Nature Of Ihrm

Transcript

SECTION II Nature of IHRM Learning Objectives After reading this chapter, you should be able to Understand what constitutes IHRM and how it is different from domestic IIRM Understand the impact of organisational strategy on IHRM • • Nature of IHRM  65 Opening Global FIRM at Colgate-Palmolive Co. Colgate-Palmolive, the $6 billion a year personal products giant. earns nearly two-thirds of its revenues outside the United States. For years. Colgate succeeded, as many US multinationals have, by developing products at home and then "throwing them over the wall" to foreign subsidiaries. Each major foreign subsidiary was responsible for local manufacturing and marketing. Senior management pavilions in these subsidiaries were typically held by Americans, and practically all the company's US-based managers were US citizens. In the early 1980s, Colgate realised that if it was going to succeed in the rapidly changing international business environment. it would have to develop a more transnational orientation. Its competitors. such as Procter & Gamble, Unilever and Kao, were trying to become transnational companies, and Colgate needed to followsuit. Becoming a transnational requires developing an international cadre of executive managers who are as at home working In one culture as In another and who have the ability to rise above their ethnocentric perspectives. As a first step towards building such a team. Colgate began recnilting college graduates in 1987 and putting them through an intensive international training programme. The apical recnrit holds an MBA from a US university speaks at least one foreign language. has lived outside the United States, and has strong computer  skills and business experience. Over onequarter of the participants are foreign nationals. The trainees spend 24 months in a US programme. During three-month stints, they learn global business development secrets of for example. Colgate toothpaste. compiling a guide for introducing a new product or  revamping an existing one in various national markets. Participants also receive additional language instruction and take international business trips. When they have completed the programme, the participants become associate product managers in the United States or abroad. Unlike most US companies, Colgate does not send foreign-born trainees to their native countries for their initial jobs. Instead, it is more likely that a French national will remain in the United States. a US national will be sent to Germany. and a British national will go to Spain. The foreigners receive the same generous expatriate compensation packages the Americans do, even if they are assigned to their  home country. This extra pay can create resentment among locally hired managers offoreign subsidiaries. Colgate is trying to resolve this problem by urging its foreign subsidiaries to send their brightest young managers to the training programme. In addition to the management training programme, Colgate has taken a number of other steps to develop its International cadre of managers. in Europe. for example. the company Is developing "Euromanagers managers who have experience working in several European countries. This is a departure from the established practice of  having managers spend most (if not all) of their working careers in their home country. Also. Colgate now tries to ensure that project teams contain managers from several different countries. hup:// www.colgate.com Source: J. S Lublin, "Managing Global Younger Managers Learn Global Shills." The Wall Street Journal, March 31. 1992, p. B1: B. Hagerty, "Companies in Europe Seeking Executives Who Can Cross Borders in a Single Bound." The Wall Street Journal. January 25.199!. p. Bl: and CM Solomon. "Global Operations Demand that HR Rethink Diversity:" Personnel Journal 73 (1994), pp. 4040. 66 International Human Resource Management  Simply told. IHRM refers to the HR policies and practices applied by an international firm across all its subsidiaries located in different countries. The Colgate story told in the opening case is a true reflection of the status of international human resource management. Stated more clearly. IHRM is the process of procuring, allocating and effectively utilising human resources in a multinational organisation. The definition given by Peter J. Dowling and Denice E. Welch is worth citing in this context. According to them. IHRM contains three dimensions:' I. Three broad human resource activities, viz. procurement. allocation and utilisation.   These three dovetail with all the activities of the typical domestic human resource management and industrial relations. 2. The three national or country categories involved in IHRM activities: • • the host country where a subsidiary may be located. the home country where the head office is located, and 'other' countries that may b e s up pl ie rs o f   l ab ou r, finance and other resources. 