Module 2:

Strategies for International

Growth
 Strategies for
International Growth
•Exploiting Global Integration
•Becoming Locally Responsive
•International Alliances
•International Mergers and Acquisitions
•International Joint Ventures
 Exploiting Global Integration
• Global integration means centralized control over key resources
and operations that are strategic in the value chain
• It means interconnecting the international activities of the MNCs
across all countries, looking for the strengths of the parent
company, and trying to achieve synergy effects
• Organizations achieve competitive advantage by effective management
of operations like product development, purchasing, production,
demand management and order fulfilment.
• E.g., Nokia’s globalization strategy – its strength was focused R&D
and having control over linkages between technology, product
development, supply chain management and marketing
• Integrating these activities on a global basis – maximize its competitive
advantage in both domestic and international markets
 Importance of Global Integration
• Economies of Scale – companies can lower ita unit cost by
centralizing the manufacturing or logistics
• Value chain linkages - E.g. R&D, manufacturing and Marketing /
Manufacturing & logistics
• Servicing global customers - Prices, quality standards and delivery
terms will be determined globally
• Global branding – org. can promote unified brand image around the
world e.g., Coca-Cola & Gillette
• Leveraging capabilities – cos expand globally by transferring
capabilities developed in home market e.g., Wal-mart
• Information advantage – Japan’s trading co. sogo shosha, has offices
all across the world to optimize global business opportunities by
tapping into pricing and delivery information about thousands of
products
Mastering Expatriation
• Expatriates are also called as International Assignees
• Expatriates are employees that are non-citizens of the country in
which they are working
• They have to work with unfamiliar surroundings, make cultural
adjustments and face certain challenges regarding new job
• Expatriates are individuals who go overseas to accomplish a job-
related goal
The Evolution of Expatriation
•Expatriation has been a tool of organizational control since the days of
ancient Rome
•For many years, the main focus of international HRM was on the
selection and compensation of expatriates
•In the academic field, international HRM was synonymous until
recently with studies of expatriation
•The profile of an “expatriate” has changed in recent years – more
diverse in ethnic origins, gender and age, as well as in the roles
expatriates are expected to play
 A Portrait of Expatriates
• A 2009 survey profiled expatriates in 180 multinationals from the Americas (50%),
Europe, the Middle East, and Africa (49%), and Asia Pacific (1%)
• 18% of assignments expected to be less than 1 year, 55% 1-3 years
• 20% of the expatriates were women
• 86% were accompanied by a spouse
• 30% of spouses were employed before but not during the assignment, 13% during but
not before, and 10% both before and during the assignment
• 49% had children with them on the assignment
• Other findings:
• 57% of the expatriate assignments were to/from the home country of the multinational
• 33% of the companies expected an increase in expatriates, 25% a decrease
• The most frequent expatriate locations: China, the US, and the UK
• The most common assignment objective: Filling a managerial or technical skills gap,
followed by building management expertise
• The most critical challenges: Assignment costs, finding candidates, controlling policy
exceptions, and career management
 The Purpose of Expatriation: Demand-driven versus
Learning-driven

CORPORATE AGENCY COMPETENCE

Long
Control/Knowledge DEVELOPMENT
transfer
Assignment
duration
Short PROBLEM BUILDING
SOLVING EXPERIENCE

Demand-driven Learning-driven
Assignment purpose

Different objectives may require differentiation in the way

international assigments are managed
Managing the Expatriation Process
All elements in the expatriate cycle are important
• Selecting expatriates
• Preparation and orientation
• Supporting adjustment to the expatriate role
• Managing the performance of expatriates
• Compensation and rewards
• Repatriation
The issues in the later stages have to be considered early – for example,
repatriation has to be taken into the account already during the selection

Expatriation is a process, not an event

 Becoming Locally Responsive
• Local responsiveness or differentiation refers to the creation of
competitive value relevant to local conditions and constraints
• It is the decision to distribute work in many locales verses consolidating
work in one or a few centralized locations
• i.e., distributing work to many locales maximizes the firm’s flexibility to complete
tasks any time and any place
• This route if often chosen by MNCs in the early 20th century
• The reason for local responsiveness are :
• Differences in tastes and preferences
• Differences in infrastructure and traditional practices
• Differences in distribution channels
• Differences in labor market conditions
• Host government demands
 Challenges of Localisation
• Finding and developing local talent
• Due to scarcity of talent with specific skills and managerial
competency in emerging markets, many MNCs hire young
talent for future leadership roles by training and coaching
• Retaining local talent
• Some organization may be regarded as training grounds for
their competitors, thus incurring huge cost on developing
the resources
 Guidelines for effective local responsiveness

