Chapter 3

THE
ORGANIZATIONAL
CONTEXT

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INTRODUCTION
 we focus on internal responses as firms
attempt to deal with global environment
challenges.
 the major elements encountered as a result
of international growth that place demands
on senior managers.
 The various elements are not mutually
exclusive

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Figure 3.1
Management demands of international growth

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Our focus remains on the connection between
organizational factors, management decisions and
HR consequences. 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.

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Standardization & localization
of HRM practices
now discuss the twin forces of standardization
and localization and follow the path a domestic
firm takes as it evolves into a global entity and
illustrate how the HRM function is affected by the
way the internationalization process itself is
managed

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Why globally standardize HRM?
Consistency
Transparency
Alignment

of a geographically fragmented workforce

around common Principles
Objectives

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Why locally responsive HRM?
To respect Cultural values
local Traditions
Legislation
Government policies
Education systems

regarding HRM and work practices

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Figure 3.2
Balancing the standardization and localization of HRM in MNEs

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Factors driving standardization

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MNEs that standardize
The relationship suggested in the literature explains that
a large MNE with a long international history and
extensive cross-border operations
pursue multinational or transnational/
international corporate strategies
supported by corresponding org structures
that are
reinforced by a shared worldwide corporate
culture

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Factors driving localization
 factors driving localization include the cultural
and institutional environment and features of the
local entity itself

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Localization factors include:
 Cultural environment
more social context  more complete balance of
extrinsic & intrinsic rewards
more individual  more extrinsic rewards
or fast changing
personal & social contexts
(Extrinsic rewards are expected by an employee and does not lead to his or her greater satisfaction.
Intrinsic Rewards: An outcome that gives an individual personal satisfaction such as that derived from a job well done)

 Institutional environment (country-of-origin & HC)

 Mode of operation abroad
 Subsidiary role: e.g., global innovator,
integrated player, implementer-

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Role of subsidiary
Low outflow High outflow
Low inflow Local innovator Global innovator
High inflow Implementer Integrated player

local innovator role, subsidiaries engage in the creation of relevant

country/region-specific knowledge in all key functional areas because
they have complete local responsibility
Implementers rely heavily on knowledge from the parent or peer
subsidiaries and create a relatively small amount of knowledge
themselves
Global innovators provide significant knowledge for other units and
have gained importance as MNEs move towards the transnational
model.
The integrated player also creates knowledge but at the same time is

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Table 3.1
Examples of impact of the cultural & institutional context on HRM practices

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The path to global status

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Organizational structures
typically change due to
 Strain/ pressure imposed by growth & geographical
spread
 Need for improved coordination & control across
business units
 Constraints/ restrictions imposed by host-
government regulations on ownership and equity

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Figure 3.4
Stages of internationalization

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Figure 3.5
Export department structure

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Figure 3.6
Sales subsidiary structure

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Figure 3.7
International division structure

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Two major MNE issues of structure
 Extent/ degree to which key decisions are
made at PC (parent company)
headquarters or at subsidiary units
(centralization vs. decentralization)

 Type of control exerted/ exercised by the

parent over the subsidiary unit

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Figure 3.8A
Global product division structure

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Figure 3.8B
Global product division structure

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Figure 3.9
Global matrix structure

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 Internationally, matrix is difficult
 Dual reporting can cause conflict & confusion
 Many communication channels can create
information logjams
 Overlapping responsibilities can produce
- turf‫باق‬AA‫حلبة س‬/ territory battles
- loss of accountability
 Distance, language, time, & culture barriers
make it difficult for managers to resolve conflicts
& clarify confusion

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Matrix requires managers who
 Know the business in general/ universally
 Have good interpersonal skills
 Can deal with ambiguities/ doubts of
responsibility & authority
 Have training for presenting ideas in groups

HR planning in matrix MNEs is more critical

than in traditional organizations

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Beyond the matrix org. structures
 The Heterarchy‫الختالف‬CC‫ا‬/‫لتباين‬CC‫ا‬
MNEs have different kinds of centers apart from
‘headquarters’
 The Transnational‫لحدود‬CC‫ابرة ل‬C‫لع‬CC‫ا‬
resources & responsibilities are interdependent
across national boundaries
 The Network
subsidiaries are nodes/ knots, ‫قاط‬AA‫عقد أو ن‬
‫لتقاء‬AA‫ا‬loosely coupled political systems ‫ياسية‬AA‫نظمة س‬A‫أ‬
‫بطة‬A‫ مترا‬- At this stage, there is less hierarchy & no
structure is considered inherently

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Figure 3.10
The networked organization

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5 dimensions of networked MNEs
1. Decision-making authority is delegated to
appropriate units & levels
2. Key functions are dispersed/ detached
geographically across units in different countries
3. Fewer organizational levels
4. Formal procedures are less bureaucratic
5. Work, responsibility, & authority are differentiated
across the networked subsidiaries

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Beyond networks: meta-nationals
Meta-nationals have 3 types of units:
1.Sensing units‫ار‬C‫الستشع‬CC‫تا‬C‫وحدا‬
Uncover widely dispersed sources of engineering & market
insights
2.Magnet units ‫اذبة‬C‫تج‬C‫وحدا‬
Attract & create business plan to convert innovations into
products & services
3.Marketing & production units
Market & produce adaptations of these
products & services around the world

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HR’s place in structural forms
Three ways HR develops with international growth:
1.Centralized HR firms
large, well-resourced:
typically product-based or matrix structures
2.Decentralized HR firms
small group, mostly for senior mgmt. at corp. HQ:
mostly product- or regional-based structures
3.Transition HR firms
medium-sized corp. HR with small staff at HQ:
decentralized, product-based structure

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