Nature of IHRM

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    SECTION II

    Nature of IHRM

    Learning Objectives

    After reading this chapter, you should be able to

    Understand what constitutes IHRM and how it is differentfrom domestic IIRM

    Understand the impact of organisational strategy onIHRM

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    Global FIRM at Colgate-Palmolive Co.

    Opening

    Colgate-Palmolive, the $6 billion a year personal products giant. earns nearly two-thirds of its revenues outUnited States. For years. Colgate succeeded, as many US multinationals have, by developing products at ho

    then "throwing them over the wall" to foreign subsidiaries. Each major foreign subsidiary was responsible

    manufacturing and marketing. Senior management pavilions in these subsidiaries were typically held by Am

    and practically all the company's US-based managers were US citizens.

    In the early 1980s, Colgate realised that if it was going to succeed in the rapidly changing international b

    environment. it would have to develop a more transnational orientation. Its competitors. such as Procter &

    Unilever and Kao, were trying to become transnational companies, and Colgate needed to followsuit. Bec

    transnational requires developing an international cadre of executive managers who are as at home wo

    one culture as In another and who have the ability to rise above their ethnocentric perspectives.

    As a first step towards building such a team. Colgate began recnilting college graduates in 1987 andthem through an intensive international training programme. The apical recnrit holds an MBA fro

    university speaks at least one foreign language. has lived outside the United States, and has strong co

    skills and business experience. Over onequarter of the participants are foreign nationals.

    The trainees spend 24 months in a US programme. During three-month stints, they learn global

    development secrets of for example. Colgate toothpaste. compiling a guide for introducing a new pr

    revamping an existing one in various national markets. Participants also receive additional language instruc

    take international business trips. When they have completed the programme, the participants become a

    product managers in the United States or abroad. Unlike most US companies, Colgate does not send fore

    trainees to their native countries for their initial jobs. Instead, it is more likely that a French national will re

    the United States. a US national will be sent to Germany. and a British national will go to Spain. The foreceive the same generous expatriate compensation packages the Americans do, even if they are assigned

    home country. This extra pay can create resentment among locally hired managers offoreign subsidiaries.

    is trying to resolve this problem by urging its foreign subsidiaries to send their brightest young manage

    training programme.

    In addition to the management training programme, Colgate has taken a number of other steps to de

    International cadre of managers. in Europe. for example. the company Is developing "Euromanagers manag

    have experience working in several European countries. This is a departure from the established pra

    having managers spend most (if not all) of their working careers in their home country. Also. Colgate now

    ensure that project teams contain managers from several different countries.

    hup://www.colgate.comSource: J. S Lublin, "Managing Global Younger Managers Learn Global Shills." The Wall Street Journal, M

    1992, p. B1: B. Hagerty, "Companies in Europe Seeking Executives Who Can Cross Borders in a Single

    The Wall Street Journal. January 25.199!. p. Bl: and CM Solomon. "Global Operations Demand that

    think Diversity:" Personnel Journal 73 (1994), pp. 4040.

    http://www.colgate.com/http://www.colgate.com/
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    66 International Human Resource Management

    Simply told. IHRM refers to the HR policies and practices applied by an international

    across all its subsidiaries located in different countries. The Colgate story told in the ope

    case is a true reflection of the status of international human resource management. Sta

    more clearly. IHRM is the process of procuring, allocating and effectively utilising hu

    resources in a multinational organisation. The definition given by Peter J. Dowling

    Denice E. Welch is worth citing in this context. According to them. IHRM contains t

    dimensions:'

    I. Three broad human resource activities, viz. procurement. allocation and utilisa

    These three dovetail with all the activities of the typical domestic human reso

    management and

    industrial relations.

    2. The three national orcountry categoriesinvolved in IHRM activities:

    the host country where

    a

    subsidiary may belocated.

    the home country wherethehead office is located,and

    'other' countries that

    may be suppl iers of

    labour, finance and

    other resources.

    3. The three categories ofemployees of aninternational firm:

    host-country nationals

    IHRM is the interplay among these three dimensions - -the human resource actin hies. type

    employees and countries of operation (See Fig. 3.11.

    H R M C O M P A R E D W I T H D O M E S T I C H E M

    The nature of IHRM is more clearly understood by comparing global HR functions

    domestic HRM (DHRM) functions. First, the similarities between the two. Essentially

    activities are the same whether they are specific to one country or extend to sev

    countries. The HR manager needs to plan for the human resources, hire the right peop

    right numbers. train and develop. compensate, maintain and motivate employees, whe

    his or her domain is domestic or global.