• Expatriates are responsible for localization

• Selecting the right person
• Setting objectives
• Motivating localization
• Developing local staff
• HR Marketing and recruitment
• Training and development
• Retention
 Respective Advantages of Global Standardization and Local
Adaptation in HR Practices
Global Standardization Local Adaptation
Allows specialization and scale
(cost) advantages in the HR function Fit with local culture, institutional, and
Serves as control mechanism labor market considerations
Facilitates coordination across Helps fulfill local legal requirements
units Appropriate HR practices may enhance
Can transfer best HR practices local goodwill and image
and work systems Motivates host country managers to have
Facilitates the use of IT-based HR locally developed practices
tools and processes May be needed to support the strategy
Global (foreign) HR practices are of the local unit
sometimes preferred by host
country nationals
 Cross-border alliances / International Alliances
• The strategic importance of alliances has increased in the course of globalization
• Cross-border alliances are cooperative agreements between two or more firms
from different national backgrounds, which are intended to benefit all partners
• A non-equity cross-border alliance ‘is an investment vehicle in which profits
and other responsibilities are assigned to each party according to a contract.
Each party cooperates as a separate legal entity and bears its own liabilities’.
• Examples include international technology alliances or strategic research
and development alliances 5 as well as cooperative agreements in
different functional areas such as marketing or production
• Equity modes involve a ‘foreign direct investor’s purchase of shares of an
enterprise in a country other than its own’.7 These include the establishment
of subsidiaries or acquisitions, as well as through joint ventures or mergers
Equity & non-equity modes of foreign operation
Cross-Border mergers & acquisitions
• A merger is the result of an agreement between two companies to
join their operations together. Partners are often equals.
• For example, the DaimlerChrysler merger was supposed to be a merger
between equals in its first stage
• An acquisition, on the other hand, occurs when one company buys
another company with the interest of controlling the activities of the
combined operations.
• This was the case when the Dutch steel company Mittal, ranked second by
volume in crude steel production in 2006, initiated a hostile takeover of the
Luxembourg-based Arcelor group, ranked first in the same statistic
The formation processes of M&As and HR
challenges
• HRM challenges faced in mergers and in acquisitions are similar
• Cross-border M&As involve partial or full takeover or the merging of capital,
assets and liabilities of existing enterprises in a country by TNCs [transnational
corporations] from other countries.
• M&As generally involve the purchase of existing assets and companies
• Cross-border M&As have seen tremendous growth over the last two decades in
part because of the phenomenon of globalization
• Both the value and number of cross-border M&As rose in 2005, to $716 billion (an 88 per
cent increase) and to 6134 (a 20 per cent increase) respectively’
• One major reason to engage in mergers or acquisitions is often to facilitate rapid
entry into new markets
• Some of the factors that a firm takes into consideration when deciding on a target
country include: the growth aspiration of the acquiring company, risk
diversification, technological advantages, a response to government policies in a
particular country, exchange rate advantages, favorable political and economic
conditions, or an effort to follow clients
 Typical cross-border M&A problems
• Employee resistance endangers M&A performance as it may hinder
synergy realization
• Human integration process is especially difficult to manage and takes
time
• Within the first year of a merger, up to 20% of top mgmt executives may
be lost
• The percentage lost gets worse over more than one year after a merger
• Personnel issues are often neglected, delayed or not a priority
• A large number of M&As fail or do not produce the intended long term
results
HR activities in the
phases of a cross-
border M&A
 Strategic HRM in M&As
Firms should match their M&A strategy with their HR strategy while relying on
three conceptual tools:
Resources
money, people, brands, relationships
In the context of HRM in M&As decisions about resources involve staffing and
retention issues, with termination decisions being particularly important
Processes
activities used to convert resources into goods & services
For example - training and development programs as well as appraisal and
reward systems.
Values
the way employees think about what they do & why they do it
Values shape employee’s priorities and decision making
Comparing HRM in M&As
• Performance-related pay is more popular in US than in Japan or
Germany
• Recruitment in US is more short-term than in Germany, France, & UK
• Japan still has longest-term focus
• US training & career planning is the most extensive
• French still favor French managers
• Germans are the most anxious to adopt
international practices for their M&As
 International equity joint ventures
• International joint ventures (IJVs), the second type of equity-based cross-
border alliance discussed in this chapter, have experienced tremendous
growth during the last two decades and will continue to represent a major
means of global expansion for MNEs
• According to a well-known definition by Shenkar and Zeira an IJV is:
• A separate legal organizational entity representing the partial holdings of two or more
parent firms, in which the headquarters of at least one is located outside the country
of operation of the joint venture. This entity is subject to the joint control of its parent
firms, each of which is economically and legally independent of the other
• The equity division between the parent companies of the joint venture may
differ. In some cases the ratio is 50:50, in others the dominance of one
partner becomes more obvious with a ratio of 51:49 or through various
other combinations.
• This, of course, has implications for the control of the IJV;
 IJV challenges include
• HR must manage relations at the interfaces between IJV & parent
companies

