Internationalization theory

7/29/2019 Internationalization theory

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International Business: Actions(III)Business Functions within the MNCs

Business College

School of Management


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Key Learning Objective

This session will help you to understand the concepts of:

1) Internationalisation of business organisations

2) Key international business functions

3) Complexities of choices and approaches in

internationalisation


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Aims of the Session:

To understand aspects of various functions in

the international business organisations.

To consider the benefits and problems of theinternationalisation in human resource and

knowledge management in IB organisations.


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Key Questions

What are the key functions in the process ofinternationalisation of firm?

How does international business organisation manage its

internal operations?

How does international business organisation manage its

external operations (e.g. relationship with the hostcountry/communities)?


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Recap

We looked at the concept of internationalisation of firms and rationale behindtheir decision-making process.

Advantages and Risks of internationalisation

http://www.youtube.com/watch?v=KGfrN8jvgko : a BBC report on China and

Chinese Business Expansion.
http://www.youtube.com/watch?v=KGfrN8jvgkohttp://www.youtube.com/watch?v=KGfrN8jvgko


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Corporate Governance within the MNC

Corporate governance refers to the way inwhich company boards oversee the running

of the corporation by its managers and how

board members are accountable toshareholders and the company in general(Johnson and Turner, 2010)


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The corporate Governance for IB organisation:

Issues to be aware of

Company Transparency; Relationship with stakeholders in the host countries;

Shareholder rights;

Labour relations;

Fair competition; Tax and pension policy;

Disclosure requirement.

(Source: Brooks et al, 2004)


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Function: International Human Resource Management

(IHRM)

IHRM is distinct from generic HRM on two grounds:1) The complexity of operating across multiple national

environment.

2) Employing different national categories of workers.

This function requires careful attention from MNC.


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Tapping the Worlds Innovation Hot Spots(Source: Gao, 2009)

Changing dynamics of global innovation: What are the implications of this

new Innovation World?

System Integration Approach: companies can take advantage of the

differences in national environments through innovation arbitrage

4 Innovation Models: some exist in pure form while others are a component

of a nations overall innovation strategy


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Model 1: The Focused Factory

What is a focused factory?

- Clear strategic intent

- Infrastructure

- Talent

Examples: Denmark, Singapore (Biopolis, Fusionopolis)

Key players: GSK, Novartis.


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Model 2:Brute Force

What is Brute Force

- Large source of low-cost labour

- Innovation opportunities

- Law of averages

- Examples: India, China

- Players: Microsoft, Berkshire Hathaway


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Model 3: Hollyworld

What is Hollyworld

- Forming a global creative class (Silicon Valley Effect)

- Developing an enticing innovation destination

- Examples: India/ Singapore


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Model 4: Large Scale Ecosystems

Large-Scale Ecosystems : end to end innovation systems

- Self-contained environments

- Alliance-management skills needed

Examples: Finland Focus on education, science and technology (Aaltouniversity)


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Driving Forces of Global Innovation

1) Innovation as a currency of global competition- pursuing the global dream;

countries in-source American culture

2) Global war for talent- talented young innovators can be attracted anywhere

through incentives and opportunities

3) Innovation as a national agenda- nations increasing embrace innovation as

a national priority4) Power of networks global networks are becoming increasingly intertwined


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Activity 1:

How could each of these companies take advantage of the innovation

models?

You will be divide into groups and please select one of these companies.

Brainstorm how leveraging these models could benefit the strategic way the

company do business.

Share with the class.


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IHRM: Approaches to Staffing

Factors affecting approaches to staffing

General staffing policy on key positions at headquarters and

subsidiaries

Constraints placed by host government

Staff availabilityEthnocentric

Polycentric

Geocentric

Regiocentric


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Ethnocentric

Strategic decisions are made at headquarters;

Limited subsidiary autonomy;

Key positions in domestic and foreign operations are held by

headquarters personnel; PCNs manage subsidiaries.


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Polycentric

Each subsidiary is a distinct national entity with some decision-

making autonomy;

HCNs manage subsidiaries who are seldom promoted to HQ

positions;

PCNs rarely transferred to subsidiary positions.


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Geocentric

A global approach - worldwide integration;

View that each part of the organization makes a unique contribution;

Nationality is ignored in favor of ability:

Best person for the job; Color of passport does not matter when it comes to rewards,

promotion and development.


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Geocentric Staffing Requirements(Source: Brooks et al, 2008)


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Regiocentric

Reflects a regional strategy and structure;

Regional autonomy in decision making;

Staff move within the designated region, rather than globally;

Staff transfers between regions are rare.


