Geocentric Essay ⋆ Business Essay Examples ⋆ EssayEmpire

An exponentially increasing number of firms strive to engage themselves in international activities, that is, to expand their business operations internationally. This international scope of business activity helps firms target larger consumer audiences, achieve increased sales, reap benefits from economies of scale through global production, and keep pace with internationalizing competitors. However, this internationalizing outlook has also brought organizational, planning, and marketing challenges to firms, which must manage their international growth effectively.

In order to address such challenges, Howard Perlmutter has suggested the EPRG schema, which identifies four orientations/attitudes toward international activities: the ethnocentric (home country orientation), polycentric (host country orientation), regiocentric (regional orientation), and geocentric orientation (a world orientation). Each attitude is associated with successive stages in the evolution of international operations and reflects the philosophy of the corporation with regard to business strategies and managerial procedures on an international scale. Perlmutter’s observations pinpoint that firms start with an ethnocentric orientation of international operations, then they gradually acquire a polycentric view, but eventually they strive to achieve a significant level of geocentrism.

A geocentric orientation reflects a globally integrated strategy where the mother firm assumes a supervising role with the purpose of reaping opportunities on a global scale through global coordination of local activities. Subsidiaries of the multinational enterprise are not distinct entities but rather cooperate with each other in order to exploit market opportunities across the world. For example, the Italian subsidiary of an American packaged food firm may act as a supplier of cheaper raw materials to a sister subsidiary in the United Kingdom whereas the latter may transfer production know-how to other subsidiaries in Asia. Thus, all subsidiaries jointly work toward a common goal: the maximization of business objectives for the global firm.

For firms that follow the geocentric orientation, national distinctiveness of markets, consumers, or employees is not relevant since the entire world is a potential market. This means that such a firm aims at the servicing of identical, inter-countries market segments through a standardized marketing offering that cuts across national boundaries. Thus, parochial considerations and, consequently, locally adapted practices are ignored in favor of a coordinated set of globally integrated activities. Additional functional implications of this orientation refer to production (e.g., centralization of global production in just one country with low labor cost) or manpower (e.g., the recruitment of the best executives wherever necessary, irrespective of their national background).

With regard to managerial and organizational procedures, geocentric multinationals usually adopt open communication channels across business units of the international firm; they empower people, and they let knowledge freely flow from one subsidiary to another. Any managerial or marketing know-how that is locally generated should serve the purpose of exploitation on a global scale and thus benefit the global structure of the firm. Such knowledge transfer processes of a collaborative, intra-firm nature are facilitated by a strong corporate culture, which surpasses the national culture of employees in terms of importance and effect.

Advantages And Disadvantages

The positive outcomes of a geocentric orientation are sources of sustainable competitive advantage, and that is why many international firms opt for achieving a globally integrated status for their operations. The pros include both cost and sales-types of advantages. For example, large production and operational costs may be skipped through exploitation of economies of scale and scope that derive from centralized production, common sourcing policies, distributional synergies, and integrated transportation systems of raw materials and final goods. Such cost-effective solutions have desirable sales implications, too. For example, geocentric firms are able to manufacture standardized brands that are sold at convenient prices and project a consistent corporate and brand image across the world.

However, the intuitive and widespread appeal of a geocentric orientation hides the fact that it also entails several disadvantages for firms. Collecting information on a worldwide basis and disseminating such information across subsidiaries requires a sophisticated information exchange mechanism whose design and implementation are costly. Moreover, a great effort to build a cost-effective, geocentric organization may force the firm to ignore environmental conditions or local market changes that would otherwise require local responsiveness at the marketing or managerial level. Additionally, several unavoidable realities, such as the consumer idiosyncrasy of national groups or national legal imperatives, jeopardize the effectiveness of “the world as a market” perspective. Such nation-specific constraints pose a great barrier to profitable local servicing by geocentric firms that have invested a lot of money and effort in building a globally standardized and integrated organizational format.

Summarizing, we see that geocentrism seems to offer advantages at the production, research and development (R&D), and/or human resources level, but given the significant national heterogeneity that is still prevalent in world markets, it could be a risky strategy marketing-wise. As a result, there seems to be no right or wrong international orientation by firms but rather real life indicates that there is a mixture of function-specific attitudes. For example, the R&D and technical support functions may follow a geocentric approach and the advertising strategy may project a heavily ethnocentric attitude, whereas the after-sales service function may necessitate a polycentric orientation. The mixture that promises higher turnover is, in turn, dependent upon several intra and extra-firm factors, which concurrently work toward each end. For example, the large size of the firm assists a geocentric orientation, whereas the national distinctiveness of potential foreign markets discourages firms from employing such an approach. Additional factors include the international experience of the corporations’ business executives, the financial and production capabilities of the firm, the culture-bound nature of the product, and competitive pressures. Therefore, firms that ignore the holistic nature of business reality and focus only on internal organizational considerations or only on external market variables may adopt an orientation that will prove to be detrimental.

Bibliography:

V. Perlmutter, “The Tortuous Evolution of the Multinational Corporation,” Columbia Journal of World Business (v.4/1, 1969);
Jill E. Rudd and Diana R. Lawson, Communicating in Global Business Negotiations: A Geocentric Approach (Sage, 2007).

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