Ethnocentric and Polycentric

Approaches to International Business: Ethnocentric and Polycentric

1. Approaches to International Business: Ethnocentric and Polycentric Presented By: Pranav Kishor Choudhary Roll No. 180554 MBA 1 st Presented to: Dr. Ajai Pal Sharma

2. International Business Approaches Initially known as EPG Model Introduced by Howard V. Perlmutter In 1969 " The Tortuous Evolution of Multinational Enterprises ". Columbia Journal of World Business Expanded by David A. Heenan in 1979 . Became EPRG Framework

3. International Business Approaches

4. International Business Approaches are similar to stages of Globalization Stages of Globalization Domestic Company International Company Multinational Company Global Company Trans National Company International Business Approaches Ethnocentric Polycentric Regiocentric Geocentric

5. Ethnocentric Approach Preferred by small companies . Mostly Companies are just trying their hands in Overseas Business. Business is usually restricted to exports . Overseas markets are only to absorb their surplus production . Overseas market serve as buffer for domestic market’s demand fluctuation . Marketing is based on similarities .

6. Ethnocentric Approach Domestic Marketing Extension . Product are made for domestic market only. Surplus is exported to suitable market Assumption is that foreign market have same needs . Managers from the home country are expatriated . Decision making is centralized .

7. Ethnocentric Approach

8. Advantage and Disadvantage of Ethnocentric Approach Advantage Creates a unified corporate culture . Effective control over the subsidiary. No need to have a well-developed local labour market . Better transfer of technical know-how . Keeps traditions and practices alive Disadvantage Creates cultural myopia . Unutilized Local Talent . The cultural clashes between the executives and the staff members. Fewer innovations . Lack of flexibility and local responsiveness The organization may see capital flight. The failure rate is very high

9. Polycentric Approach Foreign Subsidiaries are established. Autonomy is given to Overseas Units. Head offices provide only strategic guidelines . C ontrols are decentralized . Subsidiaries behave as domestic companies in Host country. Hence Multi domestic marketing . The companies usually become multinational corporations at this stage.

10. Polycentric Approach Attuned to the needs and cultures of the Host Countries. Products are tailored according to the foreign market. Overseas operations are in forms of: Joint ventures Licensing Overseas manufacturing Contract Manufacturing Marketing

11. Polycentric Approach

12. Advantage and Disadvantage of Polycentric Approach Advantage Mitigates the chance of cultural myopia Hiring of locals of the host country is comparatively less expensive . The morale of the local staff increases. Intense exploitation of local markets. Better sales and productivity . Better host government support . Chances of success are high . Disadvantage Isolate headquarters from foreign subsidiaries. Lack of coordination (between the host and the parent company). Difficult to exercise control over the subsidiary. Conflict (between the managers of both the host and the parent company). Loss of synergy . Development of economies of scale cannot be realized Waste due Duplication of facilities.

13. A Comparison between Ethnocentric and Polycentric Approach Basis of comparison Ethnocentric Approach Polycentric Approach Management Orientation Home Country Orientation Host Country Orientation Perception About Market Domestic Market is superior Focuses on similarities between home and foreign market. Foreign Market is an extension of domestic market   Each national market is distinctive. Focuses on differences between home country and host country. Marketing Strategy Extension of domestic strategy to foreign market Localization and Adaption Basic Objective Profitability Public Acceptance Type of Governance Top-Down Bottom-Up (Each local unit sets objectives) Culture Home Country Host Country Technology Mass Production Batch Production HRM Practices Overseas operations are managed by people from home counties. Local Nationals are used in key management positions.

14. Example Nissan’s earliest exports were cars and trucks that had been designed for mild Japanese winters. The vehicles were difficult to start in many parts of the United States during the cold winter months. In northern Japan, many car owners would put blankets over the hoods of their cars. Nissan’s assumption was that Americans would do the same thing . A Nissan spokesman said, “We tried for a long time to design cars in Japan and shove them down the American consumer’s throat. That didn’t work very well .”

15. References Turner, Colin; Johnson, Debra - International business; themes and issues in the modern global economy-Taylor & Francis e-Library (2004) Charles W. L. Hill - International Business - Competing in the Global Marketplace-McGraw-Hill Irwin (2010 ). Perlmutter , Howard (1969). "The Tortuous Evolution of Multinational Enterprises". Columbia Journal of World Business;Jan /Feb69, Vol. 4 Issue 1, p9

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