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Ethnocentric Approach

Advantages:

To ensure new subsidiary complies

with overall corporate objectives and

policies

Has the required level of competence

Assignments as control

Disadvantages:

Limits the promotion opportunities of HCNs, leading

to reduced productivity and increased turnover

among the HCNs

Longer time for PCNs to adapt to host countries,

leading to errors and poor decisions being madeHigh cost

Considerable income gap, high authority, and

increased standard of living may relate to lack of

sensitivity


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Polycentric Approach

Advantages:

Employment of HCNs eliminates language barriers, avoids

adaptation of PCNs, reduces the need for cultural awareness training

programs

Employment of HCNs allows a multinational company to take a lower

profile in sensitive political situations

Employment of HCNs is less expensive

Employment of HCNs gives continuity to the management of foreign

subsidiaries (lower turnover of key managers)


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Polycentric Approach

Disadvantages:

Difficult to bridge the gap between HCN subsidiary managers and

PCN managers at headquarters ( language barriers, conflicting

national loyalties, cultural differences)

HCN managers have limited opportunities to gain experience

outside their own country

PCN managers have limited opportunities to gain international

experience

Resource allocation and strategic decision making will be

constrained when headquarter is filled only by PCNs who have

limited exposure to international assignment


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Geocentric Approach

Advantages:

Ability of the firm to develop aninternational executive team

Overcomes the federation drawbackof the polycentric approach

Support cooperation and resourcesharing across units

Disadvantage:

Host government may use immigrationcontrols in order to increase HCNsemployment

Expensive to implement due to increasedtraining and relocation costs

Large numbers of PCNs, HCNs, and TCNsneed to be sent across borders

Reduced independence of subsidiarymanagement


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Regiocentric Approach

Advantages:

Allow interaction between executivestransferred to regional headquartersfrom subsidiaries in the region andPCNs posted to the regionalheadquarters

Provide some sensitivity to localconditions

Help the firm to move from a purelyethnocentric or polycentric approach toa geocentric approach

Disadvantages:

Produce federalism at a regionalrather than a country basis andconstrain the firm from taking a globalstance

Staffs career advancement still limitedto regional headquarters, not theparent country headquarters


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Parent-Country Nationals

Advantages

Organizational control and coordination ismaintained.

Rising stars are given internationalexperience.

PCNs may be the best people for thespecific job due to special skills andexperience.

An assurance that the subsidiary willcomply with company objectives &policies.

Disadvantages Promotional opportunities of HCNs are

limited.

Time and performance costs associated withadaptation to the host country.

PCNs may impose an inappropriate HQstyle.

Compensation for PCNs and HCNs maydiffer.


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Host-Country Nationals

Advantages

Language and other barrier eliminated

Reduced hiring costs

Continuity of management

Government policy may require hiring

HCNs

Possible increased morale because of

increased career potential

Disadvantages

Hiring of HCNs may encourage a federation

of national rather than global units

HCNs have limited career opportunity

outside the subsidiary

Control and coordination of HQ may beimpeded

Hiring HCNs limits opportunities for PCNs

to gain foreign experience


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Third-Country Nationals

Advantages

Salary and benefit requirements may

be lower than for PCNs.

TCNs may be better informed than

PCNs about host-countryenvironment.

Disadvantages

Transfers must consider national

animosities.

Host government may resent hiring

TCNs.

TCNs may not want to return to theirown countries after assignment.


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Determinants of IHRM Approaches

and Activities


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Activity 2: Management of IHR policies

An Australian mining company (operating in Laos,Cambodia and Chile) is facing HR crisis. They cant retain

their staff and need some ideas to improve their policies.

In your team please discuss the best IHR policy for the

industry, company and explain why your team consider

that policy.


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Reasons for International Assignments

Position filling, e.g.

Skills gap, launch of new endeavor, technology transfer

Management development

Training and development purposes, assisting in developing common

corporate values

Organizational development

Need for control, transfer of knowledge, competence, procedures andpractices


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Types of International Assignments

Short term: up to 3 months

Troubleshooting

Project supervision

A stopgap until a permanent arrangement is found

Extended: up to 1 year May involve similar activities as short-term assignments

Long term

Varies from 1 to 5 years

The traditional expatriate assignment


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Roles of an Expatriate

Agent of direct control

Agent of socialization

Network builder

Boundary spanner Language node

Transfer of competence and

knowledge


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A Glamorous Life

International business travelers cite the positives as:

Excitement and thrills of conducting business deals in foreign

locations

Life style (top hotels, duty-free shopping, business class travel)

General exotic nature


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But a High Level of Stress!

