– M B A
Jan Nowak, Ph.D.
[email protected]
CEU Business School, Budapest, Hungary
The Tortuous Road
to Geocentrism in
MNC Management
Introduction
It is a sort of cliché to state that the multinational corporation (MNC)1 is one of the most
important economic and social institutions of
our times and a major force behind globalization. And yet, the sheer power and influence
MNCs exert eschew our imagination unless we
are reminded about the overwhelming share
of these organizations in the world economic
activity in general, and in foreign direct investment (FDI) and innovatory capacity creation
and diffusion in particular. Collectively, MNCs
account for more than 90% of the world’s
FDI stock and nearly 50% of the world trade
(Rugman 2005, p. 3). MNCs also account for
a very large share in international trade and
play a major role in global R&D. UNCTAD
(2005, p. 119) estimates that the 700 largest
R&D spending firms of the world (of which at
least 98 % are MNCs) account for nearly half
of the world’s R&D expenditure and for more
than two-thirds of the world’s business-related
research and development.
No wonder then that the study of the MNC
has attracted heightened attention from many
scholars around the world, representing a
broad range of academic disciplines or fields,
including economics, international business,
international trade, business strategy, inter-
5/ 2 0 0 8–
national management, industrial organization,
organization theory2, and political science.
Having been embraced by a variety of disciplines, the study of the MNC is inevitably
eclectic. There is no one agreed upon theory
of this corporation. Instead, there’s a patchwork of theories and paradigms pinpointing
different aspects of the MNC activity. This
essay draws mostly on theoretical work and
empirical findings accumulated within the
international business and international management fields. It focuses on the evolution of
management philosophies and strategies followed by MNCs since the mid-1960s.
From Ethnocentrism to Polycentrism
to Regiocentricm to Geocentrism
The seminal article of Perlmutter (1969) set
out an MNC orientation (also called predisposition) classification framework, distinguishing between ethnocentric, polycentric and
geocentric MNCs. Later on, the framework
was refined and extended to incorporate a regiocentric orientation (Heenan and Perlmutter
1979; Perlmutter 1984). In addition to being
a classification model (called the E.P.R.G.
model), the framework identifies stages in the
growth of the multination corporation – from
ethnocentrism to polycentrism to regiocentrism to geocentrism. Despite the popularity of the Perlmutter’s framework, which has
been often cited in popular press and widely
used in international business, international
management and international marketing
text books3, it has been largely ignored by
the main stream scientific research into the
MNC (notable exceptions are the studies of
Hedlung 1996; Tolentino 2002; and Jansson
2005). This is probably due to the fact that
the framework has been developed based on
59
– M B A
fairly unstructured interviews of executives
representing an undisclosed sample of multinationals and remained largely speculative and
impressionistic (Toletino 2002, p. 74). In fact,
Perlmutter’s research approach was essentially
to discern states of mind and attitudes of MNC
executives through qualitative research. And
yet, the framework’s conceptual power cannot
be denied and one would wish to see more
research putting it to test by using rigorous
data collection methods.
Although to the best of this author’s knowledge, Perlutter’s framework has not been rigorously tested based on large samples of MNCs,
similar classification schemes have received
much more attention on the part of empirical
studies. For example, the framework proposed
by Bartlett (1986), and empirically tested by
Bartlett and Ghoshal (1989), Leong and Tan
(1993), and Ghoshal and Nohria (1993), resembles the MNC classification of Perlmutter
(1969). The three types of MNCs conceptualized by Bartlett are multinational, global and
transnational corporations. Multinational type
of MNC conforms to the polycentric, global
to the ethnocentric and transnational, more
or less, to the geocentric type of corporation according to Perlmutter’s typology (for
comparison, see e.g. Tolentio 2002, Table 1).
Some other authors label Perlmutter’s polycentric corporation as multi-domestic (Porter
1986; Sundaram and Black 1992; and Harzing
2000) or multi-local (Gerpott 1990, cited after Tolentino 2002). The ethnocentric MNC
is sometimes labeled multinational (Adler and
Ghadar 1990), and the geocentric company,
in addition to being frequently called transnational, is sometimes referred to as mixed (Meffert 1989, cited after Tolentino 2002), hybrid
60
5/ 2 0 0 8–
(Gerpott 1990, cited after Tolentino 2002),
multi-focal (Sundaram and Black 1992), dual
(Welge 1996, cited after Tolentino 2002) and
global (Adler and Ghadar 1990). In light of this
diversity of MNC typologies, with the same
name sometimes used to describe different
types of the MNC, the Permutter’s framework
gains currency as being one of the oldest, the
most clear-cut, and arguably the most appealing intellectually. An additional advantage of
Perlmutter’s framework is that it not only
provides a MNC classification scheme but also
a predictive model regarding the evolution of
the MNC. In particular, the geocentric type
of the MNC has attracted renewed attention
due to an increased role of global integration
and heterarchical networks of contemporary
multinational corporations (Tolentino 2002).
