Polycentric Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The term polycentric defines a decentralized organizational orientation having many centers of authority or control. This term usually refers to the assumptions and mind-sets of top managers and applies to firms with affiliates (or subsidiaries) in several different countries. Polycentric implies that the firm’s conciseness has shifted from a single to a multiple country entity. In international management literature, the concept is attributed to Howard Perlmutter, whose work identifies three distinctive managerial orientations of internationalizing companies: the ethnocentric, polycentric, and geocentric. The three phases are generally considered to be progressive, whereby a firm begins from its original, ethnocentric home country orientation by which the focus and major commitment is to the domestic market and the typical structuring of any international operations is via an international division to the polycentric orientation and possibly to a geocentric world orientation whereby the firm seeks and deploys resources resulting in an integrated system around the world that rises above and beyond any national orientation to be truly global.

The polycentric is very much a host country orientation, dominated by the notion that the firm is substantially based in several different countries. According to Perlmutter, the key difference (or, perhaps, point of transition) between ethnocentric and polycentric phases is that in the latter the firm begins to identify with the foreign markets in which it now operates. It assumes that host country cultures are distinctive, making the ethnocentric, centralized, one-size-fits-all approach unfeasible. The polycentric mind-set assumes that local people know what is best for their markets and endeavors to delegate sufficient autonomy so that subsidiaries are managed as independent units and country management teams have the freedom to run their affairs largely as they see fit.

For example, local managers are more likely to understand the tastes of their customers, the realities of the local legal environment, and the availability of raw materials—so they should be responsible for customizing the marketing mix (product design, price, promotion, and distribution), negotiating their own contracts, and managing supplier relations at the local level. Also, local managers rather than home country expatriates are more likely to be given key management positions. This view alleviates the chance of cultural myopia and is often less expensive to implement than ethnocentricity, because it needs a lesser reliance on expatriate managers and less investment in centralized systems. There are, of course, several drawbacks to the polycentric approach. It can limit opportunities for local managers to gain overseas experience and thus limit career mobility for both local and foreign nationals. This can also result in headquarters managers (and staff in general) being isolated from foreign subsidiaries and reduces opportunities for sharing of ideas and resources across the multinational enterprises.

As an example of a polycentric firm, Charles Hill describes the evolution of Unilever’s foreign subsidiaries into quasi-autonomous operations, or “little kingdoms,” with strong national identities that resist interference from corporate headquarters. In their study of globalizing law firms, David Brock, Tal Yaffe, and Mark Dembovsky describe how European firms need to develop polycentric mind-sets in order to take advantage of potential benefits of scale and scope—like reputation, host country support, extension of product life cycles, and overseas know-how. Successful transition to polycentricism is crucial for the effective implementation of international diversification strategies in these contexts.

The choices of adopting these different world views are shaped by a number of factors such as the circumstances during which the company was formed, stage of development of international markets, the leadership style, administrative processes, and the organizational culture, myths and traditions. Perlmutter stated that these cultural orientations determine the way strategic decisions are made and how the relationship between headquarters and its subsidiaries is shaped. To continue successfully implementing the firm’s internationalization strategy with a polycentric worldview, the overseas subsidiaries need to repay the corporation (and its shareholders) for the trust and autonomy. The multinational corporation looks for a return on investment in its foreign subsidiaries, as well as generally good use of the firm’s brands and other intangible assets (like reputation). Pressures for a more geocentric approach will mount if the firm sees the benefit in reducing subsidiary autonomy in favor of a more global strategy involving more integration of subsidiary activities and systems.

Bibliography:

“Autonomy of Individuals and Organizations: Towards a Strategy Research Agenda,” International Journal of Business and Economics (v.2/1, 2003);
David M. Brock, Tal Yaffe, and Mark Dembovsky, “International Diversification Strategies and Effectiveness: A Study of Global Law Firms,” Journal of International Management (v.12/4, 2006);
Beth Fisher-Yoshida and Kathy Dee Geller, Transnational Leadership Development: Preparing the Next Generation for the Borderless Business World (American Management Association, 2009);
Charles L. Hill, International Business: Competing in the Global Marketplace (McGraw-Hill Irwin, 2009);
Stuart Paterson and David M. Brock, “The Development of Subsidiary Management Research: Review and Theoretical Analysis,” International Business Review (v.11/2, 2002);
Howard Perlmutter, “The Tortuous Evolution of the Multinational Corporation,” Columbia Journal of World Business (v.4, 1969);
Lowell Turner and Daniel B. Cornfield, Labor in the New Urban Battlegrounds: Local Solidarity in a Global Economy (ILR Press/Cornell University Press, 2007);
Stephen Young and Ana Teresa Tavares, “Centralization and Autonomy: Back to the Future,” International Business Review (v.13/2, 2004).

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