    Another similarity relates to the environmental forces which impact the functionin

    an HR department. whether it be domestic business or global business. The exte

    constraints include political. legal, economic and cultural. These four elements significa

    nfluence the way HR functions are carried out both in domestic as well as in g

    businesses.

    FIGURE 3.1 Nature of IHRM

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    HawnofIHRM

    knowledge management. talent retention and the like. These interventions apply to thedomestic as well as international businesses.

    However, the differences between IHRM and DHRM arc more striking than tsimilarities. The main difference stems from the complexity of operating in diffecountries, having different nationals as employees. In particular, the complexity of IHcan be attributed to six factors:1

    more HR functions and activities;

    need for a broader perspective; molt involvement in employees' personal lives;

    changes in emphasis as the work force mix of PCNs and NCNB varies;

    risk exposure; and

    broader external influences. (see Fig. 3.2).

    411)m b i s c o

    FIGURE 3.2 DHRM and IHRM Compared

    More HR Activities

    Each function of HR has new dimensions in IHRM. Described below are how they are

    functionally different.

    Human Resource Planning

    (i) Difficulty in implementing HR procedures in host countries.

    (ii) Difficulty in tying strategic business planning to HR planning and vice-versa.(iii) Providing developmental opportunities for international managers.

    Employee Hiring

    (i) Ascertain cultural-fit with that of the global organisation.

    (ii) Ethnocentric, polycentric or geocentric approaches to staffing.

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    International Human Resource Management

    (iii) Selection of expatriates.(iv) Coping with expatriate failure.(v) Managing repatriation processes.

    (vi) Managing female expatriates.

    Training and Development

    (i) Emphasis on cultural training.(ii) Language training.

    (iii) Training in global etiquette and the nuances of the virtual workplace culture.

    Compensation

    (i)Devising an appropriate strategy to compensate expatriates.

    (ii) Minimising discrepancies in pay between parent, host and third country nationals.

    Performance Management

    (i) Constraints while operating in host countries need to be considered.(ii) Physical distance, time differences and cost of reporting system add to the complexity.(iii) Identification of raters to evaluate subsidiary performance.

    ndustrial 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, training or compensation. IIIRM adds new dimensions ware not experienced or observed in DHRM.

    Broader Perspective

    When compared to DHRM, IHRM requires a much broader perspective for aactivities. This divide is primarily because an MNC continues to recruit and select a mdifferent types of employees including host country nationals, third country nationaparent country nationals. International joint ventures, for example, can include as manine different types of employees, each with their own distinct characteristics-foparent expatriates, host parent expatriates, foreign parent annulate, host country nati

    hird country nationals, expatriates of foreign parents. third country expatriates ofcountry parents, third country expatriates of the joint venture, foreign headquarter execand host headquarter executives. The various employee groups, each with their own cubackgrounds add to the need for a broader perspective on the part of the manager:Training and development for instance. the tasks involved here are to identiype of overseas assignment for which training is required, determine the specific

    cultural training needs and impart training and evaluate its effectiveness. Similarly, dealing with pay issues, the IHR manager needs to coordinate pay systems in diffcountries with different currencies that may change in relative value to one anotheime. While handling fringe benefits too, complications tend to arise. It is a com

    practice in most countries to provide health insurance to employees and their famThe interpretation of family however varies across countries In some countries

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    randparents, nephews and nieces. The IHR manager finds himself or herself in a diffiituation while determining who to include/exclude as relatives in the family nest.'

    Irrespective of whether a country is developed or developing makes the IIrientation different. The establishment of the EU. for instance, had signific

    mplications for FIRM. HRM in Europe is in a transition. It can be actively debated whethistinct European HRM culture does exist. In anticipation of the creation of a sinuropean market, prior to 1993, organisations were beginning to review their strategieake advantage of the markets freed from border tariffs, which were opened up. The 19

    witnessed an unprecedented number of mergers and acquisitions in Europerganisations sought to develop an integrated Europe. This led HR professionals acrossifferent countries to deliberate first to map what practices prevailed at the national

    ndustry level; and second, to find common ground for a European HRM policy.'