But let us first describe the four types of the
MNC, and the four stages of its evolution,
as conceptualized by Perlmutter (1969) and
Heenan and Perlmutter (1979).
Table 1 summarizes the main features of
each type or a strategic orientation of MNCs
according to several important managerial dimensions. What follows below is a succinct and
insightful characterization of the four strategic
orientations.
In a somewhat crude expression, Perlmutter characterizes the ethnocentric mindset
by reporting an imaginary executive as saying: “We, the home nationals of X company,
are superior to, more trustworthy and more
reliable than any foreigners in headquarters or
subsidiaries. We will be willing to build facilities in your country if you acknowledge our
inherent superiority and accept our methods
and conditions for doing the job.” (Perlmutter
– M B A
1969, p. 11). In more polite words, one can say
that an ethnocentric company is predisposed
to values and interests of the parent company
(or home-country oriented). Plans for overseas
markets are developed in the home office,
utilizing policies and procedures identical to
those employed in the domestic market. The
parent tries to run overseas operations the
way they are run at home. In the marketing
area, the corporation sells basically the same
product abroad that it markets domestically
and follows the same pricing, distribution
and promotion strategies to the largest extent
possible. Executives in both headquarters
and subsidiaries express the national identity of the company by associating it with the
parent’s nationality and tend to be proud of
that nationality. They also explain and justify
the headquarters’ way of running the whole
corporation by referring to the values, norms
and procedures of the parent company (e.g.,
by saying: “we are a Swiss company and that’s
why we do it that way”).
The polycentric company is host-country
oriented. Top executives of such a company
“[…] begin with the assumption that hostcountry cultures are different and that foreigners are difficult to understand. Local people
know what is best for them, and the part of
the firm which is located in the host country
should be as «local in identity as possible»”
(Pelmutter, 1969, p. 12). The polycentricpredisposed parent company lets its overseas
subsidiaries operate independently from the
parent and each other and pursue their own
objectives and plans. The subsidiaries are run
like profit centers, with financial controls as
the only tool used by the parent in managing
them. The marketing function is organized
5/ 2 0 0 8–
on a country-by-country basis, and marketing
research is conducted independently in each
country. Separate product lines are developed
in each country, and home country products
are modified to meet foreign markets’ specific
requirements.
An MNC with a regiocentric predisposition
is less focused on a particular country than
on a world region, across which it will try to
capitalize on economic, cultural and regulatory
similarities. A regiocentric MNC can either
focus on one region or on two or more regions
of the world. In the latter case, it will establish
regional centres that will enjoy a fair amount
of independence from the corporate headquarters. Regional centres develop region-based or
adapted products which are fairly standardized
within the regions, but different between the
regions. Regional strategies are particularly
warranted in the regions which are subject to
economic integration, such as European Union, NAFTA and ASEAN, because “integrated”
regions will exhibit market-regulation similarities in addition to possible homogenization of
consumer preferences.
In the geocentric stage, the corporation
shapes its operations on a global basis. It views
the entire world as a potential market and
tries to minimize the significance of national
boundaries. Marketing and other functional
strategies are integrated and co-ordinated
across country markets. Standardized product
lines for worldwide markets are developed, and
pricing is established on a similar basis. Promotion campaigns are developed worldwide to
project a uniform image of the company and
its products. In its staffing policy, a geocentric
MNC seeks the best personnel, regardless of
61
– M B A
5/ 2 0 0 8–
Table 1. Types of Strategic Management Orientations of MNCs and their Characteristics
Dimensions
Ethnocentric
of MNC
Orientation
Orientation
Locus of strategic Headquarters
decision making
Polycentric Orientation
Regiocentric
Orientation
National subsidiaries
Regional centers or
regional headquarters
Citizenship
identification
Nationality of home
country
Nationality of host
country
Evaluation and
control
Home-country
standards applied to
subsidiaries
Based mostly on profit
targets
Communication; From headquarters to
information flow subsidiaries; orders,
commands, advice
Corporate
strategy
Organization
structure
Hierarchical, productbased or functional
R&D and
new product
development
Centralized at
headquarters; no inputs
from subsidiaries
Marketing
strategy
Determined by the
needs of the home
country customers;
“extended” to foreign
markets
Overseas operations
managed by people from
the home country
HRM
management
practices
Little from and to
headquarters; little
between subsidiaries
Domestic-market driven National responsiveness
Geocentric
Orientation
Collaborative between
headquarters and
subsidiaries; heads of
subsidiaries part of
corporate management
team
Global company with
Truly global company
regional interest
but identifying with
national interests
Determined by both
Collaborative standards
headquarters and
that are universal and
regional centers
local with significant
role of non-financial
measures
Between headquarters
Between headquarters
and regional centers and and subsidiaries and
between the region and among subsidiaries
its subsidiaries
Regional integration and Global integration and
national responsiveness national responsiveness
Product and regional
Product-based or matrix
organization
(heterarchical)
Geographic area-based
with autonomous
national units
Decentralized; products Located at the regional
developed at the
level with inputs for the
subsidiary level based on region’s subsidiaries
local needs
Customized at the
national level
Local nationals used to
manage subsidiaries
Collaborative, involving
headquarters and
subsidiaries; successful
local products
introduced to global
markets
Standardized within the Standardized across
region, but not across
the world with local
regions
variations
Regional management
talent developed and
used to manage regional
centers and subsidiaries
within the region
The best mangers
anywhere in the world
developed for key
positions everywhere in
the world
Source: Compiled based on Perlmutter (1969) and Chakarvarthy and Perlmutter (1985), and supplemented with
the author’s own interpretation.