3. The three categories of  employees of an international firm: host-country nationals • • FIGURE 3.1 N a t u r e of IHRM IHRM is the interplay among these three dimensions - -the human resource actin hies. types of  employees and countries of operation (See Fig. 3.11. IHRM COMPARED WITH DOMESTIC HEM  The nature of IHRM is more clearly understood by comparing global HR functions with domestic HRM (DHRM) functions. First, the similarities between the two. Essentially, HR activities are the same whether they are specific to one country or extend to several countries. The HR manager needs to plan for the human resources, hire the right people in right numbers. train and develop. compensate, maintain and motivate employees, whether his or her domain is domestic or global. Another similarity relates to the environmental forces which impact the functioning of  an HR department. whether it be domestic business or global business. The external constraints include political. legal, economic and cultural. These four elements significantly influence the way HR functions are carried out both in domestic as well as in global businesses. Hawn of  IHRM  67 knowledge management. talent retention and the like. These interventions apply to the domestic as well as international businesses. However, the differences between IHRM and DHRM arc more striking than their similarities.  The main difference stems from the complexity of operating in different countries, having different nationals as employees. In particular, the complexity of IHRM can be attributed to six factors:1 more HR functions and activities; need for a broader perspective; molt involvement in employees' personal lives; changes in emphasis as the work force mix of PCNs and NCNB varies; risk exposure; and broader external influences. (see Fig. 3.2). m 411) b i s c o FIGURE 3.2 DHRM and IHRM Compared More HR Activities Each function of HR has new dimensions in IHRM. Described below are how they are functionally different. Human Resource Planning (i) Difficulty in implementing HR procedures in host countries. (ii) Difficulty in tying strategic business planning to HR planning and vice-versa. (iii) Providing developmental opportunities for international managers. Employee Hiring (i) Ascertain cultural-fit with that of the global organisation. (ii) Ethnocentric, polycentric or geocentric approaches to staffing. International Human Resource Management  (iii) Selection of expatriates. (iv) Coping with expatriate failure. (v) Managing repatriation processes. (vi) Managing female expatriates. 'Training and Development (i) Emphasis on cultural training. (ii) Language training. (iii)  Training in global etiquette and the nuances of the virtual workplace culture. Compensation (i)Devising an appropriate strategy to compensate expatriates. (ii) Minimising discrepancies in pay between parent, host and third country nationals. Performance Management (i) Constraints while operating in host countries need to be considered. (ii) Physical distance, time differences and cost of reporting system add to the complexity. (iii) Identification of raters to evaluate subsidiary performance. Industrial Relations (i) Who should handle industrial relations problems of a subsidiary? (ii) What should be the attitude of the parent company towards unions in a subsidiary? (iii) What ought to be the union tactics in subsidiaries? Be it employee selection, training or compensation. IIIRM adds new dimensions which are not experienced or observed in DHRM. Broader Perspective When compared to DHRM, IHRM requires a much broader perspective for all HR activities. This divide is primarily because an MNC continues to recruit and select a mix of  different types of employees including host country nationals, third country nationals and parent country nationals. International joint ventures, for example, can include as many as nine different types of employees, each with their own distinct characteristics-foreign parent expatriates, host parent expatriates, foreign parent annulate, host country nationals, third country nationals, expatriates of foreign parents. third country expatriates of host country parents, third country expatriates of the joint venture, foreign headquarter executives and host headquarter executives. The various employee groups, each with their own cultural backgrounds add to the need for a broader perspective on the part of the IHRM manager:Training and development for instance. the tasks involved here are to identify the type of overseas assignment for which training is required, determine the specific crosscultural training needs and impart training and evaluate its effectiveness. Similarly, while dealing with pay issues, the IHR manager needs to coordinate pay systems in different countries with different currencies that may change in relative value to one another over  time. While handling fringe benefits too, complications tend to arise. It is a common practice in most countries to provide health insurance to employees and their families. Nature o f IH R M 69 grandparents, nephews and nieces. The IHR manager finds himself or herself in a difficult situation while determining who to include/exclude as relatives in the family nest.' Irrespective of whether a country is developed or developing makes the IIIRM orientation different. The establishment of the EU. for instance, had significant implications for FIRM. HRM in Europe is in a transition. It can be actively debated whether a distinct European HRM culture does exist. In anticipation of the creation of a single European market, prior to 1993, organisations were beginning to review their strategies to take advantage of the markets freed from border tariffs, which were opened up. The 1990s witnessed an unprecedented number of mergers and acquisitions in Europe as organisations sought to develop an integrated Europe. This led HR professionals across the