    The European HRM policy did emerge over time. The distinct features of an European Holicy are: impact of culture, sense of organisational and managerial responsibowards employees, greater involvement of groups and wider support towards trnions and other forms of employee representations.

    This pan European HRM policy contrasts with the US policy towards HRM. The hallmaf the latter arc: freedom and autonomy, low interference from state, hands-off attit

    owards employees and a natural resistance towards trade unions.The IHR manager operating in developing countries encounters unique problems. In m

    eveloping countries that is a paradigm shift in management policies, orientations aractices. Many of the countries are emerging as market driven economics, emphasin professionalisation of managerial practices, including those relating to HR. There woe resistance from within the organisation. usually from employees of the parent compo accept new ideas and approaches and it is the responsibility of the IHR managensure that they are appropriately redressed.

    More Involvement in Employees' Personal. Lives

    Unlike the domestic HR manager, an IHR manager requires to be involved a lot more in ersonal lives of the employees. It may be enough for the DIIR manager to know rofessional profiles ofemployees. But, the IHR manager should go beyond and knbout spouses. children, relatives, religion, region, culture and a host of other debout the expatriates. The HR department needs to ensure that the expatriate understaousing arrangements, health care and all aspects of the remuneration packages providedhe foreign assignment. Handling banking, investments, home visits and final repatriatioxpatriates are other issues an IHR manager is expected to support.

    The IHR manager has additional responsibilities while dealing with expatriates frountries like, India for example. Indians working overseas encounter peculiar, o

    npleasant circumstances. Take the instance of a five year old boy (read Smaran, soKartik Kaushik) who returned home from school one day and made a demand: "Dad, doave white paint at home?" A girl in his class at school, it seems, had called the bobrownie", and he wanted to paint himself white? Or take another instance of an Indouple working in Germany (read Venkatachlam Krishnan, CEO of Basics. Ranba

    German subsidiary and his wife). For them. social life hardly existed, as Germans nsular people. Even after living there for more than three years. he and his wife haad any local friends. Health care was a big concern. Krishnan's wife Jaishree came bacndia for the delivery of their daughter. Anitra, as neither of them was comfortable whe experience during check-ups early in her pregnancy.'

    Highly interesting incidents happen in the lives of foreigners working in India. One s

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    0 Unemotional human Resource Management

    angalore as anybody else. Bob and his wife had organised an Indian naming ceremony for theirds. The kids were called Mere! Kavitha and Tobias Bhaskaran.7

    Situations of the type described above may not require the intervention of the IHR manager, aave to be handled by the expatriates themselves. Nevertheless it is considered a IHR role to be awuch challenges and package some of these into training programme for the expatriates.

    Changes In Emphases as the Work Force

    Mix ofPCNs and HCNs Varies

    he HR policies and practices depend on the constituents of the host country unit. During thetages of a unit, there arc more number of parent country nationals in the host unit and as a result, tctivities are focussed on the PCN. This continues till such time that the host unit is dependent on the ountry nationals who constitute the majority at the subsidiry. As the unit becomes independeriginal emphasis with respect to its HR activities and policies shifts in favour of the HCN. Axample would be a US based company in the health care industry. During the intial phase of seats operations in India. there were a number of expats who were onboard the host unit, hence thernumber of facilities and policies that were put in place to ensure that the expats were well take

    f. As the operations of the unit in India stabilised and about three years into its successful operradually the company began to withdraw its parent country nationals from the Indian setup. The HRhich earlier had to provide for a separate set of policies and reimbursements, such as special relolowance, company car and company leased accommodations, was able to withdraw the sam

    maintain a single uniform policy that took care of the host country nationals. A balance needs to beetween the need to integrate HR policies with the parent company. alongside the need to havost country HR guidelines, to keep the company competitive at the local country level, as a premployer.

    Risk Exposure

    isk exposure is high in domestic HRM. Unfair hiring practices may result in a firm being chargeolation of Constitutional provisions and be liable for penalties. Failure to maintain cordial relationnions may result in strikes and other forms of labour unrest. BPO firms are exposed to the remale employees, during night shifts, being sexually abused and killed. Males too are freqobbed of cash and expensive accessories.