nationality, to work for the corporation anywhere in the world. As Perlmutter put it: “The
ultimate goal of geocentrism is a worldwide approach in both headquarters and subsidiaries.
The firm’s subsidiaries are thus neither satellites
nor independent city states, but parts of a whole
whose focus is on worldwide objectives as well
62
as local objectives, each part making its unique
contribution with its unique competence.” (ibidem, p. 13). Geocentrism, however, does not
imply that the company ignores differences between national environments and blindly pushes
standardized products and processes on to the
subsidiaries and their local markets.
– M B A
Geocentric predisposition adheres to the
famous saying “think globally, act locally”.
It does embrace national or local responsiveness and it does allow local variations in its
strategies and operations. The most important
feature of a geocentric corporation is that it
operates as a network of organizations, which
are all tied together by common objectives
and strategies and capitalize on their individual distinct competences and competitive
advantages.
One of the best illustrations of how a geocentric (global) corporation works is provided
by an interview with the former president and
CEO of ABB, Percy Barnevik (Taylor 1991).
Let’s begin by citing Barnevik’s opening line on
what kind of company ABB is: “ABB is a company with no geographic center, no national
axe to grind. We are a federation of national
companies with a global coordination center.
Are we a Swiss company? Our headquarters
is in Zurich, but only 100 professionals work
at headquarters […]. Are we a Swedish company? I’m the CEO and I was born and educated in Sweden. But our headquarters is not
in Sweden, and only two of the eight members
of our board of directors are Swedes. Perhaps
we are an American company. We report our
financial results in U.S. dollars, and English
is ABB’s official language. We conduct all
high-level meetings in English. My point is
that ABB is none of those things – and all of
those things. We are not homeless. We are a
company with many homes.” (Taylor 1991,
p. 92). ABB is a complex organization with a
broad range of businesses that fall somewhere
between superlocal and superglobal. The
company tries to optimize its business globally
by letting its subsidiaries to specialize in the
5/ 2 0 0 8–
production of components to drive economies of scale but at the same time fostering
synergistic interdependences and transfer of
knowledge between those subsidiaries. To do
so, ABB rotates managers and technologists
around the world to share expertise and solve
problems. At the same time, the company
wants to have deep local roots everywhere it
operates. For example, in Germany it behaves
like a German company and maintains good
relations with state and local governments, and
in Switzerland it wins contracts by deeply understanding the Swiss government concern for
environment. Its global management system
does not suppress cultural differences. Global
managers (those on executive committee and
the teams running business areas) respect how
different country subsidiaries do things and
they have the ability and willingness to appreciate why they do them that way. But they
also “[…] sort through the debris of cultural
excuses and find opportunities to innovate.”
(ibidem, p. 94). ABB’s matrix organizational
structure reflects its management philosophy.
As Barnevik put it: “It [the matrix] allows us to
optimize our business globally and maximize
performance in every country in which we
operate.” (ibidem, p. 95). Through its matrix
organization, the company tries to reconcile
the following three contradictions: between
being global and local; between being big and
small; and between being a centralized and
decentralized organization.
More than four decades after the initial part
of the E.P.R.G. framework was proposed, and
in spite of a clear trend towards geocentric
orientation among many MNCs, fuelled by
accelerating forces of globalization and technological progress in more recent times, there
63
– M B A
are still relatively few companies that meet all,
or the majority, of the geocentricity criteria
contained in Table 1. Even the largest MNCs
in the world do not exhibit many features that
would unequivocally qualify them as geocentric. Apparently, the road to geocentrism in
MNC management and strategy has been long
and tortuous. Some authors even call the global
corporation more a myth than a reality (see
for example Doremus et al. 1998).
Meanwhile, a growing number of multinationals may have become regiocentric. One of
the most fanatic proponents of regionalization
of MNCs’ strategies and operations are Alan
Rugman and his co-authors. Their views and
those of their opponents are discussed in the
following section.
