Orientations toward International Management

Top-level managers in companies that are expanding internation­ally (particularly those in multinational corporations) tend to subscribe to one of three basic orientations, or philosophies, regarding a degree to which methods of operating are influenced by headquarters or by company members in other parts of the world. The three orientations are ethnocentric (home-country oriented), polycentric (host-country oriented), and geocentric (world oriented). A home country is the country in which an organization" headquarters is located, whereas a host country is a foreign is a country in which an organization is con­ducting business.

An ethnocentric (or home-country) orientation is an approach to international management whereby executives assume that prac­tices which work in the headquarters or home country must necessar­ily work elsewhere. For example, during the period 1973 to 1986, Procter & Gamble lost an estimated quarter of a billion dollars of business in Japan partially because of an ethnocentric orientation. As one former Japanese employee stated, "They did not listen to any­body". One of the most serious blinders was a commercial for Camay soap that was used in the late 1970s. The commercial showed a Japa­nese man meeting a Japanese woman for the first time and immedi­ately comparing her skin to that of a fine procelain doll. Although this commercial had worker well in the Philippines, South America, and Europe, it was a disaster in Japan. A Japanese advertising specialist who worked on the commercial had warned Procter & Gamble that only an unsophisticated or rude man would say something like that to a Japanese woman, but company representatives would not listen. As the vise-chairman of Procter & Gamble later noted, "We learned a lesson here [in Japan] about tailoring your products and marketing to the market. Although an ethnocentric orientation often is a phase that organizations go through when they enter the international area, it can prove extremely difficult to eradicate.

A polycentric (or host-country orientation) is an approach to international management whereby executives view host-country cultures and foreigners as difficult to fathom and, therefore, believe that the parts of the organization located in a given host country should be staffed by local individuals to the fullest extent possible. Locals - or nationals, as they are sometimes called - are thought to know their own culture, mores, work ethics, and markets best.

As a result, subsidiaries in various countries operate almost inde­pendently under the direction of local individual and are tied to the parent company mainly through financial control. The parent com­pany may maintain a very low public profile relative to the subsidiary, as was the case until recently with Unilever and U.S. subsidiary, Level Brothers. It is very possible that you only discovered that a Level Brother was owned by a foreign company when you read the indi­viduals run operations in the host countries, they have little prospect of holding senior executive positions as headquarters, largely because they are perceived as having only a local perspective and expertise. Still, a polycentric approach may be successful when decision making is largely decentralized to host-country personnel.

The geocentric (or world) orientation is an approach to interna­tional management whereby executives believe that a global view is needed in both the headquarters of the parent company and its various subsidiaries and that the best individuals, regardless of home - or host -country origin, should be utilized to solve company problems anywhere in the world. Major issues are viewed from a global perspective at both headquarters and subsidiaries, which consider questions such as "Where in the world shall we raise money, build our plant, conduct R&D, develop and launch new ideas to serve our present and future customers? The geocentric approach is the most difficult to achieve because it requires that managers acquire both local and global knowledge.

THE FIRST MODERN ECONOMISTS

TEXT 11: THE MERCANTILISTS

Between the 16th and 18th centuries, the major countries of Europe believed in the economic theory of mercantilism. Mercantilists argued that nations should behave as if they were merchants competing with one another for profit. Accordingly, governments should support industry by enacting laws designed to keep labor and other production costs low, and exports (sales to foreign countries) high. In this way the nation could achieve what was called a favorable balance of trade.

"Favorable balance of trade" described a situation in which exports exceeded imports. The excess, which was like profits to a merchant, would result in an increase in the nation's supply of gold or silver. And, as most people agreed in those days, the true measure of a nation's wealth was its hoard of gold or silver.

To achieve favorable trade balances, the major European powers sought to acquire colonies. Colonies, it was thought, could provide the «mother country» with cheap labor, raw materials and a market for its manufactured goods. In an effort to attain these goals in their American colonies, the British, for example, enacted the Navigation Acts.

The Navigation Acts protected British industry by prohibiting the colonies from producing certain goods like hats, woolen products and wrought iron. The laws also listed certain "enumerated articles" (mostly raw materials) which could not be sold to buyers in countries other than England. Resentment towards the Navigation Acts was so great that they are regarded as one of the principal causes of the Revolutionary War.

Today there are people who still argue that our country should promote a "favorable balance of trade" that the federal government should do what it can to restrict imports and promote exports. For that reason, they are often described as neo-mercantilists or «new» mercantilists.

TEXT 12: THE PHYSIOCRATS

For one group of 18th-century French philosophers and economists, the suggestion that nations should go out of their way to protect business and industry made no sense at all. These were the physiocrats. The physiocrats argued that the products of agriculture and other natural resources were the true source of wealth. Since these were God-given, it made little sense for government to go out of its way to help business and industry increase profits. For similar reasons, they opposed government efforts to promote a «favorable balance of trade.» In other words, since real wealth came from the land, it followed that the wisest thing government could do would be to keep its hands off business and let nature take its course. This idea was expressed in the slogan «laissez faire,» (let people do as they choose).

Interestingly, the 200-year-old argument between those favoring regulation of the economy and those supporting laissez. faire is still with us. Whether the problem involves individuals (like those living in poverty and unemployment) or institutions (such as a rising tide of business or bank failures), there are those who find the solution in government intervention, and others who favor «laissez faire,» letting natural economic forces take their course.