Organizing Structure : Formulating Implement
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1. An organization must be designed to facilitate the implementation of strategic goals. Other variables to consider when designing an organization's structure include environmental conditions, the size of the organization, and the appropriate
technology. The geographic dispersion of operations as well as differences in time, language, and culture affect structure in the international context.
2. The design of a firm's structure reflects its international entry strategy and tends to change over time with growth and increasing levels of investment, diversity, or both.
3. Global trends are exerting increasing pressure on MNCs to achieve economies of scale through globalization. This involves rationalization and the coordination of strategic alliances.
4. MNCs can be regarded as interorganizational networks of their own dispersed operations and other strategic alliances. Such relational networks may adopt unique structures for their particular environment, while also requiring centralized coordination.
5. The transnational structure allows a company to “be global and act local” by using networks of decentralized units with horizontal communication; this allows local flexibility while achieving global integration.
6. Indications of the need for structural changes include inefficiency, conflicts among units, poor communication, and overlapping responsibilities,
7. Coordinating and monitoring systems are necessary to regulate organizational activities so that actual performance conforms to expected organizational standards and goals. MNCs use a variety of direct and indirect controls.
8. Financial monitoring and evaluation of foreign affiliates is complicated by variables such as exchange rates, levels of inflation, transfer prices, and accounting standards.
9. The design of appropriate monitoring systems must take into account local constraints, management practices and expectations, uncertain information systems, - and variables in the evaluation process.
10. Two major problems in reporting for subsidiaries must be considered: (1. inadequate management information systems and (2. the noncom par across countries of the performance data needed for evaluation purposes.
11. Labor relations refer to the process through which managers and workers determine their workplace relationships. The labor relations environment, system, and processes vary around the world and affect how the international manager must plan strategy and organize work and control systems.
The structure, control and coordination processes are the same whether they take place in a domestic company, a multinational company with a network of foreign affiliates, or a specific IJV. It is the extent, the focus, and the mechanisms used to organize those activities that differ. More coordination is needed in global companies because of uncertain working environments and information systems and because of the variable loci of decision making. Additional complexities attributable to varying labor relations systems compound the challenge of organization and control. These dynamic conditions confound the task of integrating and controlling a worldwide network of subsidiaries, joint ventures, and contractual relationships. Headquarters managers must design appropriate systems to take into account those variables and to evaluate performance.
-Codetermination has proved to be efficient, and several northern Euro-
paean countries adopted similar systems, while others, such as the UK,
did not. The combined influences made dialogue between management
and the workers a natural component of decision making.
Germany's codetermination law (initbestimmung), which refers to the participation of labor in the management of a firm, mandates representation for unions and salaried employees on the supervisory boards of all large companies, and “works councils” of employees at every work site. Unions are well integrated
into managerial decision making and can make a positive contribution to corporate competitiveness and restructuring; this seems different from the traditional adversarial relationship of unions and management in the United States?6 I-low- ever, the fact is that firms, in the form of affiliated organizations of companies, have to contend with negotiating with powerful industry wide unions. Employment conditions that would be negotiated privately in the United State, for example, are subject to federal mandates in Germany - a model unique in Europe.
Union membership in Germany is voluntary usually with one union for each major industry, and union power is quite strong. Negotiated contracts with firms by the employers' federation stand to be accepted by IPirms who are members of the federation, or used as a guide for other firms; these contracts therefore result in setting the pay scale for about 90 percent of the country's workers)'7
The union works councils play an active role in hiring, firing, training, and reassignment during times of reorganization and change?8 Because of the depth of works council penetration into personnel and work organization matters, as required by law, their role has been termed by some as “co manager of the internal labor market.” This situation has considerable implications for how managers of MNCs plan to operate in Germany. IG Metall, for example, which is Germany's largest metalworking union, with 2.6 million workers, negotiates guidelines regarding pay, hours, and working conditions on a regional basis. Then works councils use those guidelines to make local agreements IG Metall's proactive role on change illustrates the evolving role of unions by leading management thinking instead of reacting to it. In addition, management and workers tend to work together because of the structure of the unions. Indeed, Adams suggests that such institutional accord is a powerful factor in changing deeply ingrained cultural traits.