Regionalization-Globalization Debate
Rugman and his collaborators (Rugman
2003; Rugman 2004; Rugman and Verbeke
2004a and 2004b; Collinsson and Rugman
2005; Rugman 2005; Oh and Rugman 2006)
argue that the vast majority of the largest
MNCs, declared by the Fortune Magazine as
global, are in fact regional, not global. Based
on the analysis of regional breakdown of sales
of the world’s 500 largest firms, Rugman et al.
conclude about the predominantly regional focus and scope of operations of these firms. For
example, out of the 64 Japanese largest multinationals, for which regional sales data are
available, only 3 are global whereas 57 of them
derive more than 80% of their sales from the
Asian region (Collins and Rugman 2005, p. 3).
Similarly, there are only three truly global multinationals in each of the two remaining parts
of the Triad – North America and Western
Europe Consequently, of 380 firms included
64
5/ 2 0 0 8–
in the sample, only nine could be considered
genuinely global (Rugman 2005).
The proponents of the regiocentric orientation of the vast majority of MNCs grapple
with such questions as: What is the nature
and extent of the regional embeddedness of
these MNCs’ supply chains and distribution
channels? Why are their core competences
seemingly exhausted in their home regions?
Why are the Asian-based firms so similar to
their European and North American counterparts in their lack of globalization? (Rugman
2004).
Rugman and Verbeke (2004a) explain the
puzzle of regional concentration of sales by
modifying the transaction-cost theory, according to which firms expand internationally in order to exploit their firm specific advantages (FSAs), i.e. proprietary knowledge,
through internalizing markets, as opposed
to external transactions such as exporting,
to minimize transaction costs and risks of
losing the value of their proprietary assets
(that could either be pirated, dissipated or
inappropriately used). If this theory is linked
to the MNC’s ability to adapt successfully the
deployment of its FSAs to the specific conditions of foreign markets, it becomes clear that
the explanation of regional focus of so many
multinationals lies in the transaction costs
being substantially lower when penetrating
home-region markets than in host-region
markets. This is simply because MNCs are
faced with lower liabilities of foreignness in
their own regions. The outcome is stronger
embeddedness of the MNC’s extended
knowledge base and hence higher sales (Rugman and Verbeke 2004b, p. 6).
– M B A
Some other scholars criticize Rugman et
al.’s approach, pointing out that basing MNCs’
orientation or strategy only on sales figures
provides an incomplete analysis. Even if sales
data are supplemented by assets data (as Rugman and Collinson, 2005 do for Japanese
multinationals), the picture is still incomplete.
As Aggarwal, Kearney and Berrill (2006)
point out “This analysis fails to adequately
capture both the breadth and depth of firms
in terms of their multinationality” (pages
unnumbered). The same authors argue that
firms with regional sales and production assets concentration may be global in their alliances and investments (ibid.). For example,
Coca Cola Company is classified by Rugman
and Verbeke as global but McDonald’s is considered to be regiocentric, although the latter
has over 30,000 of restaurants in 119 countries
worldwide.
Dunning et al. (2007) also take issue with
Rugman et al.’s approach. Although Dunning
et al.’s analysis of MNCs’ global distribution
of FDI broadly confirms their regional focus,
it also reveals that the regional concentration
of FDI rather reflects the GDP and trade of
the countries concerned than any strategic
orientation of the investing firms. The same
authors argue that even if the sales and FDI of
MNCs are concentrated in one or two regions,
it cannot be inferred that these corporations’
strategies are regional rather than global. However, the role of increasing regional integration
in Europe, North American and South-east
Asia and the tendency to enlarge the three
major integrative groupings – EU, NAFTA
and ASEAN – needs to be investigated in the
context of the globalization/regionalization
debate (p. 187).
5/ 2 0 0 8–
Towards Geocentrism in MNC
Management and Strategy: Drivers
and Obstacles
For several decades the MNC has been
under the simultaneous influence of forces
for global integration and forces for national
differentiation4. The juxtaposition of these
two forces has largely determined what the
emerging model of an “ideal” multinational
might be. Table 2 presents the respective forces
for global integration and for national differentiation/responsiveness. A brief description
of these forces is provided in the subsequent
paragraphs.
The growing homogenization of markets
across societies, heralded by T. Levitt (1983)
more than 20 years ago, has led to the emergence of market segments, with similar needs,
preferences, psychographics, media-graphics and consumer behavior, which cut across
national borders and cultures. The teenage
segment, for instance, is considered to be the
primary example of global consumer segments.
Teens show surprising similarity in the way
they behave, clothes they wear and music they
listen to, no matter where in the world they
live5. Thus, many companies target teenagers
with world-wide marketing mixes (e.g. MTV,
Benetton, Planet Hollywood, Apple Computer, Sony, Levi Strauss, and Pepsi Co.). Global
segments can also be identified among other
demographic groups which are usually targeted
with luxury or premium type products, such
as expensive watches, perfumes, high-performance motorcycles and designer clothes.