different countries to deliberate first to map what practices prevailed at the national and industry level; and second, to find common ground for a European HRM policy.' The European HRM policy did emerge over time. The distinct features of an European HRM policy are: impact of culture, sense of organisational and managerial responsibility towards employees, greater involvement of groups and wider support towards trade unions and other forms of employee representations. This pan European HRM policy contrasts with the US policy towards HRM. The hallmarks of the latter arc: freedom and autonomy, low interference from state, hands-off attitude towards employees and a natural resistance towards trade unions. The IHR manager operating in developing countries encounters unique problems. In most developing countries that is a paradigm shift in management policies, orientations and practices. Many of the countries are emerging as market driven economics, emphasising on professionalisation of managerial practices, including those relating to HR. There would be resistance from within the organisation. usually from employees of the parent company to accept new ideas and approaches and it is the responsibility of the IHR manager to ensure that they are appropriately redressed. More Involvement in Employees' Personal. Lives Unlike the domestic HR manager, an IHR manager requires to be involved a lot more in the personal lives of the employees. It may be enough for the DIIR manager to know the professional profiles ofemployees. But, the IHR manager should go beyond and know about spouses. children, relatives, religion, region, culture and a host of other details about the expatriates. The HR department needs to ensure that the expatriate understands housing arrangements, health care and all aspects of the remuneration packages provided for the foreign assignment. Handling banking, investments, home visits and final repatriation of  expatriates are other issues an IHR manager is expected to support. The IHR manager has additional responsibilities while dealing with expatriates from countries like, India for example. Indians working overseas encounter peculiar, often unpleasant circumstances. Take the instance of a five year old boy (read Smaran, son of  Kartik Kaushik) who returned home from school one day and made a demand: "Dad, do we have white paint at home?" A girl in his class at school, it seems, had called the boy a "brownie", and he wanted to paint himself white? Or take another instance of an Indian couple working in Germany (read Venkatachlam Krishnan, CEO of Basics. Ranbaxy's German subsidiary and his wife). For them. social life hardly existed, as Germans arc insular people. Even after living there for more than three years. he and his wife hardly had any local friends. Health care was a big concern. Krishnan's wife Jaishree came back to India for the delivery of their daughter. Anitra, as neither of them was comfortable with the experience during check-ups early in her pregnancy.' Highly interesting incidents happen in the lives of foreigners working in India. One such 70 Unemotional human Resource Management  Bangalore as anybody else. Bob and his wife had organised an Indian naming ceremony for their grand kids. The kids were called Mere! Kavitha and Tobias Bhaskaran. 7 Situations of the type described above may not require the intervention of the IHR manager, as they have to be handled by the expatriates themselves. Nevertheless it is considered a IHR role to be aware of  such challenges and package some of these into training programme for the expatriates. Changes In Emphases as the Work Force Mix of PCNs and HCNs Varies  The HR policies and practices depend on the constituents of the host country unit. During the early stages of a unit, there arc more number of parent country nationals in the host unit and as a result, the HR activities are focussed on the PCN. This continues till such time that the host unit is dependent on the parent country nationals who constitute the majority at the subsidiry. As the unit becomes independent, the original emphasis with respect to its HR activities and policies shifts in favour of the HCN. A good example would be a US based company in the health care industry. During the intial phase of seating up its operations in India. there were a number of expats who were onboard the host unit, hence there were a number of facilities and policies that were put in place to ensure that the expats were well taken care of. As the operations of the unit in India stabilised and about three years into its successful operations, gradually the company began to withdraw its parent country nationals from the Indian setup. The HR team which earlier had to provide for a separate set of policies and reimbursements, such as special relocation allowance, company car and company leased accommodations, was able to withdraw the same and maintain a single uniform policy that took care of the host country nationals. A balance needs to be struck between the need to integrate HR policies with the parent company. alongside the need to have local host country HR guidelines, to keep the company competitive at the local country level, as a preferred employer. Risk Exposure Risk exposure is high in domestic HRM. Unfair hiring practices may result in a firm being charged with violation of Constitutional provisions and be liable for penalties. Failure to maintain cordial relations with unions may result in strikes and other forms of labour unrest. BPO firms are exposed to the risks of  female employees, during night shifts, being sexually abused and killed. Males too are frequently robbed of cash and expensive accessories. In IHRM, there arc additional risks, as for example: terrorism, kidnapping and murders. An American engineer. Paul Johnson, was beheaded in Saudi Arabia in 2004. An Indian labourer, Kutty, was kidnapped and killed in Afghanistan in 2005. So was Suryanarayan, a telecom engineer, in 2006.  