Management holding an ethnocentric orientation believes that its home country is superior to any other country in the world regardless of any evidence to the contrary. An ethnocentrically oriented manager may think: “since a product or a service performed well at home, it should also perform well abroad. Since this is so obvious, no further research is necessary on foreign markets and no adaptations need to be made to the products or services to tailor them to global customer preferences and needs. Some companies are so ethnocentric that they choose to ignore foreign opportunities in the first place. These companies are called domestic companies. Other companies holding an ethnocentric orientation do choose to conduct business outside of their home country and are called international companies. Ethnocentrically oriented international companies believe that anything that has worked at home must also work abroad.
A company holding this viewpoint would be likely to ignore local managers within different countries who voiced an opinion contrary to the norm of the home-country. For example, a local manager may wish to change an advertisement’s background-color from white to red since, in his country, white signifies death whereas red signifies wealth. An ethnocentrically oriented company might ignore this valuable piece of information.
Since white was chosen over red in focus groups inside of the United States, white must be preferred to red universally regardless of where the product is being sold. Management holding a polycentric orientation, on the other hand, believes that each country is unique and therefore it allows its subsidiaries to have more control in developing strategies that will work in a particular country. “Since each country is so unique, complete control should be given to local managers since they obviously know what is best for the company in that country.
As long as these subsidiaries are profitable, headquarters is apt to leave them alone. “Let the Romans do it their way. We really don’t understand what is going on here, but we have to have confidence in them. As long as they earn a profit, we want to remain in the background” (Perlmutter, 2001). Though an improvement over a purely ethnocentric view, a purely polycentric one has its flaw in that headquarters and subsidiaries are somewhat cut off from one another.
Headquarters steps aside in the belief that it can not possibly understand local business processes and foreign subsidiaries are glad that headquarters does not “interfere” as they can not possibly understand the local market. So while a polycentric viewpoint is an improvement over an ethnocentric one in that a company realizes that strategies should be tailored for specific markets, it does not take into account the potential benefits of taking a more active role in the running of subsidiaries in those differing markets.
Lastly, it should be noted that though it is realized that each country is different, the polycentric viewpoint often leads to ethnocentricity within each region where the company operates. Thus, though a company based in New York will gives its India-based subsidiary complete control over a project, management still believes that the home-country is superior. Management holding a geocentric orientation believes that the entire world is a potential market and strives to develop strategies that will work in every market.
Instead of stating that things are inherently different in each market and thus must be handled in a distinctive manner, a geocentrically oriented company will look for universal as well as local best practices to help a company thrive in all markets. For example, in a Polycentric company, management would allow full reign over decision making to take place at the local level. If that same company began to operate in Switzerland, it would recreate all business processes based on what the local managers thought.
But what if there were certain things that would work well in both countries? Would it not be more efficient to leave those processes alone while custom tailoring the processes that really needed to be differentiated? In geocentrically oriented companies, authority is not simply placed with headquarters at home or with subsidiaries abroad, but rather a is dispersed more equally between the two so that a collaboration is formed.
Also, a view of superiority is not based on nationality. A geocentric orientation seeks to find a compromise between allowing headquarters to do things its way and allowing local managers to do it theirs. Geocentrism “involves a collaborative effort between subsidiaries and headquarters to establish universal standards and permissible local variations, to make key allocation decisions on new products, new plants, new laboratories” (Perlmutter, 2001).
January 9, 2018
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