plus what (work) we had already, we would have had to close the order books for twelve months because we would not find the people to handle more works;

The demands placed by international growth on the HRM department and its responses are the focus of this chapter. By way of introduction, we outline various approaches to staffing foreign operations. We then follow the path a domestic firm may take as it evolves into a global entity the organizational context with a focus on how this development is reflected in its form of structure, the approach to control and coordination, and the mode of operation used. The purpose is to draw out the international dimension of human resource management to provide a meaningful context for the remainder of the book.

International HUMAN resource management approaches

In Chapter 1 we discussed the IHRM implications of Porter's multido mestic and global industry classifications to illustrate how multinational strategies have HR consequences. Here, we are concerned with perhaps a more fundamental aspect-the allocation of human resources to the various international operations to ensure effective strategic outcomes.The IHRM literature uses four terms to describe MNE approaches to managing and staffing their subsidiaries: ethnocentric polycentric, regeocentric, and geocentric. These terms are taken from the seminal work - of Perlmutter, who claimed that it was possible to identify among inter- national executives three primary attitudes- ethnocentric, polycentric and geocentric-toward building a multinational enterprise, based on top management assumptions upon which key produce functional, and geographical decisions were made. To demonstrate these three attitudes, perlmutter used aspects of organizational design, such as decisionmaking, evaluation and control, information flows and complexity of organization. He also included "perpetuation,'' which he defined as recruiting , staffing, development." A fourth attitude-regiocentric-was added later.

although the HR implications of the approaches identified by Perlmutter will, be examined in detail in Chapter 3, it is important to briefly outline them here, since they have a bearing on our discussion of the organizational structure and control mechanisms that typically are adopted.by firms as their internationalization progresses. The four approaches are:

1. Ethnocenetric: Few foreign subsidiaries have any autonomy; strategic decisions are made at headquarters. key positions at the domestic and foreign. Operations are held by headquarters' management personnel In other words. subsidiaries are managed by expatriates from the home country (PCNs).