Terrorism poses a great risk to international operations. The cost of kidnapping may run to S2 to S3 million, and it is estimated that there are 10,000 to 15,000 kidnappings a year worldwide. Finns are, therefore, forced to spend one to two per cent of their revenues on protection against terrorism.  The IHR department may also be required to devise emergency evacuation procedures for highly volatile locations. The invasion of Kuwait by Iraq and the ensuing Gulf wan in 1991 are examples of such an eventuality.  Then there is the risk of expatriate failure. The failure of an expatriate can have disastrous results. Substantial monetary costs are involved while sending expatriates abroad, bringing them back to the home country and finding replacements (between $300,000 and S I million per expatriate per year). One estimate is that US companies lose S2 billion a year as a result of expatriate failure Besides, the poor Nature of IHRM  71 employees who fail even though they bad been viewed as competent managers within the domestic organisations. These individuals may have sold their homes, left the jobs they liked, and uprooted their families to take a foreign assignment, only to find themselves back in the home country. branded as failures. Their early return may also affect their future career prospects in the finis A domestic HR manager may be free from such risks. External Influences Domestic HAM is subject to the influence of an environment which comprises such factors as political-legal, economic, cultural and technological, prevailing within a country. On the other hand, IHRM is exposed to several cross-country factors such as: policy actions of national governments, such as expropriation and changes in exchange rates; responses of competitors in the host market; and host countnry stipulations on staff selection. Multinational companies enjoy high visibility in countries of their operations. Because of  the high visibility, the subsidiary HR managers may have to deal with ministers, political leaders and a greater variety of economic and social interest groups than domestic HR managers. A host country government can dictate hiring procedures as for example. involving local employment exchanges in selecting skilled labour. Host country labour laws ought to be complied with while fixing and disbursing salaries and host country laws govern industrial relations too. In some cultures. age is held at a premium, even at the cost of merit. Placing a junior in a supervisory position over his or her elders often leads to avoidable unpleasant consequences. Affirmative actions notwithstanding. employees resent having certain categories of employees as bosses in sonic societies. GROWING INTEREST IN IHRM The following reasons have contributed to the growing interest in IHRM Globalisation of businesses has added to the number of multinational enterprises across the globe. resulting in a greater mobilisation of human resources. The effective management of human resources is increasingly being recognised as a major determinant of success or failure in international business. Underperformance or failure in overseas assignments is costly, both in human and financial terms, and the indirect costs of poor performance in international assignments, such as damage to foreign customer relations, may be particularly costly. The implementation of international strategies is often constrained by the absence of  competent managerial personnel to man overseas assignments, which results in decreased interest in setting up subsidiaries. The movement away from more traditional hierarchical organisational structures, towards a networked MNC organisation has been facilitated by the development of  networks of personal relationships and horizontal communication channels. It is no secret that HR plays a more significant role in network organisations. Finally. HR plays a significant rote in the implementation and control of  strategies in an 72  International Human Resource Management  FUNCTIONAL POSITIONING OF IHRM IHRM is positioned globally depends on the global strategy pursued by an MNC. It is a conscious decision made by every enterprise about how it plans to expand its operations overseas and how it strategises to run its day-to-day operations in the host country. Organisations use four basic strategies to compete in the international environment: an international strategy, a multidomestie strategy, a global strategy and a transnational strategy (see Fig. 3.3). High Cost Pressures Low Low Pressure roe Lo al Responsiveness High FIGURE 3.3 Four Basic Strategies International Strategy Organisations that follow an international strategy attain business efficiency by transferring valuable skills and products to host county markets where indigenous competitors lack those skills and products. Most international firms have derived value by