In business-to-business markets, companies
with multinational operations are likely to have
similar needs and requirements worldwide
(Douglas and Wind 1987).
65
– M B A
5/ 2 0 0 8–
Table 2. Forces for global integration and for national differentiation/responsiveness
Forces for Global Integration
Growing homogenization of markets
Forces for National Differentiation/Responsiveness
Differing regulatory regimes and state intervention
Growing parity in technology and managerial know-how
among countries
Cultural differences between countries (distinctive tastes
and preferences of consumers)
Advances in information and communications technology
Distinctive national marketing systems
Global competition
Host country social and political mistrust
Desire to optimize/rationalize the use of human and material Economic disparities between countries
resources across countries
Headquarters desire for control
Internationalization of value-adding activities
Growth of inter-firm collaborative agreements
Source: Compiled by the author based on many books and articles, but drawing mostly on Perlmutter (1969); Levitt
(1983); Dunning (1988 and 1993); and Ghoshal and Westney (1993).
The faster diffusion of technology and
managerial know-how worldwide makes the
location of the various operations managed
by MNCs less bound to key countries, which
used to lead the world in these areas. Technology transfer reaches the most remote parts of
the world, and the developing countries are
increasingly capable of hosting leading-edge
production systems, in both manufacturing
(e.g. China in electronics and automobiles)
and service sectors (e.g. India in IT-enabled
business process outsourcing). Likewise,
managerial know-how is becoming both more
mobile and easier to develop locally through
education and training.
Advances in information and communication technologies (ICTs) have become
pervasive. Computer-aided design (CAD),
engineering (CAE) or manufacturing (CAM)
enable easy product adaptation or customization to specific market requirements of
various countries. Convergence of computing, communication and image manipulation
technologies into a cluster of digital ICTs
promises speedier and easier information
66
flows worldwide, allowing for flexible location of companies’ headquarters and affiliated
offices. Companies using ICTs are less and
less tied to their present locations. Staff can
be scattered around the world, yet not lose
touch among themselves; indeed, integration of computers, telecommunication and
TV allows for interactive collaboration of
employees located in different parts of the
world. Of all these technological changes,
the emergence and rapid spread of the Internet-based communication and commerce
over the last decade and a half has arguably
had and will have the most profound impact
on MNC operations. The Internet facilitates
business communications and transactions,
transcending national borders and bringing
buyers and sellers from all over the world into
contact with each other on a scale not known
before. Together with the spread of satellite
television, the Internet has enhanced MNCs’
ability to reach global customers, build global
image of their products and participate in global networks spanning producers, suppliers,
distributors, assemblers and other collaborators in the value creation.
– M B A
Companies faced with global competition
are inclined to select market opportunities
and allocate resources to the individual markets and units of the corporation within the
competitive environment of its industry and
a global assessment of competitive reaction.
They tend to position their products against
the competition in the entire world market.
They are also more likely to leverage on core
competencies worldwide (e.g. efficient manufacturing, superior technology, innovative
marketing) and allocate capital according to
competitive requirements and not necessarily
returns or risk. Therefore, they may extensively use cross-subsidization for competitive
purposes. Global competition requires MNCs
to manage their subsidiaries interdependently
and to locate value-adding activities according
to the comparative advantage of individual
countries.
The evidence of inefficiencies under polycentric or multi-domestic orientation has
led to the desire for a more optimal use of
resources controlled by a MNC. Instead of
“remotely” controlling national subsidiaries
which are focused on their local markets and
carry out production and marketing activities
locally, while enjoying a significant measure
of autonomy, many multinationals have sought
both synergies and economies of scale and
scope in production, R&D, marketing (and
other value-adding activities) by linking their
subunits to each other, as well as to the headquarters. To achieve that, they are increasingly
organizing cross-flows of people, technology,
processes, expertise and products in such a
way that the slices of the same value-added
chain are located in countries where they can
be implemented most competitively. At the
5/ 2 0 0 8–
same time strengths and achievements (e.g.
innovations) of individual units are utilized
across the corporation.
The trend that is reinforcing the above phenomenon is the growing internationalization
of the value-adding activities. Many of these
activities have become increasingly footloose,
owing among other things to the advances in
ICTs, and can be easily detached from each
other and from the headquarters. For example,
R&D activities, traditionally centralized at the
headquarters, are increasing scattered across
the subunits, with their location determined
by the availability and cost of “scientific” work
force and the innovatory capacity of the host
country (e.g. proximity to research institutes
and universities).