Codetermination has clearly helped to modify German managerial style from authoritarian to something more akin to humanitarian, without, it should be noted, altering its capacity for efficiency and effectiveness5 This system compares to the lack of integration and active roles for unions in the U.S. auto industry, for example, conditions that limit opportunities for change.
DaimlerChrysler, the German-American company headquartered in Germany, includes a works council in its decision making, as mandated by German
Law. This mean that the company's labor representatives pay close attention to U.S. attitudes which may lead to changes in the tone of the collective bargaining processes. The two-tiered system of a supervisory and a management board will remain. It is likely that the company will exert pressure to bring down the high labor costs and taxes in Germany, under the threat of moving its plants elsewhere in order to remain globally competitive. With the DaimlerChrysler company accounting for about 13 percent of the DAX index of 30 German blue-chip stocks, U.S. shareholders and managers in the company will no doubt hold some power to bring about change and reduce operating costs in the company - and perhaps eventually in the country. Pay for German production workers is among the highest in the world, about 150 percent of that in the United States, and about ten times that in Mexico. German workers also have the highest number of paid vacation days in the world, and they prefer short work days. The stores are open very little in the evenings or weekends. Termination costs are also very high (including severance pay, retraining costs, time to find another job, etc.) and that is assuming that you are successful in terminating the employee in the first place, which is very difficult in Europe. This was brought home to Colgate-Palmolive when it tried to close its factory in Hamburg in 1996. The company offered the 500 employees an average of $40,000 each, but the union would not accept and eventually Colgate had to pay a much higher (undisclosed) amount. -
The German model, according to Rudiger Soitwedel of the Institute for the World Economy at Kid, holds that competition should be based on factors other than cost.81 Thus the higher wage level in Germany should be offset by higher- value goods like luxury cars and machine tools which have been the hallmark of Germany's products. To the extent that theWest German unions have established the high-wage, high-skill, and high-value-added production pattern, then, they have also become dependent on the continued presence of that pattern. 82 In recognition of that dependency, German auto firms are in the process of remaking themselves after the Japanese model - reducing supplies and cutting costs in order to compete on a global scale. However, this social contract which has underpinned Germany's manufacturing success is fraying at the edges as Germany's economy weakens under the $100 billion cost of absorbing East Germany, and under competitive EC pressures.
In South Africa, the elimination of 4partheid has given rise to a
rapidly growing labor movement. The African National Congress is pro-union, and local unions receive assistance from the AFL-CIO
branch in Johannesburg.
Although no clear direction is evident at this point, political changes, external competitive forces, increased open trade, and frequent moves of MNCs around the world are forces working toward convergence in labor system Convergence occurs as the migration of management and workplace practices around the world results in the reduction of workplace disparities from one country to another. This occurs primarily as MNCs seek consistency and coordination among their foreign subsidiaries, and as they act as catalysts for change by “exporting” new forms of work organization and industrial relations practices.TM It also occurs as harmonization is sought, such as for the EC countries, and as competitive pressures in free-trade zones, such as the NAFTA countries, eventually bring about demands for some equalization of benefits for workers.65 It would appear that economic globalization is leading to labor transnational's and will bring about changes in labor rights and democracy around the worldP6 In East European societies in transition to market economies, for example, newly structured industrial relations systems are being created. Trends in industrial relations, such as the flattening of organizations and decline in the role of trade unions are viewed by many as global developments pointing to convergence in labor systems .