    In IHRM, there arc additional risks, as for example: terrorism, kidnapping and murd

    An American engineer. Paul Johnson, was beheaded in Saudi Arabia in 2004. An Indian labourer,as kidnapped and killed in Afghanistan in 2005. So was Suryanarayan, a telecom engineer, in

    errorism poses a great risk to international operations. The cost of kidnapping may run to S2 to S3 mnd it is estimated that there are 10,000 to 15,000 kidnappings a year worldwide. Finns are, theorced to spend one to two per cent of their revenues on protection against terrorism.

    The IHR department may also be required to devise emergency evacuation procedures for highly vcations. The invasion of Kuwait by Iraq and the ensuing Gulf wan in 1991 are examples of suventuality.

    Then there is the risk of expatriate failure. The failure of an expatriate can have disastrous rubstantial monetary costs are involved while sending expatriates abroad, bringing them back to theountry and finding replacements (between $300,000 and S I million per expatriate per year). One es

    that US companies lose S2 billion a year as a result of expatriate failure. Besides, the

    erformance of an expatriate may damage the firm's image in the host country There are a

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    Nature of IHRM

    employees who fail even though they bad been viewed as competent managers withe domestic organisations. These individuals may have sold their homes, left the jthey liked, and uprooted their families to take a foreign assignment, only to find themse

    back in the home country. branded as failures. Their early return may also affect tfuture career prospects in the finis

    A domestic HR manager may be free from such risks.

    External Influences

    Domestic HAM is subject to the influence of an environment which comprises such fa

    as political-legal, economic, cultural and technological, prevailing within a country

    the other hand, IHRM is exposed to several cross-country factors such as:

    policy actions of national governments, such as expropriation and changes in

    exchange rates; responses of competitors in the host market; and

    host countnry stipulations on staff selection.

    Multinational companies enjoy high visibility in countries of their operations. Becausthe high visibility, the subsidiary HR managers may have to deal with ministers, polit

    leaders and a greater variety of economic and social interest groups than domestic

    managers. A host country government can dictate hiring procedures as for example. invol

    local employment exchanges in selecting skilled labour. Host country labour laws ough

    be complied with while fixing and disbursing salaries and host country laws gov

    industrial relations too.

    In some cultures. age is held at a premium, even at the cost of merit. Placing a junior

    supervisory position over his or her elders often leads to avoidable unplea

    consequences. Affirmative actions notwithstanding. employees resent having cer

    categories of employees as bosses in sonic societies.

    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 acrthe globe. resulting in a greater mobilisation of human resources.

    The effective management of human resources is increasingly being recognised

    a major determinant of success or failure in international business. Underperformance or failure in overseas assignments is costly, both in human

    financial terms, and the indirect costs of poor performance in internatiassignments, such as damage to foreign customer relations, may be particularly cos

    The implementation of international strategies is often constrained by the absenccompetent managerial personnel to man overseas assignments, which result

    decreased interest in setting up subsidiaries.

    The movement away from more traditional hierarchical organisational structu

    towards a networked MNC organisation has been facilitated by the developmen

    networks of personal relationships and horizontal communication channels. It i

    secret that HR plays a more significant role in network organisations.

    Finally. HR plays a significant rote in the implementation and control ofstrategies i

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    72 International Human Resource Management

    F U N C T I ON A L P OS I T I ON I N G OF I H R M

    IHRM is positioned globally depends on the global strategy pursued by an MNC. It is a conscious dec

    made by every enterprise about how it plans to expand its operations overseas and how it strategis

    run its day-to-day operations in the host country. Organisations use four basic strategies to compete i

    international environment: an international strategy, a multidomestie strategy, a global strategy a

    transnational strategy (see Fig. 3.3).

    High

    Cost Pressures

    Low

    Low Pressure roe Lo al Responsiveness High

    FIGURE 3.3 Four Basic Strategies

    Internat iona l St rategy

    Organisations that follow an international strategy attain business efficiency by transferring val

    skills and products to host county markets where indigenous competitors lack those skills and prod

    Most international firms have derived value by transferring a new and varied range of its pro

    offerings developed at home, to new markets overseas. They tend to centralise product develop

    functions at home (e.g. R&D). However, they also tend to establish manufacturing and mark

    functions in each major country in which they do business. But while they may undertake some

    country custommarketing strategyts and marketingstrategy, this tends to be limited. Ultimately, in

    international organisations, the head office retains tight control over the marketinMultidomestic stra

