Internationalization/Globalization

of Business

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Internationalization of
Business
 The internationalization of business has
proceeded at a rapid pace.
 Many US firms receive a substantial portion of
their profits and sales from other countries.
Examples: Coca-Cola, Exxon, Mobil, Microsoft,
Ford, and General Electric.
 Toyota, Honda, Nissan, and other Japanese
automobile manufacturers, electronics firms
(such as Sony), and suppliers have expanded
their operations in the US.
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Internationalization of
Business
 In Singapore, foreign direct investment has
been a major driving force of its strong
economic growth for the past 4 decades.
Foreign workers account for about 30% of its
entire labor force.
 Names like Acer, Evergreen, Hyundai,
Infosys, Lenovo, LG, Samsung, Reliance,
Singapore Airlines, Sony, Tata, and Toyota
are now recognized in many countries.
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Drivers of Globalization
 The conduct of business has become a truly global
activity for many reasons:
 1. Increased travel.
 International travelers observe and use products and
services that are available in other countries and
often bring many of them back home, helping to
develop global demand for these products and
services.
 2. The emigration of large numbers of people,
exposing millions of people to standards of living in
other countries, raising expectations worldwide.

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Drivers of Globalization
 3. Rapid and extensive global communications.
 Because of satellite TV, global distribution of movies,
music and videos, the Internet and World Wide Web,
and global print media, people everywhere have
access to information from around the world, again
learning what is available and developing global
demand and expectations.
 Worldwide communication and information flow
create global knowledge of demand for world-class
products and services.

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Drivers of Globalization
 4. The integration of cultures and
values through the impact of global
communication and the spread of
products and services such as food,
music, and clothing, which leads to
common consumer demands around
the world.

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Drivers of Globalization
 5. Improving education around the world,
enabling consumers everywhere to raise
expectations for products and services and
firms to produce world-class products and
services to meet these expectations. This
leads to greater consumer demands on
product and service qualities.
 6. Increased global labor supply due to a
larger, more highly educated workforce
worldwide.
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Drivers of Globalization
 7. Technological development which impacts
globalization in a number of ways. For
example, MNCs searching the globe for best
technology to produce efficiently, and
technology enables more flexible
manufacturing plants to be placed close to
markets, no matter where the markets are.
 Rapid transfer of new technology of all forms,
making it possible to produce world-class
products and provide world-class service
almost everywhere in the world.

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Drivers of Globalization
 8. The development of information
technology. The Internet and e-
commerce make firms global from the
moment they have a website up and
running.

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Drivers of Globalization
 9. Growing trade and foreign competition. Increased
competition makes firm to seek lower costs and new
markets outside one’s traditional national boundaries.
Companies from all countries now buy and sell in all
other countries.
 Increased pressure on costs due to competition, so
firms move to where labor and other resources are
cheaper and most readily available.
 The search for new markets for growth and to
compete with global competitors.

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Drivers of Globalization
 10. Government policies—encouraging
foreign direct investments (FDIs)
through subsidies and tax benefits, and
privatization.
 11. Decreasing trade barriers and
opening markets among countries.

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Drivers of Globalization
 12. The interdependence of nations in
trading blocs, such as the European
Union, the Association of South East
Asian Nations (ASEAN), and the North
American Free Trade Agreement
(NAFTA—Canada, the US, and Mexico.)

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Internationalization and HRM
 These drivers impact every aspect of the MNC, including
its HRM activities.
 When businesses internationalize, HR concerns such as
the following require globally savvy IHRM professionals to
facilitate international business success:
 --staffing: finding the best and lowest-cost employees
anywhere in the world.
 --executive development: ensuring the management
group has the knowledge and ability to operate effectively
in the international arena.
 --compensation: being globally competitive.
 --labor relations: which can vary dramatically from country
to country.

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Stages of Internationalization
 Typically, firms go through a common
process in the path to global status:
 Exporting → Sales Subsidiary → Foreign
Production or Service Facilities →
Network of Subsidiaries.

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Stages of Internationalization

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Stages of Internationalization
 Multinational companies are not born
overnight.
 The evolution from a domestic to a truly
global organization may involve a long
process with many and diverse steps.

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Stages of Internationalization
 Although research into internationalization
has revealed a common process, this process
is not exactly the same for all firms.
 Some firms may use other operation modes
such as licensing and subcontracting instead
of, or as well as, establishing their own
foreign production facilities.

