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Staffing Approach

June 11, 2008 1

HRM and the Organizational Context (1)

HRM activities determine, and are also

influenced by organizational considerations:

• The organization’s level of internationalization

• Internationalization strategy in foreign markets
• Control and coordination requirements
• Strategic importance of foreign operations in
relation to the organization’s overall

June 11, 2008 2

HRM and the Organizational Context (2)

Ideally, HRM considerations should play a

key role in an organization’s decision to
internationalize itself, rather than a market-
driven strategy, which is usually followed

HRM constraints and factors may have a

significant impact on an organization’s
internationalization strategy

June 11, 2008 3

Managing and Staffing Approaches in the
International Context (1)
The HRM literature identifies the following four managing and
staffing approaches, which are also indicative of top management

• Ethnocentric Approach – High level of control exerted by the

parent organization / corporate headquarters over foreign
subsidiaries. Key positions in the subsidiaries are managed by
expatriates from the parent country (i.e. PCNs)

• Polycentric Approach – Subsidiaries are treated as distinct

national entities with a certain level of decision-making
autonomy. They are usually managed by local nationals (i.e.
HCNs). These are seldom promoted to positions at corporate
headquarters and, likewise, PCNs are rarely transferred to
foreign subsidiaries

June 11, 2008 4

Managing and Staffing Approaches in the
International Context (2)
• Geocentric Approach – Global perspective resulting in
there being no discrimination of PCNs, HCNs and TCNs,
who, depending on capability and performance, are given
the opportunity to work in key positions anywhere (parent
organization, subsidiaries) in the organization

• Regiocentric Approach – Considered a precursory step in

the direction of geocentricism. Managers may be
transferred freely within a particular geographic region.
These may enjoy a considerable level of autonomy in
decision-making but are usually not transferred to the
parent organization

June 11, 2008 5

Organizational Typologies (1)

Bartlett and Ghoshal identify the following types of

corporate organizational modals:

• Multinational Modal – Characterized by

decentralization of many of the organization’s key
assets, responsibilities and decisions. Management
regards overseas operations as a portfolio of
independent businesses. For example, Siemens has
many different lines of business around the world,
but it is not really consolidated into one whole, and
each country of operation is autonomous. Bayer,
ADP and Levi also fit into this category

June 11, 2008 6

Organizational Typologies (2)

• Global Modal – It has a central hub where most of

the strategic assets, resources and decisions are
centralized. The management views overseas
operations as a pipeline to a global marketplace.
Examples include British Airlines, Deutsche Bank
and NCR

• International Modal - Sits midway between the

decentralized and centralized models. Many of the
key assets, responsibilities and decisions are
decentralized, but controlled from headquarters.
Management regards overseas operations as
appendages to a central, domestic corporation.
Johnson & Johnson fits this description

June 11, 2008 7

Organizational Typologies (3)

• Transnational Modal – It's a distributed network with

distributed resources and capabilities. The
management oversees a complex process of
coordination and cooperation in an environment of
shared decision-making. It has distributed control.
This kind of corporation can have very small
corporate headquarters

Hewlett-Packard and Cendant are examples of

transnational corporations

June 11, 2008 8

The Internationalization Process

• Organizations have several options available for

expanding their operations into foreign markets

• The option pursued by the organization depends on

a host of factors, for example, its size, available its
resources (including human resources), strategy,
confidence and environmental contingencies

• Linked to the internationalization of organizations

are the need for effective and efficient coordination
and control mechanisms and, among other things,
appropriate HRM policies

June 11, 2008 9

HRM and „Soft“ Modes of Internationalization
by Organizations (1)
Typical „soft“ modes of internationalization include:

 Licensing – A business arrangement in which the

manufacturer of a product (or a firm with proprietary
rights over certain technology, trademarks, etc.) grants
permission to some other group or individual to
manufacture that product (or make use of that proprietary
material) in return for specified royalties or other
payment. Often does not involve a heavy committment of
human resources

 Management Contracts – Involve the transfer of

experienced managerial and technical staff to another
organization for a fee and for a specified period of time.
Management contracts usually involves training the
organization‘s employees
June 11, 2008 10
HRM and „Soft“ Modes of Internationalization
by Organizations (2)

 Alliances – A collaboration between organizations under

which their resources are pooled, exchanged or
integrated for mutual benefit. The committment of human
resources depends on the level of inter-organizational

 Projects and Joint Ventures – Potentially considerable

challenges on the human resource management function
due to the usually close and sustained inter-
organizational interaction which is necessary for such
collaborative vventures, and the consequent varying
management styles and philosophies, work ethics and

June 11, 2008 11

The HRM Function in the Context of
Internationalization (Export)

• By and large, little implications for HR policies for

manufacturing organizations unless their export
sales reach a “critical level”