    Multidomestio Strategy

    Ormultidomestieollowing a multidomestic strategy orient themselves toward achieving maximumresponess. Multidomestic tinnsfirms extensively customise both their product ranges and their mark

    strategy to match different national conditions. They also tend to establish a complete set of value cre

    activitiesincluding production, marketing and R&Din each major national market in which the

    business. As a consequence, such organisations generally fail to realise value from the parent comp

    learning curve and location economultidomestiengly, many multidomestic organisations have a high

    structure. They also tend to do a poor job of leveraging core competencies within the organisation. Ge

    Motors is a good example of a company that has histomultidomestieioned as a multidomestic corpora

    particularly with regard to its extensive European operations, which are largely sHrghcontained ent

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    Nature of IHRM

    Global Strategy

    Organisations that pursue a global strategy focus on increasing profitability by reapthe cost advantage that come from the experience curve effects and location economics. Tpursue a low-cost strategy. The production, marketing and R&D activities of organizatipursuing a global strategy arc concentrated in a few favorable locations. Global organizatitend not to customise their product offering and marketing strategies to local conditi

    because customisation raises costs (it involves shorter production runs and the duplicatiofunctions). Instead, global organisations prefer to market a standardised proworldwide so that they can reap the maximum benefits from the economies of scale underlie the experience curve of the parent company. They also tend to use their cadvantage to suppon aggressive pricing in world markets.

    Transnational Strategy

    Christopher Bartlett and Sumantra Ghoshal have argued that in today's environmcompetitive conditions are so intense that to survive in the global marketplaorganisations must exploit experience-based cost economies and location economies, tmust transfer core competencies within the firm, and they must do all this while payattention to pressures for local responsiveness. They note that in the modem multinatienterprise, core competencies do not reside just in the home country. They can develoany of the firm's worldwide operations. Thus, they maintain that the flow ofskills and proofferings should not be all one way, from home firm to foreign subsidiary, as in the casfirms pursuing an international strategy. Rather, the flow should also be from foresubsidiary to home country, and from foreign subsidiary to foreign subsidiary-a process trefer to as global learning. Bartlett and Ghoshal refer to the strategy pursued by firms are trying to achieve all these objectives simultaneously, as a transnational strategy.

    Each strategy has its advantages and disadvantages and invites appropriate interventions, as Table 3.1 shows. During the initial phase of an MNC's entry multinational locations. the approach is either

    Strategy

    International Strategy

    Advantages

    Transfer distinctive

    competencies toforeign markets

    A hrgh degree of control

    and coordination ensures

    that all Subsidiaries,

    irrespective of country

    of location, are similarly

    managed

    A high associatron

    with a common

    corporate vision,

    mission and value

    system. Corporate

    Disadvantages

    Lack of localresponsiveness

    Inability to realiselocation economies

    Failure to exploit

    IHRM Strategy

    Approach could be

    ethnocentric or

    polycentric usually th

    ethnocentric approach

    preferred for greater

    control

    Key posrtions occupied by par

    country nationals of

    %MNC

    UKpolrcies arc either

    centralised or complet

    decentralised, with

    macro level activitie

    globally standardrsed,

    (C

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    74 International Human Resource Management

    TABLE 3.1 (Contd.)

    Strategy Advantages Disadtuniages I I I R M Strategy

    Multidomesti

    c Strategy

    Customisecompetenc

    ies.ferings and

    marketing in

    accordance withlocal responSivenas

    Inability to realise

    location economies

    Failure to exploitexperience curve effects

    Usually adopts a

    completely

    polycentricpolyecnt

    approach

    Failure to transfer

    distinctive competencie.

    to foreign markets

    HR policies are

    usually

    compPCN/HCN/TCN

    ed and independent

    managed at the un

    level. benchmarke

    Global Strategy Exploits experience curveLack of local responsiveness Geocentriciregioce