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Stages of Internationalization
 Note that the number of steps, or
stages, along the path to multinational
status varies from firm to firm, as does
the time frame involved.
 Some firms go through the various
steps rapidly while others evolve slowly
over many years.

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Stages of Internationalization
 For example, some firms are able to
accelerate the process through acquisitions,
mergers, or joint ventures.
 Thus, leapfrogging over intermediate steps,
i.e., move directly into foreign production
through the purchase of a firm, rather than
going through the stages one by one as
depicted in Figure 2-2, Dowling et al.’s (2008)
text, p. 27.
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Stages of Internationalization
 Most firms pass through several stages
of organizational development as the
nature and size of their international
activities grow.
 As they go through these evolutionary
stages, their organizational structures
change due to:

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Stages of Internationalization

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Management Demands of
International Growth
 Once the firm is internationalized, there are
various elements encountered as a result of
international growth that place demands on
the management.
 The major elements are geographical
dispersion, size, structural change, flow and
volume of information, control mechanisms,
mode of operations, national cultures and
languages, host-country demands.
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Management Demands of
International Growth

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Management Demands of
International Growth
 These elements are interrelated.
 For example:
 Geographical dispersion affects firm size,
creating pressure upon control mechanisms.
 Size of the firm (growth) will affect the flow
and volume of information and the
organizational structure (whether to
centralized or decentralized the functions,
systems, processes, or decision-making.)

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Management Demands of
International Growth
 Interrelations of demand elements:
 The mode of operation involved (such as
international mergers and acquisitions) will
affect the rate of geographical dispersion.
 Geographical dispersion will involve more
encounters with national cultures and
languages. This will also affect the flow and
volume of information.

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Management Demands of
International Growth
 Interrelations of demand elements:
 Lastly, the demands of the host country
can influence the composition of the
workforce [the mix of parent country
nationals (PCNs) and host country
nationals (HCNs)].

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Types of International
Organizations
 International business operations can take
several different forms.
 A large % carry on their international
business with only limited facilities in foreign
countries.
 Others, particularly Fortune 500 corporations,
have extensive facilities and personnel in
various countries of the world.

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Types of International
Organizations
 Dell, for example, actually employs
more people outside the United States
than within it.
 Managing these resources effectively
and integrating their activities to
achieve global advantage is a challenge
to the leadership of these companies.

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Types of International
Organizations
 There are 4 basic types of international
organizations,
 They differ in the degree to which
international activities are:
 1. separated to respond to the local
regions, and
 2. integrated to achieve global
efficiencies.

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Types of International
Organizations
 The 4 basic forms of international
organizations are:
 1. International corporation
 2. Multinational corporation
 3. Global corporation
 4. Transnational corporation

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Types of International
Organizations

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International Corporation
 A domestic firm that uses its existing
capabilities to move into overseas markets.
 Companies such as Honda, General Electric,
and Porter & Gamble used this approach to
gain access to Europe.
 They essentially adapted existing products for
overseas markets without changing much
else about their normal operations.

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Multinational Corporation
(MNC)
 Is a more complex form that usually has fully
autonomous units operating in multiple
countries.
 A firm with independent business units
operating in multiple countries.
 Several subsidiaries operating as stand-alone
business units in multiple countries.
 Shell, Philips, and ITT are 3 typical MNCs.

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Multinational Corporation
(MNC)
 These companies have traditionally given
their foreign subsidiaries a great deal of
latitude to address local issues such as
consumer preferences, political pressures,
and economic trends in different regions of
the world.
 Frequently, these subsidiaries are run as
independent companies without much
integration.
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Global Corporation
 Can be viewed as a multinational firm
that maintains control of its operations
worldwide from the country in which it
is headquartered.
 Japanese companies such as Matsushita
and NEC, tend to treat the world market
as unified whole.

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Global Corporation
 They try to combine their activities in
each country to maximize their
efficiencies on a global scale.
 These companies operate much like a
domestic firm, except that they view
the whole world as their marketplace.

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Global Corporation
 A firm that has integrated worldwide
operations through a centralized home
office.
 It views that the world as a single
market; operations are controlled
centrally from the corporate office.

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Transnational Corporation
 Attempts to achieve the local responsiveness of a
MNC while also achieving the efficiencies of a global
firm.
 To balance this global/local dilemma, a transnational
corporation uses a network structure that coordinates
specialized facilities positioned around the world.
 By using this flexible structure, a transnational
corporation provides autonomy to its operations in
foreign countries, but brings these separate activities
together into an integrated whole.