transferring a new and varied range of its product offerings developed at home, to new markets overseas. They tend to centralise product development functions at home (e.g. R&D). However, they also tend to establish manufacturing and marketing functions in each major country in which they do business. But while they may undertake some host country custommarketing strategyts and marketingstrategy, this tends to be limited. Ultimately, in most international organisations, the head office retains tight control over the marketinMultidomestic strategy. Multidomestio Strategy Ormultidomestieollowing a multidomestic strategy orient themselves toward achieving maximum local responess. Multidomestic tinnsfirms extensively customise both their product ranges and their marketing strategy to match different national conditions. They also tend to establish a complete set of value creation activities—including production, marketing and R&D—in each major national market in which they do business. As a consequence, such organisations generally fail to realise value from the parent company's learning curve and location economultidomestiengly, many multidomestic organisations have a high cost structure. They also tend to do a poor job of leveraging core competencies within the organisation. General Motors is a good example of a company that has histomultidomestieioned as a multidomestic corporation, particularly with regard to its extensive European operations, which are largely sHrghcontained entities. Nature of IHRM Global Strategy Organisations that pursue a global strategy focus on increasing profitability by reaping the cost advantage that come from the experience curve effects and location economics. They pursue a low-cost strategy. The production, marketing and R&D activities of organizations pursuing a global strategy arc concentrated in a few favorable locations. Global organizations tend not to customise their product offering and marketing strategies to local conditions because customisation raises costs (it involves shorter production runs and the duplication of  functions). Instead, global organisations prefer to market a standardised product worldwide so that they can reap the maximum benefits from the economies of scale that underlie the experience curve of the parent company. They also tend to use their cost advantage to suppon aggressive pricing in world markets. Transnational Strategy Christopher Bartlett and Sumantra Ghoshal have argued that in today's environment, competitive conditions are so intense that to survive in the global marketplace, organisations must exploit experience-based cost economies and location economies, they must transfer core competencies within the firm, and they must do all this while paying attention to pressures for local responsiveness. They note that in the modem multinational enterprise, core competencies do not reside just in the home country. They can develop in any of the firm's worldwide operations. Thus, they maintain that the flow of  skills and product offerings should not be all one way, from home firm to foreign subsidiary, as in the case of  firms pursuing an international strategy. Rather, the flow should also be from foreign subsidiary to home country, and from foreign subsidiary to foreign subsidiary-a process they refer to as global learning. Bartlett and Ghoshal refer to the strategy pursued by firms that are trying to achieve all these objectives simultaneously, as a transnational strategy. Each strategy has its advantages and disadvantages and invites appropriate IHR interventions, as Table 3.1 shows. During the initial phase of an MNC's entry into multinational locations. the approach is either Strategy Internation al Strategy  Advantages  Transfer distinctive competencies to foreign markets A hrgh degree of control and coordination ensures that all Subsidiaries, irrespective of country of location, are similarly managed A high associatron with a common corporate vision, mission and value system. Corporate  Disadvantages  IHRM Strategy Lack of local responsiveness Approach could be ethnocentric or polycentric usually the ethnocentric approach is preferred for greater control Inability to realise location economies Key posrtions arc occupied by parent country nationals of the %MNC Failure to exploit UK  polrcies arc either centralised or completely decentralised, with macro level activ ities globally standardrsed, 74 International Human Resource Management  TABLE 3.1 (Contd.) Strategy  Multidomesti c Strategy Advantages Customisecompetenc ies.ferings and marketing in accordance with local responSivenas Disadtuniages I I I R MStrategy    Usually adopts a completely polycentricpolyecntric approach Inability to realise location economies Failure to exploit experience curve effects Failure to transfer distinctive competencie. to foreign markets Global Strategy HR policies are usually compPCN/HCN/TCNralis ed and independently managed at the unit level. benchmarked Exploits experience curveLack of local responsiveness Geocentriciregiocentric effects approach Expresponsivenessn economies Key positions are occupied by FICNAICTIfTCN lift policies arc largely centralised and stanpolyccntricratio n of global best practices and global benchmarking  Transnation al Strategy Exploits experience curve effects Difficult to implement due to organisational problems Exploits location economies Customise product offerings and