Other pressures toward convergence of labor relations practices around the world come from the activities and monitoring of labor conditions worldwide by various organizations. One of these is the International Labor Organization (ILO) - comprising union, employer, and government representation - whose mission is to ensure that humane conditions of labor are maintained. Other associations of unions in different countries include various international trade secretariats representing workers in specific industries. These include the International Confederation of Free Trade Unions (ICFTU) and the World Confederation of Labor (WCL). The activities and communication channels of these associations 4- provide unions and firms with information about differences in labor conditions
around the world. One result of their efforts to provide awareness and changes in labor conditions was the pressure they brought to bear on MNCs operating in South Africa in the late 1980s. The result was the exodus of foreign companies and the eventual repeal of apartheid laws. Now there is a rapidly growing labor union movement there, thanks to the prounion African National Congress- In fact, the AFL-CIO opened an office in Johannesburg and assists the South African unions.
Political and cultural shifts are also behind the new labor law in South Korea, as the country moves from a system founded on paternalism and authoritarianism to one based on more liberal values.
Although there are forces for convergence in labor relations systems around the world, as discussed above, for the most part, lvJNCs still adapt their practices to a great extent to the traditions of national industrial relations systems, and there is considerable pressure to do so. Those companies, in fact, act more like local employers, subject to local and country regulations and practices. While the reasons for continued divergence in systems seem fewer, they are very strong; not the least of these are political ideology and the overall social structure and history of industrial practices. It is highly unlikely that China, for example, would accept Western practices which threaten their political ideology. And in the EU, where states are required to maintain parity in wage rates and benefits under the Social Charter of the Maastricht Treaty, there is still a powerful defense of cultural identity and social systems and considerable resistance by unions to comply with those requirements. Managers in those MNCs also recognize that a considerable gap often exists between the labor laws and the enforcement of those laws - in particular in less developed- countries. Exhibit 8-13 shows the major forces for and against convergence in labor relations systems.
Exhibit 8-12 shows the percentage of workforce in trade unions in industrialized countries. Notably, there is a trend of falling union membership. This trend is attributable to various factors, including an increase in the proportion of white- collar and service workers as proportionate to manufacturing workers, a rising
proportion of temporary and part-time workers, and a reduced belief in unions in the younger generations.5 But the numbers do not show the nature of the system in each country. In most countries, a single dominant industrial relations system applies to almost all workers. But in both Canada and the United States there are two systems - one for the organized and one for the unorganized; each, according to Adams, has “different rights and duties of the parties, terms and conditions of employment, and structures and processes of decision making.” Basically, in North America, an agent represents unionized employees whereas unorganized employees can oniy bargain individually, usually with little capability to affect major strategic decisions or policies or conditions of employment.52
The traditional trade union structures in Western industrialized societies have been in the following categories: industrial unions, representing all grades of employees in a specific industry and craft unions, based on certain occupational skills. More recently, the structure has been conglomerate unions, representing members in several industries, for example, the Metal Workers unions in Europe which cut across industries, and general unions, open to most employees within a country.53 The system of union representation varies among countries. In the United States most unions are national and represent specific groups of workers - for example, truck drivers or airline pilots - so a company may have to deal with several different national unions. A single U.S. firm, rather than an association of firms representing a worker classification, engages in its own negotiations. In Japan, on the other hand, it is common for a union to represent all workers in a company. In recent years, company unions in Japan have increasingly coordinated their activities, leading to some lengthy strikes.
Industrial labor relations systems across countries can only be understood in the context of the variables in their environment and the sources of origins of unions; these include government regulation of unions, economic and unemployment factors, technological issues, and the influence of religious organizations.ss Any of the basic processes or concepts of labor unions, therefore, may vary across countries, depending on where and how the parties have their power and achieve their objectives, such as through parliamentary action in Sweden. For example, collective bargaining in the United States and Canada refers to negotiations between a labor union local and management; but in Europe collective bargaining takes place between the employer's organization and a trade union at the industry level. This difference means that the North American decentralized, plant-level, collective agreements are more detailed than the European industry wide agreements because of the complexity of negotiating a myriad details in multiemployer bargaining. In Germany and Austria, for example, such details are delegated to works councils by legal mandate.
The resulting agreements from bargaining also vary around the world. A written, legally binding agreement for a specific period, common in Northern Europe and North America, is less prevalent in Southern Europe and Britain. In Britain, France, and Italy, bargaining is frequently informal and results in a verbal agreement valid only until one party wishes to renegotiate.