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Transnational Corporation
 For most companies, the transnational
form represents an ideal, rather than a
reality.
 However, companies such as Ford,
Unilever, and Shell have made good
progress in restructuring their
operations to function more
transnational.
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Types of International
Organizations
 The 4 basic forms of international
organizations are:
 1. International corporation—low local
responsiveness, low global efficiency.
 2. Multinational corporation—high local
responsiveness, low global efficiency.
 3. Global corporation-- low local
responsiveness, high global efficiency.
 4. Transnational corporation– high local
responsiveness, high global efficiency.

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Types of International
Organizations

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The Global Environment of
International Business
 Generally, in deciding in what country
to do business, companies will select
the country that has most to offer.
 Economic factors, political-legal factors,
industry factors, cultural and societal
factors are a huge consideration.

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Cultural Environment and HRM
 Cultural environment – The communications,
religion, values and ideologies, education,
and social structure of a country.
 It has important implications on international
HRM.
 HR managers must understand the culture of
a host country—a country in which an
international business operates.

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Cultural Environment and HRM
 Different cultural environments require
different approaches to HRM.
 Even in countries that have close
language or cultural links, HR practices
can be dramatically different.
 For example:
 In some countries, night shifts are
taboo.

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Cultural Environment and HRM
 In other countries, employers are expected to
provide employees with meals and
transportation between home and work.
 In India, workers generally receive cash
bonuses on their wedding anniversaries with
which to buy their spouses gifts; and dating
allowances are provided to unmarried
employees.

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Cultural Environment and HRM
 These are practices that would never occur to
American managers and HR practitioners.
 In the international or global environment, HR
issues such as recruitment and placement,
compensation, and training must be adapted
to different cultural environments.
 The figure in the next slide summarizes the
complexity of the cultural environment in
which HR must be managed.
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Political-Legal Environment
and HRM
 HR managers also need to know
government laws and regulations of the
host country and their implications on
HR issues.
 For example, government regulations
affect the supply of labor and therefore
HR planning.

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Political-Legal Environment
and HRM
 For example,
 In Singapore, the United States, and other
countries, tax legislation affects HR planning.
 Pension provisions and other government-
managed schemes such as Singapore’s
Central Provident Fund Act, the Special
Retirement Scheme, and the MediShield, may
change retirement pattern and funding
options.
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Legal-Political Environment
and HRM
 The elimination or expansion of tax benefits for job-
training expenses might alter some job-training
activities associated with workforce expansion.
 In Malaysia, companies can claim employee training
costs under Human Resource Fund (HRD). This will
have an impact on the type and duration of training
provided to the employees to be entitled for the
claim.
 In summary, an international company must consider
the impacts of a wide variety of government policies,
regulations, and laws during on HR planning and
practices in the host country.

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Legal-Political Environment
and HRM
 International non-governmental
organizations, which often include labor
issues among their concerns, will have
an impact on HR.
 Example: International Labor
Organization (ILO).
 Representatives within the ILO include
workers, employers, and governments.

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International Labor
Organization (ILO)
 ILO is housed within the United Nations and
its mandate is to promote social justice and
internationally recognized human and labor
rights.
 Representatives of ILO formulate
international labor standards regarding the
right to organize union, collective bargaining,
equality of opportunity and treatment, safety
and health, child labor, and working
conditions.
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Global Labor Markets and
HRM
 The following labor market conditions will have an
impact on HRM:
 Skills shortage—labor shortages are even more
severe in high-tech jobs.
 Competition—companies need to offer attractive
benefits to keep talented employees.
 Labor costs—Example: IBM shifted 3,000 U.S. jobs
overseas in 2003. It cost $56/hour to employ a
programmer with 3-5 years of experience; but in
China, it only cost $12.60/hour.

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Technology and HRM
 IT evolution makes it possible for an
organization to employ a virtual
workforce, with employees located all
over the world.
 It creates a special work schedule and
arrangement—employees do not need
an office space, they telecommute.

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Technology and HRM
 IT also revolutionizes HR practices:
 Examples:
 Web-based recruitment
 Development of human resource information system
(HRIS) or human resource information management
(HRIM) to gather, analyze, and distribute information
about the people in an organization using computer
technologies.
 Internet and Intranet-based communication.
 END

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