Home and family issues

Frequent absences

Work arrangements

Domestic side of position still has to be attended to

Travel logistics

waiting in airports, etc.

Health concerns

Poor diet, lack of sleep, etc.

Host culture issues

Limited cultural training


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Centralized HR CompaniesDecentralized HR

CompaniesTransition HR Companies

Large well-resourced HR

departments Small HR departments Medium-sized HR departments

Key role: Managing all high-grademanagement positions worldwide

Key role: Managing elite corporatemanagers

Key role: Management and developmentof senior managers and expatriates

Key activities: Planning international

assignments and performance

management globally, identifying high-

potential staff

Key activities: Influencing operating

units to support international

assignments, supporting

decentralized HR

Key activities: Persuading divisional

managers to release key staff using

informal and subtle methods, strategic

staffing.

Source: Based on H. Scullion and K. Starkey, in Search of the Changing Role of the Corporate Human Resource Function in the International Firms, International Journal of Human Resource

Management, V 11, N 6 (2000) pp. 1061-1081.

Various Roles of Corporate HR


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RMIT University Slide 38

Reasons for Expatriate Failure

US multinationalsInability of spouse to adjust

Managers inability to adjust

Other family problems

Managers personal or emotionalimmaturity

Inability to cope with larger

overseas responsibilities

European multinationals Inability of spouse to

adjust

Japanese FirmsInability to cope with larger

overseas responsibilities

Difficulties with the new

environmentPersonal or emotional

problems

Lack of technical competence

Inability of spouse to adjust

(Source: Hill, 2010)


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Expatriate Selection

Reduce expatriate failure rates by improving

selection procedures

An executives domestic performance does not(necessarily) equate to his/her overseas

performance potential

Employees need to be selected not solely ontechnical expertise, but also on cross-cultural

fluency


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4 Attributes that Predict Success

Self-Orientation Possessing high self-esteem, self-confidence and mental well-being

Others-OrientationAbility to develop relationships with host country nationals

Willingness to communicate
http://images.google.com.au/imgres?imgurl=http://www.osp.state.nc.us/ExternalHome/HRD/hrd_images/businesshandinmiddle-629x945.jpg&imgrefurl=http://www.osp.state.nc.us/ExternalHome/HRD/Programs/hrprof/profdevindex.html&h=629&w=945&sz=201&hl=en&start=1&um=1&tbnid=gC90lgdPVgCk9M:&tbnh=99&tbnw=148&prev=/images%3Fq%3Dhuman%2Bresource%26um%3D1%26hl%3Den%26rlz%3D1T4ADBF_enAU263AU263


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4 Attributes that Predict Success

Perceptual Ability The ability to understand why people of other countries behave the way

they do

Being nonjudgmental and flexible in management style

Cultural Toughness Relationship between country of assignmentand the expatriates

adjustment to it


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Training and Management Development

Training: Obtaining skills for a particularforeign posting Cultural training: Seeks to foster an appreciation of the host countrys

culture

Language training: Can improve expatriates effectiveness, aids in relating

more easily to foreign culture, and fosters a better firm image

Practical training: Ease into day-to-day life of the host country


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Training and Management Development

Development: Broader conceptinvolving developing managers skills

over his or her career with the firm Several foreign postings over a number of yearsAttend management education programs at regular intervals


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Activity 3: Life of Expat.

Imagine you are working with the HR team from an automobile MNC. Now

you need to set up a training package for 3 Australian engineers who aregoing to work in Singapore for 3 years.

Please outline the content of your training and explain why your team

propose such activities.


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Repatriation of Expatriates

A critical issue in the training and development of

expatriate managers is preparing them for reentry

into their home country

Repatriation should be seen as the final link in anintegrated, circular process that selects, trains,

sends, and brings home expatriate managers

Research shows that there is a problem with therepatriation process


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Why IHRM matter?

Human capital provides competitive advantages to the firm.

Personal and organisational knowledge can be transferred across

locations (and firms).

Management of HR across locations involve local knowledge and

expertise.

The sharing of knowledge across functions can be done through

proper IHRM process.


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Activity 4: Final Discussion

In your team, please discuss factors influencing success and/or failure of HR

practices in multinational corporations.


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References

Brooks, I., Weatherston, J. and Wilkinson, G. (2008), The International

Business Environment: Challenges and Changes. London: Prentice Hall.

Hill, C. (2010), International Business (7th Ed.), McGraw Hill: NY.

John, D. and Turner, C. (2010), International Business: Themes and Issues in

the Modern Global Economy. Oxon: Routledge.

Internationalization theory

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