Other variables of the collective bargaining process are the objectives of the bargaining and the enforceability of collective agreements. Because of these differences, managers in MNEs overseas realize that they musf adapt their labor relations policies to local conditions and regulations. They also need to bear in mind that, while U.S. union membership has declined by about 50 percent in the last 20 years, in Europe overall membership is stifi quite high; it, too, has been falling, but from much higher levels.
Most Europeans are covered by collective agreements, whereas most Americans are not. Unions in Europe are part of a national cooperative culture between government, unions and management, and they hold more power than in the United States. In Ji.me, 1998, for example, thousands of employees at the state- owned Air France airline staged protests in Paris airports against proposed job and pay cuts, thereby causing the government to back down.
Increasing privatization will make governments less vulnerable to this kind of pressure. It is also interesting to note that there are labor courts in Europe that deal with employment matters separately from unions and works councils. In Japan, labor militancy has long been dead, since labor and management agreed 40 years ago on a deal for industrial peace in exchange for job security. Unions in Japan have little official clout, especially in the midst of the Japanese recession.
In addition, there is not much to negotiate, since wage rates, working hours, job security, health benefits, overtime work, insurance, and so on are legislated. Local working conditions and employment issues are all that's left to negotiate. Also, the managers and labor union representatives are usually the same people, which serves to limit confrontation, as well as does the cultural norm of maintaining harmonious relationships. In the industrialized world, tumbling trade bar- Hers are also reducing the power of trade unions, because competitive multinational companies have more freedom to choose alternative productive and sourcing locations. Most new union workers - about 75 percent - will be in emerging nations, like China and Mexico, where wages are low and unions are scarce.
In China the government ordered all 47,000 foreign firms there to be unionized by mid-1996, and new foreign firms to establish unions in their first year of operation. This was in response to a sharp rise in labor tension and protests about poor working conditions and industrial accidents. The All-China Federation of Trade Unions claimed that “foreign employers often force workers to work overtime, pay no heed to labor-safety regulations and deliberately find fault with the workers as an excuse to cut their wages or fine them.”6' Much of the unrest has been caused by workers who are angry about losing their socialist safety net under the government's new economic reforms. Johnson & Johnson's three consumer-products manufacturing plants in China were already unionized and have a cooperative relationship with the unions.
Exhibit 8-12 shows the percentage of workforce in trade unions in industrialized countries. Notably, there is a trend of falling union membership. This trend is attributable to various factors, including an increase in the proportion of white- collar and service workers as proportionate to manufacturing workers, a rising
If you have to close a plant in Italy, in France, in Spain, or in Germany,
you have to discuss the possibility with the state, the local communities, the trade unions; everybody feels entitled to intervene. . even the
Church.
An important variable in organizing work, in control, and in strategic planning is that of the labor relations environment and system within which the managers of an MNE will operate in a foreign country. Differences in economic, political, and legal systems result in considerable variation in labor relations systems across countries. Pan-European firms, for example, are still dealing with disparate national labor and social systems as the EC directors wrestle with the goal of the harmonization of labor laws. In addition, European businesses continue to be undermined by their poor labor relations and by inflexible regulations. As a result businesses are having to move jobs overseas to cut labor costs, resulting from a refusal of unions to grant any reduction in employment protection or benefits in order to keep the jobs at home.47 As well, non-European firms wishing to operate in Europe have to carefully weigh the labor relations systems and their potential effect on strategic and operational decisions.
The term labor relations refers to the process through which managers and workers determine their workplace relationsMps. This process may be through verbal agreement and job descriptions, or through a union-written labor contract which has been reached through negotiation in collective bargaining between workers and managers. The labor contract determines rights regarding workers' pay, benefits, job duties, firing procedures, retirement, layoffs, and so on.