Different rules can create critical dualities

• HR must develop appropriate HRM practices & strategies for the IJV
itself.

HR must recruit, develop, motivate, retain human resources at IJV level

Formation of an international equity joint venture
The main reasons for an IJV
• To gain knowledge & transfer that knowledge
• The host government insists
• Increased economies of scale
• To gain local knowledge
• To obtain vital raw materials
• To share risks (e.g., financial)
• To improve global competitive advantage
• Provide an efficient & cost effective response
required by market globalization
 IJV development stages
• In the partnership role, HR managers should take the needs of all
stakeholders into account and demonstrate a thorough understanding of
the business and the market.
• As a change facilitator and strategy implementer, HR managers should
be able to conceptualize and implement new strategies involving trust-
based communication and cooperation with relevant partners. This also
requires the creation of a stable learning environment.
• As an innovator, the HR manager should be able to identify talent for
executing IJV strategies and adapting to changes in the IJV stages.
• As a collaborator, the HR manager’s strengths should lie in creating win-
win situations characterized by sharing rather than competing between
the different entities engaged in the joint venture
International SMEs
• The role of small and medium-sized companies (SMEs) is often not
discussed in the international management literature.
• SMEs can be defined using headcount, annual turnover or annual
balance sheet total
• It is important to note that there is no commonly accepted definition
of an SME and criteria and limits differ.
• The European Commission definition is very specific while other
definitions include companies with up to 1000 employees as SMEs
Definition of SMEs
 SMEs are very important
In European Economic Area(EEA) & Sweden:
• There’re 16 million(99+%) enterprises; Less than 1% are Large enterprises
• Two thirds of jobs are in SMEs while one third is provided by large
enterprises
In Asia Pacific region: SMEs constitute backbone of Asia Pacific region
• SMEs constitute 90% of enterprises
• 32-48% employment is by SMEs
• 80 and 60 % of gross domestic product in individual Asia Pacific economies
In US:
• 80+% employment is by SMEs with less than 20 employees
Barriers to international markets by SMEs
1. Not enough working capital to finance exports
2. Inability to identify foreign business opportunities
3. Limited information to locate/analyze markets
4. Inability to contact potential overseas customers
5. Inability to obtain reliable foreign representation
6. Lack of managerial time to handle internationalization
7. Untrained or not enough personnel to go international
8. Difficulty in managing competitors’ prices
9. Lack of home government assistance & incentives
10. Excessive transportation & insurance costs
 IHRM features in SMEs
• The founder or owner has large impact
• Recruitment, selection, & retention:
SMEs struggle because of perceptions (like lack legitimacy)
SME has image advantage - good working atmosphere, less anonymity, a
high degree of information and low requirements for mobility.
Yet SME requirements are similar to those of large organizations
• Human resource development – learning – very informal in nature
• Expatriate management – recruitment, training(cross-culture)
• Limited HR dept. resources & outsourcing