    effects approach

    Expresponsivenessn economies Key positions are occu

    by FICNAICTIfTCN

    lift policies arc

    largely centralised

    and

    stanpolyccntricrat

    n of global best

    practices and global

    benchmarking

    Transnation

    al Strategy

    Exploits experiencecurve effects

    Difficult to implement dueto organisational problems

    Geocentric/regiocen

    tric approach

    Exploits location economies

    Customise product

    offerings and marketing

    in accordance with local

    responsiveness

    Reaps benefits of

    global teaming

    Key positions are

    occupied by a bree

    of global manager

    from within the

    organisation

    HR policies are

    largely centralised

    and

    standardised, wit

    integration of glob

    best practices and

    global benchmarki

    insisting on total

    compliance with

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    NatureofIHRM

    multi-domestic or international and they differ in the organisational predispos(discussed earlier in Chapter 2). lithe approach is ethnocentric, the organisational stratusually international, The IHRM focus revolves around highly centralised HR practiceprocesses. Customisation would be restricted to statutory/ legal/ government stipulationsfew distinct local attribute. That is a large amount of dependence on the parent unit to decisions. approve policy changes and control production/research/marketing and financexample, companies like Pepsi, Coca-Cola, IBM. Kellogg, Procter& Gamble and Wal-Mart c

    classified as practising the international strategy. Coke allows its national subsidiaries to and sell according to their own marketing and distribution strategies develop so as to meocal challenges, while the core activity of syrup/concentrate preparation and product innoremains centralised at its global headquarters at Atlanta, USA.

    An organisation with a multi-domestic strategy most definitely adopts a polycapproach towards its HR functions. The policies are highly decentralised and each locahas the freedom to set and follow its own policies suitable for hiring and retaining its n the home country. Key positions are staffed by the HCN and the unit operates lindependent profit centre by itself.

    Organisational strategies like the global and the transnational strategics benefit f

    geocentric/ regiocentric approach. While they merit a high amount of integratiocoordination efforts, the benefits from having a centralised set of policies which incorpthe best of practices. that arc uniformly followed by units across the globe, are many. ike GE and IBM are examples of organisations that arc run with corporate HR functionare benchmarked with global practices.

    ORGANISATIONAL CONTEXT OF IHRM

    HRM needs to be organised and the organisational structure depends on the HR strategwhich in turn, depend on corporate strategy. Some preferred structures are described i

    following pages.

    Internaticnal Divisicn Structure

    n the international division structure, an overseas unit is an adjunct to the parent comt handles all the overseas activities, which may be organised by functions, product ostructure. All the international activities arc under the authority of the international dihead (of the rank of Vice-President), who coordinates the overseas activities. Anternational activities are under one head, control and communication arc easy anstructure can respond to changing local needs quickly. But the drawback of this struct

    Home-MiceDopautnents Chia Exact

    OverseasSuHome-

    VP internationaloperations

    Egypt A t li

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    76 International human Resource Management

    Functional Structure

    Also called worldwide functional structure, in this type each function is responsible

    activities around the world. The manufacturing department, for example, would

    responsible for worldwide production activities, so also with finance, marketing, R&D

    HRM. This design is used by international businesses that have narrow or similar prod

    lines.

    Since each functional area deals with the global market, specialisation and concentratiofunctional expertise can be taken advantage of. Control of various functions can be exerci

    relatively easily. But the drawback with this structure is the delay in responding to lo

    needs. Figure 3.5 typifies a functional structure.

    (MoritalinEur(Finance)

    LoCIISC)ans

    (Otbeatiections)

    \Cui )NMI= (Etecc

    FIGURE 3.5 Worldwide Functional

    Structorganrsedaphic Area Structure

    In this, worldwide activities arc organised by dividing the globe into different geographic

    areas. The regional manager is responsible for all business acts within that geographic are

    ( Europe and

    La* ArnetineAmerica N. America andPacificWW1

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    lecturing

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    Minding Faience

    FIGURE 3.6 Geographic Area Structure

    A geographic division can respond to the market conditions of a particular area much m

    effectively than any other structure. But there tends to be a duplication of functions as there

    different divisions catering to different areas. Communication among the divisions may

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    Nature of IHRM

    rcduct Structure

    is is the most common organisational structure followed by MNCs. The p

    ucture assigns worldwide responsibility for specific products or product grou

    parate operating divisions within a firm. As Fig. 3.7 shows, the manager who is inc

    a product division has authority for this product line on a global basis.

    ( C I O )

    t

    ProductDivision

    8rproductovistook A

    ProductDivision

    C

    i-

    t

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    factoring lecturing I festering ,tacturIngMarketing M a r k e t i n g

    Median Marketing I MarketingFinance Finance Finance Finance Finance

    FIGURE 3.7 Global Product Structure

    The global product divisions operate as profit centres. Managers of product divisiohe operations with considerable autonomy. They have the authority to make imp

    ecisions. But, corporate headquarters usually maintain control through bud

    onstraints and home office approvals for key decisions.

