Question

In what way can the following basic predispositions affect an MNE’s strategic planning: ethnocentric, polycentric, region-centric and geocentric?

Answer 1

Multinationla Enterprise strategic planning as per following group:

1. Enthnocentric: Ethnocentrism arises from the dominance of one culture over another in some sense. This dominancy can relate to the cultural sphere, manual, technical, mental or even ethical and moral skills. This orientation is somehow natural because of some psychological factors. People have a tendency to unite in a compact, somehow similar groups.

In this orientation, domestic strategies are assumed the best ones and superior over any other, foreign ones. Since national rules were verified by market and occurred good, they are believed to be good on another market also. Therefore managers are brought from the domestic country to subsidiaries. The hierarchy of the organization is usually highly centralized and directly subordinated to the headquarter located in the home country.

These factors generate significant costs. Managers must be recruited in the domestic country. As a result, compensation costs for work in another country must be added to the basis salaries.

Polycentric: Polycentric orientation (sometimes called multilocal) is close to the ethnocentric one, but requires activity on several foreign markets. Moreover, activities on these markets are individualized. So, polycentrism is connected with specialization depending on the considered foreign market. For example, in polycentric orientation factors such as the marketing strategy, customer preferences and expectations, cultural diversity, etc. are taken into account. A polycentric organization needs, and is interested in, studying the specifics of each of the foreign market where it is present.

Polycentrism assumes that actions of managers in different countries should not be strictly controlled by the headquarter in the domestic country and it allows for some freedom in actions. Unfortunately, this can lead to excessive growth of the chaos and the lack of coordination between the branches of the organization. Moreover, local managers may be reluctant to implement the recommendations from the headquarter. The local staff can be too much convinced of a better understanding the local market.

Region-centric: Regiocentric orientation is similar to the polycentric one, but an organization not only recognizes the specific nature of different foreign markets, but also perceives some similarities of these foreign markets. Therefore it makes groups of similar markets (regions) with similar characteristic features.  It should be notice that groups of countries naturally emerges due to processes of trade liberalization. Examples of such regions are NAFTA and the European Union.

Market segmentation is based on finding regions (groups of countries) similar to each other. These similarities may exist on the economical, cultural or political background. For example, customers in North America may have different taste preferences than customers in the post-Soviet countries. In this sense, for example Coca-Cola and Pepsi are regiocentric companies.

Geocentric: Geocentric orientation is the one, which is present when an organization treats all foreign markets as the one, i.e. global, market. The global market is understood as a single market, i.e. sociologically and economically uniform. Of course, this uniformity is much simplified, but a geocentrically oriented organization assumes that some differences can be deliberately forgotten.

Geocentric orientation focuses on a strong, decisive behavior and taking benefits from the economy of scale. It leads to improvement in the quality of offered products and services and in the efficiency of using the global resources. On the other hand, there are high costs associated with human resources, personnel management, etc. The costs arise due to the need of training activity, efficient communication channels, transportation costs, etc. It is also interesting that the current technological progress and the rate of exchange of information allows for the formation of global, transnational enterprises since the very beginning of their existence.

Factors such as, for example, labor standards, customer taste, customer preferences, differ significantly between various countries. Therefore the geocentric approach is a huge challenge for the organization. Its proper implementation must be based on internal standards, which allow to overcome the above problems. Indeed, geocentrism assumes that there is a kind of the global customer - having similar taste, etc.