Chapter 2Chapter ObjectivesDemands on Management by International GrowthWal-Mart German RetreatDid Wal-Mart smile too much in Germany?Is it culture or business competition?The Path to Global StatusSlide 8Stages of Internationalization:Slide 10Sales SubsidiarySlide 12International DivisionSlide 14Slide 15Global Product/Area DivisionSlide 17Slide 18Slide 19Slide 20The MatrixSlide 22Slide 23Problems with the MatrixBeyond the MatrixSlide 26Slide 27Control MechanismsSlide 29Mode of Operation and HRMChapter SummaryChapter Summary (cont.)Implications to IHRMSlide 34IBUS 618 Dr. Yang 1Chapter 2The Organizational ContextIBUS 618 Dr. Yang 2Chapter ObjectivesExamine how international growth places demands on management and HRMWe will cover the following areas:Structural responses to international growthControl and coordination mechanisms, including cultureMode of operation used in various international marketsEffect of responses on HRM approaches and activities.We start with the premise that the HR functions do not operate in a vacuum, and that HR activities are determined by, as well as influence organisational factors.We start with the premise that the HR functions do not operate in a vacuum, and that HR activities are determined by, as well as influence organisational factors.IBUS 618 Dr. Yang 3Demands on Management by International GrowthFigure2-1IBUS 618 Dr. Yang 4Wal-Mart German RetreatEntered Germany in 1997Taking over 95 storesNumber dropped to 85 storesAnnounced to sell them all to a German rival Metro at a discount price ($100 million less) in 2006Wal-Mart InternationalGlobal sales: $312 billion in 2005Net profit, $11.3 billion, in 20072,700 stores in 14 countries outside the U.S.Employees: 1.9 millionIBUS 618 Dr. Yang 5Did Wal-Mart smile too much in Germany?American model: Service with a SmileEmployee chanting:W-A-L-M-A-R-T to raise workplace moraleAn ethical code: Banning “office romance”Wal-Mart’s blames:“You have unions and higher wages”“German government regulations”IBUS 618 Dr. Yang 6Is it culture or business competition?“You really think that average underpaid clerk at the Wal-Mart store in the U.S. cares about how you are doing? To the Germans this is more or less upsetting ...”“I was too lazy to take the car if I could do all my shopping by foot in an Aldi …”“I never had somebody trying to bag my groceries …”“Germans prefer … resusable carriers … at least to pay a small fee for the avoidable sin of needing a plastic bag …”“I don’t think it is a cultural problem … it is a problem of competition. … Aldi and Lidl have over 6,500 stores while Wal-Mart has 85.”“… not that cheap like the German stores … Their basic stuff that was as cheap as Aldi’s never seemed to be the same quality.”“If Wal-Mart is not going to compete on price in Germany, as it does in the U.S., then what on earth were they doing here?” “There’s not enough quality and Germans are a picky bunch.”What did the Germans say?IBUS 618 Dr. Yang 7The Path to Global StatusAs the nature and size of international activities change, organizational structures response, due to:The strain imposed by growth and geographical spreadThe need for improved coordination and control across business unitsThe constraints imposed by host-government regulations on ownership and equityThe evolution path is common but the steps are not normativeIBUS 618 Dr. Yang 8Stages of InternationalizationFigure2-2IBUS 618 Dr. Yang 9Stages of Internationalization:Exporting Typically the initial stage of international operationsUsually handled by an intermediary (foreign agent or distributor)Role of the HR department is unclear at this stageExporting Typically the initial stage of international operationsUsually handled by an intermediary (foreign agent or distributor)Role of the HR department is unclear at this stageIBUS 618 Dr. Yang 1010IHRM Chapter 2Export department structureFigure2-3IBUS 618 Dr. Yang 11Sales SubsidiaryReplacing foreign agents/distributors with own sales subsidiaries or branch offices in the market countriesMay be prompted by:Problems with foreign agentsLack of local competenceMore confidence in international activitiesDesire for greater controlGive greater support to exporting activitiesPCNs may be selected, leading to some HR involvementReplacing foreign agents/distributors with own sales subsidiaries or branch offices in the market countriesMay be prompted by:Problems with foreign agentsLack of local competenceMore confidence in international activitiesDesire for greater controlGive greater support to exporting activitiesPCNs may be selected, leading to some HR involvementIBUS 618 Dr. Yang 1212IHRM Chapter 2Sales subsidiary structureFigure2-4IBUS 618 Dr. Yang 13International DivisionCreation of a separate division in which all international activities are groupedResembles ‘miniature replica’ of domestic organization Subsidiary managers report to head of international divisionObjectives regarding foreign activities may determine approaches to staffing of key positionsExpatriate management role of corporate HRCreation of a separate division in which all international activities are groupedResembles ‘miniature replica’ of domestic organization Subsidiary managers report to head of international divisionObjectives regarding foreign activities may determine approaches to staffing of key positionsExpatriate management role of corporate HRIBUS 618 Dr. Yang 1414IHRM Chapter 2International division structureFigure2-5HRMIBUS 618 Dr. Yang 15International division StructureFigure2-5HeadquartersIBUS 618 Dr. Yang 16Global Product/Area DivisionStrain of sheer size may prompt structural change to either of these global approachesChoice typically influenced by: The extent to which key decisions are to be made at the parent country headquarters or at the subsidiary units (centralization versus decentralization)Type or form of control exerted by parent over subsidiaryStrain of sheer size may prompt structural change to either of these global approachesChoice typically influenced by: The extent to which key decisions are to be made at the parent country headquarters or at the subsidiary units (centralization versus decentralization)Type or form