    Several benefits accrue to a worldwide product structure. If the firm produces a large n

    f diverse products, the structure allows each product line to focus on the specific ne

    scustomers. This structure also helps develop a cadre of experienced, well-t

    anagers who understand a particular product line. A third benefit of the product str

    that it helps the company match its marketing strategy to the specific needs

    ustomer. Finally, because managers possess extensive product knowledge, they are

    ble to incorporate new technologies into their products and respond quickl

    asily to technological changes that affect their markets.

    There arc some problems associated with product structure too. First is the neces

    uplicating facilities and staff within each division. Second, products that sell w

    ften given more importance than others. Finally, coordination among product g

    ecomes difficult.

    Matrix Structure

    he matrix structure emerges when one design is superimposed on top of an existin

    ff t f Th lti t t i fl id ith t i di i b i

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    78 International Human Resource Management

    The matrix structure permits a firm to form specific product groups, using members f

    existing functional departments. These product groups can then plan, design, deve

    produce and market new products with appropriate inputs from each technical area. In

    way, the firm can draw on both the functional and the product expertise of its employ

    After a given product development task is completed. the product group may be dissolved

    members will then move on to new assignments.

    GlobalMarke Global Global GManage

    Finance OpPextrcts HR

    GlobalProduct

    Manage-lj

    [ GlobalPextictManager-9

    FIGURE 3.8

    Three features make the matrix structure different from other single dimen

    structures. First, there are managers who report to two different matrix bosses. Second, thermatrix managers who share the subordinates: and third. there is the top manager wexpected to head the dual structure and balance and adjudicate disputes."

    What are the strengths of the matrix structure? First, communication flow is fast becau

    the dual interaction. Before key decisions arc made. the structure brings to the table

    intersecting perspectives. Second, a global matrix structure promotfirmsganisational ffirtn

    It allows finns to take advantage of functional. area and product structures. as needed, w

    minimising the disadvantages of each.

    The disadvantages arc equally strong. The matrix structure is not suitable fora Finn thafew products and operates in a relatively stable market. Second. the structure is clumsy

    bureaucratic. It may require so many meetings that it might become difficult to get any done. Finally, the dual hierarchy structure can lead to conflict and perpetual postruggles between the area and the product divisions.

    Given the new breed of firms being born due to the surge in internalisation. tod

    organisations cannot be clearly slotted into any one of the above structures. The struct

    discussed above are traditional structures that provide the basic framework on which

    MNC builds and then innovates, so as to balance the pressures for internationalisation ve

    the head of the organisation to control and coordinate, with the primary objective of mee

    global challenges in the most optimum manner.

    If there is any single function in an organisation that is impacted by changes in

    GobsProduct

    Marketrng

    GlobalProduct

    Manager-O

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    Nature ofIHRM

    TABLE 3.2 Comparative Picture of Organisational St rUCIUMS

    Structure Advantages Disadnantages IHRM Strategy

    Internation

    al Division

    Structure

    Functional

    GeographicArea Structure

    Product

    As the internationalactivities are under one

    head, control and

    communication are easy and

    the structure can respond tochanging local needs

    quickly. This structure is

    preferred when a business is

    making its foray into

    international business for the

    first time.

    Each function is responsiblefor activities around theworld. This design is used

    by international businessesthat have narrow or similarproduct lines.

    Since each functional area

    deals with the global market.

    specialisation and

    concentration of functional

    expertise can be taken

    advantage of. Control of

    various functions can be

    exercised relatively easily.

    A geographic division can

    respond to the market

    conditions of a particular

    area much more effectively

    than any other structure.

    lithe firm produces a

    large number of diverse

    products, the structure

    allows each product

    line to focus on the

    specific needs of its

    customers.

    The drawback of this

    structure is that

    overseas activities

    arc given a

    perfunctorytreatment.

    The drawback with

    this structure is thedelay in responding to

    local needs.

    But there tends to be

    duplication of functions as

    there arc different divisions

    catering to different areas.

    Communication among

    divisions may not be quick.

    Necessity of duplicating

    facility and staff within

    each division.

