Introduction to International Dimensions of Human Resource Management

P1: OTA/XYZ P2: ABC c01 JWBK432-Caligiuri December 8, 2009 8:2 Printer Name: Yet to Come CHAPTER 1 Introduction to International AL Dimensions of Human RI Resource Management TE MA 1.1 The Global Economy and ED Multinational Companies In today’s highly competitive global business environment, organiz- HT ations need to aggressively compete for new markets, products, ser- vices, and the like in order to develop and sustain competitive advan- tage in the global arena. For many years, multinational companies1 IG (those operating in more than one country) have effectively man- aged their financial and material resources globally, leveraging such R things as economies of scale, low cost production, and currency fluc- tuations. This book accepts the fact that the competitive economy PY in which most companies operate is, indeed, the global economy. Along with financial and material resources, firms must also com- CO pete for human resources. Human resources, like all other business resources, are now being managed on a global scale – and those firms most effectively competing for talent and unlocking their em- ployees’ potential are clearly winning a competitive advantage. This book focuses on global firms’ human resources and how to most effectively manage the global workforce. Multinational Companies’ Growth and Structure. Let’s begin with how firms grow their geographic reach around the world. P1: OTA/XYZ P2: ABC c01 JWBK432-Caligiuri December 8, 2009 8:2 Printer Name: Yet to Come 2 Managing the Global Workforce Every organization, with few exceptions, has a country of origin. This is generally the country of the founder’s nationality and often the country where the firm’s headquarters are located and to which foreign or host national subsidiaries report. This is generally the country defining the firm’s domestic market and from which it will build its international market. Many, but not all, companies grow by competing first within a largely domestic market and then competing on a global scale. Organic global growth occurs as firms naturally (and relatively slowly) expand their market reach around the world by gradually expanding their markets, opening subsidiaries in other countries, spreading production and distribution locations around the world, and so forth. Multinational firms may also grow inorganically (and relatively quickly) through mergers, acquisitions, international joint ventures, and alliances. These methods for growing globally pose a different set of challenges for HR professionals because, in addition to managing the scale and geography, there are also new HR systems to be merged, employees to be integrated, cultures to be assessed, work to be divided, and the like. In acquisitions, the acquiring firm purchases a target firm whereas mergers are the blending of two firms into one. The line between a merger and an acquisition becomes blurred as the merger departs from a 50-50 blend of two comparably sized firms. Mergers and acquisitions will occur for several possible reasons, including an attempt to consolidate and control more of an industry, to gain access to products, to gain entry into a geographical region where they are not represented, underrepresented or previously unsuccessful, to have access to the target firm’s research and development, patents, licenses, and the like. Whatever the reason, there are synergies a global firm expects to achieve by acquiring or merging with another firm. In international joint ventures and alliances there are two (or more) firms from different countries involved in a jointly owned and/or jointly operated business venture. The benefit of these in- ternational alliances and joint ventures is an expeditious expan- sion of global resources, at minimum, across two countries. These ventures and alliances may range from two firms creating a third, newly formed more permanent business (the typical international joint venture) to more temporary or cooperative arrangements, such as licensing and royalty or project-based agreements. In the latter, these ventures tend to include partners with complementary roles. P1: OTA/XYZ P2: ABC c01 JWBK432-Caligiuri December 8, 2009 8:2 Printer Name: Yet to Come Introduction to International Dimensions of Human Resource Management 3 Whether through organic or inorganic growth, as firms expand globally, their organizational structures tend to become increasingly more complex. The most basic organizational structure of a firm operating globally has a corporate headquarters located in the com- pany’s country of origin and at least one (but often several) foreign subsidiaries. These foreign subsidiaries may perform a variety of functions, such as production, sales, administrative hubs, research and development sites, call centers, distribution centers, and so forth. Firms organize the relationships among their foreign subsidiaries – and with the headquarters – in three predominant ways: by ge- ography, by business units, or through a matrix structure. Firms organized by geography may be organized by countries or, more typically geographic regions (e.g. the Americas, Asia, Middle East, Europe) reporting into headquarters. There are two factors to consider which will influence a firm’s organizational structure across its foreign subsidiaries. They are (1) geographic dispersion and (2) multiculturalism.2 Geographic disper- sion is the extent to which a firm is operating across borders and must coordinate operations across borders in order to be effective. Multiculturalism is the extent to which the workers, customers, sup- pliers, etc., are from diverse cultural backgrounds and must coor- dinate the activities of people from diverse cultures in order to be effective. Operating with both geographic dispersion and multiculturalism concurrently, organizations must achieve a dynamic balance between the need to be centralized, or tightly controlled by headquarters, and the need to be decentralized, or operating differently across diverse locations.3 Extreme centralization can provide an organization with a variety of competitive benefits such as economies of scale (and associated cost controls), improved value chain linkages, product/service standardization, and global branding. Extreme decentralization, however, can also be useful, enabling a firm to modify products or services to fully meet local customer needs, respond to local competition, remain compliant with various governments’ regulations in different countries of operation, readily attract local employees, and penetrate local business networks. These two countervailing forces, centralization and decentralization,4 will affect a firm’s organizational structure by reinforcing or relinquishing central (controlled by headquarters) or local (controlled by subsidiaries) control. The level of autonomy P1: OTA/XYZ P2: ABC c01 JWBK432-Caligiuri December 8, 2009 8:2 Printer Name: Yet to Come 4 Managing the Global Workforce and control each country has relative to the headquarters is a strategic issue depending on the amount of global integration and local responsiveness sought by each firm respectively.