marketing in accordance with local responsiveness Reaps benefits of  global teaming Geocentric/regiocen tric approach Key positions are occupied by a breed of global managers from within the organisation HR policies are largely centralised and standardised, with integration of global best practices and global benchmarking. insisting on total compliance with Nature of IHRM 75 multi-domestic or international and they differ in the organisational predispositions (discussed earlier in Chapter 2). lithe approach is ethnocentric, the organisational strategy is usually international, The IHRM focus revolves around highly centralised HR practices and processes. Customisation would be restricted to statutory/ legal/ government stipulations and a few distinct local attribute. That is a large amount of dependence on the parent unit to make decisions. approve policy changes and control production/research/marketing and finance. For example, companies like Pepsi, Coca-Cola, IBM. Kellogg, Procter& Gamble and Wal-Mart can be classified as practising the international strategy. Coke allows its national subsidiaries to bottle and sell according to their own marketing and distribution strategies develop so as to meet the local challenges, while the core activity of syrup/concentrate preparation and product innovation remains centralised at its global headquarters at Atlanta, USA. An organisation with a multi-domestic strategy most definitely adopts a polycentric approach towards its HR functions. The policies are highly decentralised and each local unit has the freedom to set and follow its own policies suitable for hiring and retaining its talent in the home country. Key positions are staffed by the HCN and the unit operates like an independent profit centre by itself. Organisational strategies like the global and the transnational strategics benefit from a geocentric/ regiocentric approach. While they merit a high amount of integration and coordination efforts, the benefits from having a centralised set of policies which incorporate the best of practices. that arc uniformly followed by units across the globe, are many. Firms like GE and IBM are examples of organisations that arc run with corporate HR functions that are benchmarked with global practices. ORGANISATIONAL CONTEXT OF IHRM IHRM needs to be organised and the organisational structure depends on the HR strategies which in turn, depend on corporate strategy. Some preferred structures are described in the following pages. Internaticnal Divisicn Structure In the international division structure, an overseas unit is an adjunct to the parent company. It handles all the overseas activities, which may be organised by functions, product or arca structure. All the international activities arc under the authority of the international division head (of the rank of Vice-President), who coordinates the overseas activities. As the international activities are under one head, control and communication arc easy and the structure can respond to changing local needs quickly. But the drawback of this structure is Home-Mice Dopautnents Overseas SuHome- C hia Exact VP international operations 76  International human Resource Management  Functional Structure Also called worldwide functional structure, in this type each function is responsible for activities around the world. The manufacturing department, for example, would be responsible for worldwide production activities, so also with finance, marketing, R&D and HRM. This design is used by international businesses that have narrow or similar product lines. Since each functional area deals with the global market, specialisation and concentration of  functional expertise can be taken advantage of. Control of various functions can be exercised relatively easily. But the drawback with this structure is the delay in responding to local needs. Figure 3.5 typifies a functional structure. (MoritalinEur  \  C u i (Finance) (Otbeatiections) LoCIISC)ans )NMI= (Etecc FIGURE 3.5 Worldwide Functional Structorga nrsedaphic Area S t r u c t u r e In this, worldwide activities arc organised by dividing the globe into different geographic areas. The regional manager is responsible for all business acts within that geographic area ( Europe and La* ArnetineAmerica LLU vsnazu,sad Maly us N. America and Pacific WW1 I 17Ianan RI irnada lecturing Menu- $17 Minding Faience FIGURE 3.6 Geographic Area Structure A geographic division can respond to the market conditions of a particular area much more effectively than any other structure. But there tends to be a duplication of functions as there are different divisions catering to different areas. Communication among the divisions may not 77 Nature of IHRM  Prcduct Structure This is the most common organisational structure followed by MNCs. The product structure assigns worldwide responsibility for specific products or product groups, to separate operating divisions within a firm. As Fig. 3.7 shows, the manager who is inchargc of a product division has authority for this product line on a global basis. (C IO ) t rproduct Product Division 8 ovistoo kA Product Division C - i t ArIONTal Menu- \ t Ainco Menu/7 \ factoring Marketing Finance M Maw' lecturing tacturIng a Finance Menu-A I festering , Manu. r k e t i n g Median ° Marketing I Marketing Finance Finance Finance FIGURE 3.7 Global Product Structure The global product divisions operate as profit