The importance to the international manager of the prevailing labor relations system in a country is that it can constrain the strategic choices and operational activities of a firm operating there. The three main dimensions of the labor - management relationship which the manager will consider are: (1. the participation of labor in the affairs of the firm, especially as this affects performance and well-being; (2. the role and impact of unions in the relationship; and (3. specific human resource policies in terms of recruitment, training, and cornpensation. Constraints take the form of (1. wage levels which are set by union contracts and leave the foreign firm little flexibility to be globally competitive; (2. limits on the ability of the foreign firm to vary employment levels when necessary; (3. limitations on the global integration of operations of the foreign firm because of incompatibility and the potential for industrial conflict.
A major problem in the evaluation of the performance of foreign affiliates is the tendency by headquarters managers to judge subsidiary managers as if all of the evaluation data were comparable across countries. Unfortunately, many variables can make the evaluation information from one country look very different from that of another country due to circumstances beyond the control of a subsidiary manager. For example, one country may experience considerable inflation, significant fluctuations in the price of raw materials, political uprisings, or governmental actions. These factors are beyond the manager's control and are likely to have a downward effect on profitability. And yet, that manager may in fact have maximized the opportunity for long-term stability and profitability compared with a manager of another subsidiary who was not faced with such adverse conditions. Other variables influencing profitability patterns include transfer pricing, Currency devaluation, exchange-rate fluctuations, taxes, and expectations of contributions to local economies.
Clearly, one way to ensure more meaningful performance measures is to adjust the financial statements to reflect the uncontrollable variables peculiar to each country where a subsidiary is located. This provides a basis for the true evaluation of the comparative return on investment (ROl), which is an overall control measure. Another way to provide meaningful, long-term performance standards is to take into account other nonfinancial measures These measures include market share, productivity sales, relations with the host-country government, public image, employee morale, union relations, and community involvement.
Reporting systems such as those described in this chapter require sophisticated information systems to enable them to work properly - not only for competitive purposes, but also for purposes of performance evaluation. Top management must receive accurate and timely information regarding sales, production, and f financial results to be able to compare actual performance with goals and to take corrective action where necessary. Most international reporting systems require information feedback at one level or another for financial, personnel, production, and marketing variables.
The specific types of functional reports, their frequency, and the amount of detail required from subsidiaries by headquarters will vary. Neghandi and Wedge surveyed the types of functional reports submitted by 117 MNCs in Germany, Japan, and the United States. They found that U.S. MNCs typically submit about double the number of reports than do German and Japanese MNCs, with the exception of performance reviews. German MNCs submit a few more reports than do Japanese MNCs. U.S. MNCs thus seem to monitor far more through specific functional reports than do German and Japanese MNCs. The Japanese MNCs put far less emphasis on personnel performance reviews than do the U.S. MNCs and the German MNCs - a finding consistent with their culture of group decision making, consensus, and responsibility.
Unfortunately, the accuracy and timeliness of information systems are often less than perfect. This is particularly so in less developed countries, where managers typically operate in conditions of extreme uncertainty. Government information, for example, is often filtered or fabricated; other sources of data for decision making are usually limited. Employees are not used to the kinds of sophisticated information generation, analysis, and reporting systems common in developed countries. Their work norms and sense of necessity and urgency may Also confound the problem. In addition, the hardware technology and the ability to manipulate and transmit data are usually limited. The adequacy of management information systems (MIS) in foreign affiliates is a sticky problem for headquarters managers in their attempt to maintain efficient coordination of activities and consolidation of results. Another problem is the noncomparability of performance data across countries, which hinders the evaluation process.
The use of the Internet has, of course, made the availability and use of information attainable instantaneously. Many companies are starting to supply Internet MIS systems for supply-chain management. European partners Nestl S.A. and Danone Group, world leaders in the food industry, set up Europe's first Internet marketplace for c-procurement - in the consumer goods sector, called CPGmarket.com, saying:
CPGmarket.com will enhance the efficiency of logistics while at the same time reducing procurement costs for businesses producing, distributing and selling consumer goods. CPG (based on mySAP.com c-business platform) allows companies not only to buy and sell, but also to access industry information. - - . Participants wifi benefit from a more efficient market, reducing costs through higher transaction efficiency and simplified processes.