The growth of inter-firm collaborative alliances and networks and their significance for
the evolution of the MNC was already noted
and documented in the late 1980s. At that
time Dunning (1989) wrote: “From behaving largely as a confederation of loosely knit
foreign affiliates, designed primarily to serve
the parent company with natural resources
or local markets with manufactured products
and services, to its maturation over the past 15
years as a controller of a group of integrated
value adding activities in several countries, the
MNE is now increasingly assuming the role of
an orchestrator of production and transactions
within a cluster, or network, or cross border
internal and external relationships, which
may or may not involve equity investment, but
which are intended to serve its global interests”
(p. 327). Dunning likens this phenomenon and
the emerging style of the MNC governance and
management to “the nervous system of a much
67
– M B A
larger group of independent but less formally
governed activities, whose function is primarily to advance the global competitive strategy
and position of the core organization” (ibid.).
The collaborative alliances and networks
among MNCs were more intensively studied
in the subsequent decade and serious attempts
were made to incorporate this phenomenon
into the theory of international business (e.g.
Dunning 1996 and 1997).
As shown in Table 2, there have been several
forces at work that have counterbalanced or
impeded the advance of the forces for global
integration characterized in the preceding
paragraphs.
Despite the trend towards less restrictive
and more uniform across nations regulations
shaping the conditions of MNCs operations in
host countries, the differences in this respect
do persist and some host governments choose
to restrain certain aspects of MNCs’ activities and policies. In particular, employment
(e.g. restricting the employment of foreign
nationals) and material sourcing (e.g. requiring sourcing a certain percentage of supplies
from local suppliers) are the areas of numerous restrictions, mitigating multinationals
desire to recruit their managers and source
their materials and components globally. State
intervention may take other forms as well,
such as restricting access to certain, deemed
strategic, industries and imposing national
standards that may be difficult to integrate
with the standards of other host-countries or
the home country.
Likewise, in spite of the globalization forces
at work and the homogenization of consumer
68
5/ 2 0 0 8–
needs and preferences, cultural difference still
persist and affect the level of globalization or
standardization of products and marketing
communications. In particular, in “culturebound” product categories, such as food and
apparel, MNCs are confronted with differing
tastes, customs and consumption patters, very
often determined by religious convictions of
the local population. Backlashes experienced
by such companies as KFC in India and Bata
Shoes in Bangladesh attest to the need for extreme cultural sensitivity.
While the cultural differences impede the
standardization of products and marketing
communications from the consumer’s point
of view, the differences in national marketing systems may restrict the rationalization
of marketing practices. In particular, the
sharp differences in the structure and quality of distribution systems between, generally
speaking, developed and developing countries,
have precluded MNCs from adopting efficient
logistics and distribution practices that could
be co-ordinated or rationalized across national
markets. For example, the lack of marketing
channel integration and the fragmented nature
of retail and wholesale trade, coupled with
severe restrictions on FDI in these spheres,
in countries such as India, necessitate the use
of numerous, often poorly performing, intermediaries thus leading to long, convoluted and
inefficient distribution channels for products
marketed by otherwise modern and efficient
MNCs.
Host-country political and social mistrust
vis-ŕ-vis multinationals is a well known phenomenon, stemming largely from these companies size and financial power, very often
– M B A
exceeding that of the host government. The
mistrust, in such a situation, is unavoidable and
may restrict MNCs in their desire to assume
a more geocentric stance. In their attempt to
counterbalance such mistrust, many MNCs
may choose to create an image of being a locally-rooted and locally-responsive company,
as well as being a good corporate citizen. Such
a stance is likely to restrict certain practices
that might be more in line with geocentric prescriptions. For example, a MNC may choose to
employ more locals and obtain various input
goods and services locally, even it this practice
cannot be justified on rational grounds.
Although not growing, and perhaps even
declining, the economic disparities between
countries do persist. An average income in
Africa can be 50 times lower than in Western Europe or North America. There’s no
doubt that applying the same marketing,
production, financial, HRM and other functional strategies in such different economic
conditions would not be feasible or desirable. In the marketing area alone numerous
adaptations to the economic circumstances
may be needed. In low-income jurisdictions,
products need to be stripped-down, prices
discounted, local cheaper brands developed,
packages minimized, credit terms extended,
and distribution channels fragmented to
reach dispersed and poor consumers who can
only afford buying small doses of low-value
products for cash.
The regiocentric organization, as characterized in Table 1, requires a fair amount of
decentralization and collaboration between
headquarters and subsidiaries, with predominantly two-way communication and
5/ 2 0 0 8–
information flows used in managing it. The
evolving ethnocentric MNC may find it difficult to change the underlying governance
and management systems which provide the
headquarters with a great deal of control over
its subsidiaries. The reluctance to relinquish
control is often a barrier to the adoption of
geocentrism in MNC management. On the
other hand, it seems to be easier, at least theoretically, for a polycentric (multi-domestic)
MNC to evolve into a geocentric organization,
as the requisite decentralization ingredients
already exist. The challenge, or course, is to
make the essentially independent subsidiaries
to work interdependently.
