Chapter 4
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
IHRM in
cross-border M&As,
international alliances,
and SMEs
Objectives
You want to understand how these relate to IHRM:
1. Cross-border alliances
2. Equity-based alliances (M&As, IJVs)
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
3. Globalizing SMEs
Cross-border alliances:
partnerships that are formed between two or
more companies from different countries for the
purpose of pursuing mutual interests through
sharing their resources and capabilities.
Examples:
Airlines, Sky team, Coca Cola and MacDonald
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
Hewlett Packard and Disney
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By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
Objectives
Equity-based alliances (M&As, IJVs)
An arrangement between two companies that
have decided to share resources to undertake a
specific, mutually beneficial project.
Two Forms:
1- M&As: Mergers and Acquisitions
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
2- IJVs: International Joint Ventures
Equity-based alliances (M&As, IJVs)
M&As: Mergers and Acquisitions
Two companies are engaged, where an
acquiring company makes an offer to buy the
other company in its entirety or purchase some
of its assets (Acquisition) .
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
When two companies agreed to become united
or combined ( Mergers).
Equity-based alliances (M&As, IJVs)
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
M&As: Mergers and Acquisitions
Equity-based alliances (M&As, IJVs)
M&As: Mergers and Acquisitions
Mergers Examples:
Exxon & Mobil, Daimler Benz & Chrysler
AOL & Time Warner, time warner at&t
Acquisitions Examples:
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
BP/Amoco, WorldCom/MCI, AT&T/T Mobile
IJVs: International Joint Ventures
When two businesses based in two or more
countries form a partnership.
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
Examples:
IJVs: International Joint Ventures
Examples:
Fujitsu Siemens Computers is a Japanese and
German vendor of Information technology.
Sony-Ericsson
Siemens AG and Nokia Corp Joint Venture
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
Microsoft and GE Joint Venture
Equity & non-equity modes of foreign operation
Equity involved operations: Capital investment
1- Mergers and Acquisitions
2- Joint ventures
3- Subsidiaries: is partly or completely owned
by a parent company. At least 50% and above,
is the rate is low (Affiliation or Association).
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
Samsung subsidiaries….
Equity & non-equity modes of foreign operation
Non-Equity involved operations: no capital
investment
1- Franchising
2- Licensing
3- Management Contracting
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
4- Subcontracting: Outsourcing and Offshoring
Equity & non-equity modes of foreign operation
Non-Equity involved operations: no capital
investment
1- Franchising: is a form of business by which
the parent company (franchisor) of a product,
service or method obtains distribution through
affiliated dealers (franchisees).
Examples:
Tim Horton, Starbucks…….
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
MacDonald, Burger King…..
Equity & non-equity modes of foreign operation
Non-Equity involved operations: no capital
investment
2- Licensing: means renting or leasing of an intangible
asset. It is a process of creating and managing contracts
between the owner of a brand and a company or individual who
wants to use the brand in association with a product, for an
agreed period of time, within an agreed territory.
Examples:
National Football League
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
Microsoft, Mickey Mouse, Nickelodeon
Equity & non-equity modes of foreign operation
Non-Equity involved operations: no capital
investment
3- Management Contracting: is an arrangement
under which operational control of an enterprise is
assigned by contract in a separate enterprise that
performs the necessary managerial functions in return
for a fee.
Dnata, Dubai Ports World
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
Examples:
Equity & non-equity modes of foreign operation
Non-Equity involved operations: no capital
investment
4- Subcontracting: Outsourcing and Offshoring
Outsourcing is a practice used by different companies
to reduce costs by transferring portions of work to
outside suppliers rather than completing it internally.
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
Offshoring is the relocation of a business process
from one country to another—typically an operational
process, such as manufacturing, or supporting
processes, such as accounting.
Equity & non-equity modes of foreign operation
Non-Equity involved operations: no capital
investment
4- Subcontracting: Outsourcing and Offshoring
Outsourcing Examples: Auto parts, computer parts,
HR activities, customer services
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
Offshoring Examples: GM in Saudi Arabia, Toyota
factory in the US, All factories in China is offshoring
Figure 4.1
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
Equity & non-equity modes of foreign operation
Figure 4.2
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
The formation processes of M&As and HR challenges
Figure 4.3
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
Mergers and acquisitions in US$ billions
Typical cross-border M&A problems
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
 Within the first year of a merger,
up to 20% of executives may be lost
 The percentage lost gets worse over more
than one year after a merger
 Personnel issues are often neglected
 A large number of M&As fail or do not
produce the intended results
HR activities in the phases of a cross-border M&A
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
 The importance of managing "people issues" in the context of M&As,
with an emphasis on the role of HR professionals, who must be adept at
recognizing potential problems, identifying solutions and persuading
management to adopt them. The five phases of the merger or
acquisition transaction. It addresses the key issues that must be
managed in an effort to assist HR practitioners in preparing for the
challenges and practical realities of M&A transactions, including:
1. Creation of new policies to guide the new organization.
2. Retention of key employees.
3. Employee selection and downsizing.
4. Development of compensation strategies.
5. Creation of a comprehensive employee benefits program.
Figure 4.4
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
HR activities in the phases of a cross-border M&A
IJV challenges include
 HR must manage relations at the interfaces
between IJV & parent companies
Different rules can create critical dualities
HR must recruit, develop, motivate,
retain human resources at IJV level
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
 HR must develop appropriate HRM
practices & strategies for the IJV itself.
Figure 4.5
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
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
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
 Provide an efficient & cost effective response
required by market globalization
In EEA & Sweden:
 99+% of 16 million enterprises in EEA & Sweden
are SMEs
 Two thirds of jobs are in SMEs
In Asia Pacific region:
 SMEs are 90% of all enterprises
 32-48% employment is by SMEs
In US:
 80+% employment is by SMEs
with less than 20 employees
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
SMEs are very important
Barriers to international markets by SMEs
TOP1.
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
1. Not enough working capital to finance exports
10
2. 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
 The founder or owner has large impact
 Recruitment, selection, & retention:
SMEs struggle because of perceptions
 Yet SME requirements are similar to those
of large organizations
 Human resource development – learning
 Expatriate management
 Limited HR dept resources
& outsourcing
For use with International Human Resource Management 6e
By Peter J. Dowling, Marion Festing, and Allen D. Engle. Sr.
ISBN-10: 1408032090
© Cengage Learning
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Chapter 4
IHRM features in SMEs