    Et hnocentric approac

    !y positions

    occupied by p

    country nationals o

    H t policies are u

    centralised

    anPCN/HCN/TCNsed

    minimal statutory

    Et hnocentric appro

    Kt :y positions are occby PCN4ICN/TCN

    t policies are largcentralised and standawith incorporation of gbest practices and globcnchmarking. insistitotal compliance

    withKeylobally setprocesses and

    NormaHR regiocentricapproach, operati

    ey positions arenormally oc cupied

    IIR policies are largecentralised and standa

    with incorporation oglobal best practices global benchmarking

    Usually an ethnocentrapproach is

    Key positions arenormallDisadvanta

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    80 International Human Resource Management

    TABLE 3.2 (Contd.)

    Structure Advantages Disaluntages IHRMStrategy

    Helps develop a cadre of

    experienced well-trained

    managers who understand a

    particular product line.

    Also helps the company

    match its marketing strategy

    to the specific needs of the

    customer

    Finally, becausemanagers possessextensive productknowledge. they arcmore able toincorporate new

    technologies into

    their products andrespond

    quickly and easily to

    Products that sell well are

    often given more importance

    than others.

    Coordination amongproduct groupsbecomes difficult.

    HR policies are usuallycompletely decentralisand independently manaat the unrt level,

    benchmarked agarnst land industry standards

    MatrixStructure

    Communication flow is fastbecause of the dualinteraction. Before keydecisions are functionalstructure brings to bear thetwo intersecting

    perspectives.

    The disadvantages arcequally strong.

    The mainxstructure is notsuitable for a firm that hasfew products and operates ina relatively stable market.

    Clearly a

    Geocentric

    approach

    Key positions are occupby a breed of globalmangers from within/out

    the organisation

    The global matrix structure

    promotes organisational

    flexibility. It allows firms to

    take advantage of fundional,

    area and product structures

    as needed, while minimising

    disadvantages of each.

    The structure is clumsy and

    bureaucratic. It may require

    so manyinteractron.at it

    might become difficult to

    get any work done.

    The dual hierarchystructure can lead toconflict and aperpetual powerstrugglebetweenmatrixarea

    HR policies are larcentralised and

    standardised with

    incorporation of glob

    best practices and

    global benchmarking

    insisting on total

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    82 international Human Resource Management

    An MNC's organisational structure today is one that is constantly evolving. New wayreporting, control and coordination are constantly replacing the existing ones. And this treevidently what is happening. What is therefore emerging is that structures arc becoming speto industry segments and these am being innovated and becoming industry-spebenchmarks. This flexibility allows the MNC to ensure that no 'one size fits all' philosorestricts its global initiatives.

    The challenge for !HRM in this scenario is the ability to quickly enable HR processe

    that would support the new structure. It would involve Modifying existing policies and HR processes.

    Establishing new policies and HR processes,

    Carrying out industry specific HR surveys, and

    Networking within the specific industry through appropriate forums in order toconceive and propagate more effective and competitive structures.

    The subsequent chapter on Strategic International Human Resources Management deawith these challenges of the MNC in greater depth.

    SUMMARY

    IHRM refers to the HR policies and practices applied by an international firm acroall its subsidiaries located in different countries. The nature of the HR functions anactivities in an international context is determined by both the parent company's policeand practices and the degree of customisation of the HR policies to locrequirements. The IHR activities have a broader perspective with reference to eacfunction of HR, be it human resource planning, employee hiring, training andevelopment. compensation. performance management or industrial relations. In brieIHRM implies more involvement in employees' personal lives, changes in emphases HR policies as the work force mix of PCNs and HCNs varies and lot more risk exposudue to larger external influences.

    There is significant impact on IHRM functions ofthe organisational strategy andorganisational structure, which is discussed in-depth.

    HRM policies and processes are impacted by the MNC's organisational strategy witreference to going global at the host locations. The path to globalisation adopted bthe MNC determines the HRM approach to hiring, compensating, training anmanaging performance of its employees.

    HRM policies and processes are also impacted by the organisational structure thprevails in an MNC. The decision to centralise core functions like marketing, researcand development, HR, finance, production or sales impact the HR poliimplementation from a very centralised to a completed decentralised workflow.

    It is a challenge for MNCs to strike the right balance of' IHR philosophy to drive HR

    As %. r:411' qt . 4 14

    Closing Case >--ahte v.. .

    Human Re s44 Practice at Disney

    The IF Disney Company was founded in /922 by 21 year-old Wall Disney and his older brother

    Walt Disney was the creative producer. Roy the 'business brain' behind the company (Ellwood. 19