What seems to be emerging at the juxtaposition of these two groups of largely opposing
forces is an organization that tries to move
towards a geocentric model but, at the same
time, creatively, and in many cases somewhat
reluctantly, accommodate the need for national
differentiation and responsiveness. Goshal and
Westney (1993) contend in this respect that
the emerging dominant model of the MNC is
a combination of elements of both geocentrism
and polycentrism or, in their terminology, of
global and multidomestic strategies. These
authors envision an “ideal type” of this new
model of the MNC as having the following
characteristics (ibidem, p. 4–5):
• Dispersion of the MNC’s subunits and hence
its capacity to innovate and exploit technological innovation anywhere in the world;
• Interdependence of the subunits, which are
linked to each other and to the headquarters
through cross-flows of human and material
resources, with key activities performed
in the places that represent locational or
organizational advantage;
69
– M B A
• Tight coupling of subunits in the face of global competition, allowing the corporation
to respond to a competitive threat in one
market by actions in another market;
• Cross-unit learning through the capacity
to transfer competencies developed and
innovations originating in one part of the
corporation to its other parts and to adopt
and improve these competencies and innovations in the process;
• Structural flexibility whereby organizational
process is more important than any specific organizational structure, facilitating
flexible management process, depending
on the product, country or even particular
decision.
In conclusion, it is hoped that this essay
has demonstrated the relevance and usefulness of the E.P.R.G framework (developed
by Perlmutter and Heenan) for the study of
the evolution of the multinational corporation management and strategy orientation. It
seems evident from the review of the various
conceptual and empirical works contained in
this essay that MNCs do move towards a geocentric orientation, albeit the road to such geocentrism is rather tortuous and many elements
of the polycentric or decentralized corporation
are being combined with that geocentric orientation in the process. Transitorily, many of
the contemporary MNCs may be exhibiting a
regiocentric orientation, as evidenced by the
regional concentration of their sales and productive assets.
70
5/ 2 0 0 8–
1
Also called the multinational enterprise (MNE) and transnational corporation (TNC). The former term is predominantly
used in the international business field (see e.g. Dunning, 1993)
and the latter has been consistently used by the United Nations
Conference on Trade and Development (UNCTAD).
2
Ghoshal and Westney (1993) lament that the study of the
MNC has not attracted much attention from organization
theorists, and argue that no paradigm from that theory has
had any major impact on the theory of the MNC.
3
See e.g. Rugman and Hodgetts (1995, p. 214–215); Hodgetts
and Luthns (1994, p. 131, 296 and 338); and Douglas and Craig
(1995, p. 28–29, 243–7, and 338–340).
4
The integration/responsiveness framework was introduced
by Bartlett (1986), refined by Prahalad and Doz (1987), and
has subsequently been used by many authors.
5
Teens: The Most Global Market of All. Fortune, May 16,
1994.
References
Adler, N. and Ghadar, F. (1990) Strategic Human Resource
Management: A Global Perspective. In: Pieper, R. (ed.), Human Resource Management: An International Comparison. Berlin:
Walter de Gruyter.
Aggarwal, R., Kearney, C. and Berrill, J. (2006) Classifying
MNCs in International Business: Implications for Research
Strategy and Design. In: Regional and National Drivers of Business
Location and Competitiveness, Conference Proceedings, 32nd EIBA
Annual Conference, University of Fribourg, Switzerland, 7–9
December.
Bartlett, C. (1986) Building and Managing the Transnational:
The New Organizational Challenge. In Porter, M.E., Competition in Global Industries, Harvard Business School Press:
Boston, Mass.
Bartlett, C. and Ghoshal, S. (1989) Managing Across Borders: The
Transnational Solution. Boston, Mass.: The Free Press, Chapter
12, p. 367–401.
Chakravarthy, B.S. and Perlmutter, H.V. (1985) Strategic Planning for a Global Business. Columbia Journal of World Business,
Vol. 20 (Summer), p. 3–10.
Collinson, S. and Rugman, A.M. (2005) Japanese Business is
Regional, not Global. Unpublished working paper. Kelly School
of Business, Indiana University.
Doremus, P.N., Keller William W., Pauly, Louis W. and Reich,
Simon (1998). The Myth of the Global Corporation. Princeton
University Press: Princeton, New Jersey.
Douglass, S.P. and Craig, S.C. (1995) Global Marketing Strategy.
McGraw-Hill International Edition.
Douglas, S.P. and Wind, Y. (1987) The Myth of Globalization.
Columbia Journal of World Business, Vol. 12, No. 4 (Winter), p.
19–29.
Dunning, John, H. (1997). Alliance Capitalism and Global
Business. London and New York: Routledge.
Dunning, J.H. (1996) The Nature of Transnational Corporations and their Activities. In: Transnational Corporations
and World Development. Published by International Thomson
Business Press on behalf of UNCTAD, Division on Transnational Corporations and Investment, United Nations.
– M B A
Dunning, J.H. (1993) Multinational Enterprises and the Global
Economy. Addison-Wesley, Wokingham.