centres. Managers of product divisions run the operations with considerable autonomy. They have the authority to make important decisions. But, corporate headquarters usually maintain control through budgetary constraints and home office approvals for key decisions. Several benefits accrue to a worldwide product structure. If the firm produces a large number of diverse products, the structure allows each product line to focus on the specific needs of  itscustomers. This structure also helps develop a cadre of experienced, well-trained managers who understand a particular product line. A third benefit of the product structure is that it helps the company match its marketing strategy to the specific needs of the customer. Finally, because managers possess extensive product knowledge, they are more able to incorporate new technologies into their products and respond quickly and easily to technological changes that affect their markets. There arc some problems associated with product structure too. First is the necessity of  duplicating facilities and staff within each division. Second, products that sell well arc often given more importance than others. Finally, coordination among product groups becomes difficult. Matrix Structure The matrix structure emerges when one design is superimposed on top of an existing. but International Human Resource Management  78  The matrix structure permits a firm to form specific product groups, using members from existing functional departments. These product groups can then plan, design, develop, produce and market new products with appropriate inputs from each technical area. In this way, the firm can draw on both the functional and the product expertise of its employees. After a given product development task is completed. the product group may be dissolved. Its members will then move on to new assignments. GlobalMarke Gobs Product Marketrng Global Finance Global OpPextrcts GManage HR Global Product Manage•lj Global Pextict Manager-9 [ Global Product Manager-O FIGURE 3.8   Three features make the matrix structure different from other single dimensional structures. First, there are managers who report to two different matrix bosses. Second, there are matrix managers who share the subordinates: and third. there is the top manager who is expected to head the dual structure and balance and adjudicate disputes." What are the strengths of the matrix structure? First, communication flow is fast because of  the dual interaction. Before key decisions arc made. the structure brings to the table, two intersecting perspectives. Second, a global matrix structure promotfirmsganisational ffirtnsility. It allows finns to take advantage of functional. area and product structures. as needed, while minimising the disadvantages of each.  The disadvantages arc equally strong. The matrix structure is not suitable fora Finn that has few products and operates in a relatively stable market. Second. the structure is clumsy and bureaucratic. It may require so many meetings that it might become difficult to get any work done. Finally, the dual hierarchy structure can lead to conflict and perpetual power struggles between the area and the product divisions. Given the new breed of firms being born due to the surge in internalisation. today's organisations cannot be clearly slotted into any one of the above structures. The structures discussed above are traditional structures that provide the basic framework on which the MNC builds and then innovates, so as to balance the pressures for internationalisation versus the head of the organisation to control and coordinate, with the primary objective of meeting global challenges in the most optimum manner. If there is any single function in an organisation that is impacted by changes in the 79 Nature of  IHRM  TABLE 3.2 Structure Internation al Division Structure Function al Comparative Picture of Organisational St Advantages As the international activities are under one head, control and communication are easy and the structure can respond to changing local needs quickly. This structure is preferred when a business is making its foray into international business for the first time. Each function is responsible for activities around the world. This design is used by international businesses that have narrow or similar product lines. Disadnantages The drawback of this structure is that overseas activities arc given a perfunctory treatment. Geographic Area Structure Product lithe firm produces a large number of diverse products, the structure allows each product line to focus on the specific needs of its customers.  