HCN Intermediary Export Manager

Export Department
(local knowledge) (PCN)

• Service-based industries would establish a branch

office or go into a joint venture with a local partner
as the nature of their business (i.e. provision of
services) would necessitate this
June 11, 2008 12
The HRM Function in the Export Context (1)

Managing Director

Production Finance Marketing / Sales HR

Manager Manager Manager Manager

Domestic Export
Sales Sales

June 11, 2008 13

The HRM Function in the Export Context (2)
Managing Director

Production Finance Export HR

Manager Manager Manager Manager


Firms would tend to replace sales agents and distributors in foreign

markets with their own sales subsidiaries or branch offices for any
several reasons: Problems with foreign agents and distributors, more
confidence in self-handling international sales activities, the desire for
more control and because of increasing importance which exporting
activity has on the success of the organization
June 11, 2008 14
HRM in the Context of Internationalization
(Foreign Production)
There may be several reasons for a firm desiring to establish
production facilities overseas, for example:

• Cheaper production and transportation costs

• Host government investment incentives and import restrictions
• Maintaining markets

Means of establishing production facilities overseas include

setting up a facility independently, entering into joint ventures or
acquiring local companies. Usually, going international means
creating an international division at corporate headquarters

At this (initial) stage of internationalization, some organizations

will usually make extensive use of PCNs, others will use HCNs to
capitalize on local conditions or satisfy local regulations
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Challenge of Internationalization for Organizations:
Centralization versus Decentralization

Need for national responsiveness: Need for more centralization:

Differences in market structures Multinational Customers

Distribution channels Global Competitors
Customer needs Economies of Scale
Local culture Flow of Information
Host Government pressures

Pressure for Pressure for

Decentralization Centralization

June 11, 2008 16

The HRM Function in the Context of
Internationalization (International Division)
Managing Director

Production Marketing Finance Human Resources

Domestic Domestic selection
Division Division Expatriates
(Product A) (Product B)

Exporting Subsidiary Subsidiary

Departing Country A Country B

Production Marketing Finance Human Resources

June 11, 2008 17

The HRM Function in the Context of
Internationalization (Global Product Division)
Chief Executive Officer

Global Product Human

Production Marketing Finance
Division Resources

Product Product Product Product


Europe Americas Asia-Pacific


Marketing Human Resources

June 11, 2008 18

The HRM Function in the Context of
Internationalization (Global Area Division)
Chief Executive Officer

Production Marketing Finance

Europe Americas


Marketing Human Resources

Product A Product B Product C Product D

June 11, 2008 19

The HRM Function in the Context of
Internationalization (Matrix)
Chief Executive Officer

Production Marketing Finance

Vice-President Vice-President
Global Products International

Europe Americas

Product A
Product B Resources
June 11, 2008 20
The HRM Function in the Context of
Internationalization (Network Structures)
The Heterarchy – An organization has different “centers” in
different locations, for example, R&D activities are
concentrated in one center, training in another. It places
considerable demands on the human resource function
management (experienced personnel, incentive packages to
motivate and control employee performance, promotion of
awareness of common corporate goals)

The Transnational – Characterized by interdependence of

resources and responsibilities across subsidiaries and
business units resulting in large flows of information, people,
resources etc. Complex level of communication, cooperation
and coordination required along with strong corporate identity
and well-developed worldwide management perspective. Seeks
to achieve global integration while retaining localized flexibility.
Human resources need to be flexible, quickly transferable and
think across national and subsidiary boundaries

June 11, 2008 21

The HRM Function in the Context of
Internationalization (A Complex Network Structure)

e.g. R&D
Subsidiary Subsidiary

Center Subsidiary
(e.g. Training)


June 11, 2008 22

Control Mechanisms in a Networked
Organizational Environment
Control Mechanisms


Reporting Systems
Budgets Personal Corporate
Performance Targets Relationships Culture

In networked organizational environments, there is a tendency to rely more on

Informal controls instead of formal controls that are usually prevalent in the
hierarchichal-type environments
June 11, 2008 23
Control and Coordination Issues for HRM in
International Networked Organizational Environments

In networked organizational environments, human resource

management has a crucial role to play, for example through:

• Contact facilitation for information and knowledge


• Training and development for fostering informal

communication channels and building a corporate culture

• Assisting in creating personal networks amongst key

staff persons

• Staffing Decisions and Transfers

June 11, 2008 24

The “ideal” Organizational Structure?

There is no “ideal” structure for organizations which

are internationalizing. The determination of
organizational structure will depend on a plethora of
factors and considerations, such as:

• Size of the organization

• Management traditions and policies
• Circumstances prevailing in the host countries

Some organizations have experimented with different

organizational structures with a view to finding the
appropriate structure best suiting their requirements
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