Dunning, J.H. (1988). The New Style Multinationals – Circa
the Late 1980s and Early 1990s. In: Dunning, J.H., Explaining International Production. London, U.K.: HarperCollins
Academic.
Dunning, J.H., Fujita, M. and Yakova N. (2007) Some macrodata on the regionalization/globalization debate: a comment on
the Rugman/Verbeke analysis. Journal of International Business
Studies, Vol. 38, p. 177–199.
Ghoshal, S. and Nohria, N. (1993). Horses for Courses: Organizational Forms for Multinational Corporations. Sloan
Management Review, Vol. 34, p. 23–35.
Ghoshal, S. and Westney, D. E. (eds) (1993) Organization Theory
and the Multinational Corporation, Palgrave McMillan: Basingstoke, Hampshire, and New York, N.Y. (Chapter 1. Introduction
and Overview, p. 1–23).
Harzing, A-W. (2000) An Empirical Analysis and Extension
of the Bartlett and Ghoshal Typology of Multinational Companies. Journal of International Business Studies, Vol. 31, No. 1,
p. 101–120.
Hedlung, G. (1996). Organization and Management of
Transnational Corporations in Practice and Research. In:
Transnational Corporations and World Development. Published by
International Thomson Business Press on behalf of UNCTAD,
Division on Transnational Corporations and Investment, United Nations, p. 123–141.
Heenan, D. and Perlmutter, H. V. (1979). Multinational Organization Development: A Social Architecture Perspective, AddisonWesley: Reading, MA.
Hodgetts, R.M. and Luthans, F. (1994). International Management. 2nd edition, McGraw-Hill.
Jansson, H. (2005) Internationalization Processes in the New
EU: Market Growth, Relocation, and Outsourcing. Paper
presented at the 7th Annual Conference on European Integration,
organized by the Swedish Network for European Studies in
Economics and Business (SNEE), Mölle, May 24–27.
Leong, S.W. and Tan, C.T. (1993) Managing Across Borders:
An Empirical Test of the Bartlett and Ghoshal (1989) Organizational Typology. Journal of International Business Studies, Vol.
24, No. 3, p. 449–464.
Levitt, T. (1983) The Globalization of Markets. Harvard Business
Review, May-June, p. 92–102.
Oh, C. and Rugman, A. (2006) Regional Sales of Multinationals in the World Cosmetics Industry. European Management
Journal, Vol. 24, Nos. 2–3, p. 163–173.
Perlmutter, H.V. (1969) The Tortuous Evolution of the Multinational Corporation. Columbia Journal of World Business, Vol.
4, Issue 1, p. 9–18.
Perlmutter, H.V. (1984) Building the Symbiotic Societal Enterprise: A Social Architecture for the Future. World Futures,
Vol. 19, No. 3, p. 271–84.
Porter, M.E. (1986) Changing Patterns of International
Competition. California Management Review, Vol. 27 (Winter),
p. 9–40.
Prahalad, C.K. and Doz, Y.L. (1987) The Multinational Mission.
New York: Free Press.
Rugman, Alan M. (2003) Regional Strategy and the Demise
of Globalisation. Journal of International Management, Vol. 9,
5/ 2 0 0 8–
No. 4, p. 409–417.
Rugman, Alan M. (2004) Asian Business is Regional, not Global. Paper presented at the Pacific Region Forum, Simon Fraser
University, Vancouver, Canada, November 26.
Rugman, Alan M. (2005) The Regional Multinationals, Cambridge, U.K.: Cambridge University Press.
Rugman, Alan M. and Hodgetts, Richard M. (1995) International Business. A Strategic Management Approach. McGraw-Hill.
Rugman, A. and Verbeke, A. (2004a) A Perspective on Regional
and Global Strategies of Multinational Enterprises, Journal of
International Business Studies, Vol. 31, No. 1, p. 3–18.
Rugman, A. and Verbeke, A. (2004b). Towards a Theory of
Regional Multinationals: A Transaction Cost Economics Approach. Paper presented at the British Academy of Management
Annual Conference, 30 August.
Sundaram, A. and Black, J.S. (1992) The Environment and
Internal Organization of Multinational Enterprises. Academy
of Management Review, Vol. 17, No. 4, p. 729–57.
Taylor, W. (1991) The Logic of Global Business: An Interview
with ABB’s Percy Barnevik. Harvard Business Review, Vol. 69,
No. 4 (March-April), p. 91–105.
Tolentino, Paz E. (2002) Hierarchical Pyramids and Heterarchical Networks: Organisational Strategies and Structures of Multinational Corporations and its Impact on World
Development. Contributions to Political Economy, Vol. 21, No.
1, p. 69–89.
UNCTAD (2005) World Investment Report 2005. Transnational Corporations and the Internationalization of R&D. United
Nations Conference on Trade and Development. UN: New
York and Geneva.
71