IHRM Strategy  Et hnocentric approach. !y positions are by occupied parent country nationals of the H t policies are usually centralised anPCN/HCN/TCNsed with minimal statutory Et hnocentric approach. The drawback with this structure is the delay in responding to local needs. Since each functional area deals with the global market. specialisation and concentration of functional expertise can be taken advantage of. Control of  various functions can be exercised relatively easily. A geographic division can respond to the market conditions of a particular area much more effectively than any other structure. rUCIUMS But there tends to be duplication of functions as there arc different divisions catering to different areas. Communication among divisions may not be quick. Kt :y positions are occupied by PCN4ICN/TCN t policies are largely centralised and standardised with incorporation of global best practices and global bcnchmarking. insisting on total compliance withK eylobally set processes and NormaHR a regiocentric approach, operating ey positions are normally oc cupied by IIR policies are largely centralised and standardised with incorporation of  global best practices and global benchmarking Necessity of duplicating facility and staff within each division. Usually an ethnocentric approach is Key positions are normallDisadvantages 80 International Human Resource Management  TABLE 3.2 (Contd.) Advantages Structure•  Helps develop a cadre of  experienced well-trained managers who understand a particular product line. Also helps the company match its marketing strategy to the specific needs of the Disaluntages Products that sell well are often given more importance than others. Coordination among product groups becomes difficult. IHRM  Strategy  HR policies are usually completely decentralised and independently managed at the unrt level, benchmarked agarnst local and industry standards customer  Finally, because managers possess extensive product knowledge. they arc more able to incorporate new technologies into their products and respond quickly and easily to Matrix Structure Communication flow is fast because of the dual interaction. Before key decisions are functional structure brings to bear the two intersecting  The disadvantages arc equally strong.  The mainxstructure is not suitable for a firm that has few products and operates in a relatively stable market. perspectives.  The global matrix structure promotes organisational flexibility. It allows firms to take advantage of fundional, area and product structures as needed, while minimising disadvantages of each.  The structure is clumsy and bureaucratic. It may require so manyinteractron.at it might become difficult to get any work done. The dual hierarchy structure can lead to conflict and a perpetual power struggle betweenmatrixarea 82 international Human Resource Management  Clearly a Geocentric approach Key positions are occupied by a breed of global mangers from within/outside the organisation HR policies are largely centralised and standardised with incorporation of global best practices and global benchmarking. insisting on total 82 international Human Resource Management  An MNC's organisational structure today is one that is constantly evolving. New ways of  reporting, control and coordination are constantly replacing the existing ones. And this trend is evidently what is happening. What is therefore emerging is that structures arc becoming specific to industry segments and these am being innovated and becoming industry-specific benchmarks. This flexibility allows the MNC to ensure that no 'one size fits all' philosophy restricts its global initiatives.  The challenge for !HRM in this scenario is the ability to quickly enable HR processes that would support the new structure. It would involve — • • • • Modifying existing policies and HR processes. Establishing new policies and HR processes, Carrying out industry specific HR surveys, and Networking within the specific industry through appropriate forums in order to conceive and propagate more effective and competitive structures.  The subsequent chapter on Strategic International Human Resources Management deals with these challenges of the MNC in greater depth. SUMMARY  IHRM refers to the HR policies and practices applied by an international firm across all its subsidiaries located in different countries. The nature of the HR functions and activities in an international context is determined by both the parent company's polices and practices and the degree of customisation of the HR policies to local requirements. The IHR activities have a broader perspective with reference to each function of HR, be it human resource planning, employee hiring, training and development. compensation. performance management or industrial relations. In brief, IHRM implies more involvement in employees' personal lives, changes in emphases of  HR policies as the work force mix of PCNs and HCNs varies and lot more risk exposure due to larger external influences.  There is significant impact on IHRM functions of the organisational strategy and organisational structure, which is discussed in-depth. HRM policies and processes are impacted by the MNC's organisational strategy with reference to going global at the host locations. The path to globalisation adopted by the MNC determines the HRM approach to hiring, compensating, training and managing performance of its employees. HRM policies and processes are also impacted by the organisational structure that prevails in an MNC. The decision to centralise core functions like marketing, research and development, HR, finance, production or sales impact the HR policy implementation from a very centralised to a completed decentralised workflow. It is a challenge for MNCs to strike the right balance of' IHR philosophy to drive HR A s %. r:°411—' qt• • . ••• 4 • 14 Closing Case >-•-ahte• • v.. • . Human Re s44 Pra cti ce at Dis ne y The IF Disney Company was founded in /922 by 21 year-old Wall Disney and his older brother Roy  Walt Disney was the creative producer. Roy the 'business brain' behind the company (Ellwood. 1998). The partnership ended only with Walt Disney's death in /966. By the end of the 1990s, the Walt Disney