Management Orientations
(Learning Objective #5)
The form and substance of a company’s response to global market opportunities will depend
greatly on its management’s assumptions and beliefs – both conscious and unconscious – about
the nature of the world.
The world view of a company’s personnel can be described as ethnocentric, polycentric,
regiocentric, and geocentric. The orientations are collectively known as the EPRG framework.
Ethnocentric Orientation:
a) A person who assumes that his/her home country is superior to the rest of the world.
b) Associated with national arrogance or feelings of national superiority.
c) At some companies, the ethnocentric orientation means that opportunities outside of the
home country are routinely ignored (domestic companies).
d) Ethnocentric companies that conduct business outside their home country are known as
international companies – they believe products that succeed in the home country are
superior.
e) Leads to a standardized or extension approach – the belief that products can be sold
everywhere without adaptation.
f) Foreign operations or markets are viewed as inferior or subordinate to the home market.
g) Headquarters knowledge is applied everywhere; local knowledge is viewed as
unnecessary.
Polycentric Orientation:
a) The opposite view of ethnocentrism.
b) The belief that each country in which you do business is unique.
c) This assumption allows each subsidiary to develop its own unique marketing strategies in
order to succeed.
d) The term multinational company is often used to describe such a structure.
e) Leads to a localized or adaptation view that assumes products MUST be adapted to
succeed.
Regiocentric Orientation:
a) The region becomes the relevant geographic unit.
b) Management’s goal is to develop a regionally integrated strategy (e.g. NAFTA or the
EU).
c) May be viewed as a variant of the multinational view (polycentric).
Geocentric Orientation:
a) Views the entire world as a potential market and strives to develop integrated global
strategies.
b) These companies are known as global or transnational companies.
c) Serves world markets from a single country or sources globally for the purposes of
focusing on select country markets.
d) Tend to maintain their association with a particular headquarters country. (Harley-
Davidson and Waterford serve world markets from the US and Ireland, respectively.)
e) Transnational companies serve global markets and utilize global supply chains.
f) Transnational companies both serve global markets and utilize global supply chains and
often have a blurring of national identity. A true transnational would be stateless. (Toyota
and Honda are examples of companies that exhibit key characteristics of transnationality
(see Exhibit 1-7)
g) A key factor that distinguishes global and transnational companies from international or
multinational companies is mind-set: At global and transnational companies, decisions
regarding extension and adaptation are not based on assumptions but rather on made on
the basis of ongoing research into market needs and wants.
h) It is a synthesis of ethnocentrism and polycentrism – it is a “world view.”
i) Seeks to build a global strategy that is responsive to local needs and wants.
It is a positive sign that, at many companies, management realizes the need to adopt a geocentric
orientation. However, the transition to new structures and organizational forms can take time to
bear fruit.
A global company can be further described as one that pursues either a strategy of serving world
markets from a single country or one that sources globally for the purposes of focusing on select
country markets. In addition, global companies tend to retain their association with a particular
headquarters country. At global and transnational companies, management uses a combination
of standardized (extension) and localized (adaptation) elements in the marketing program.
One way to assess a company’s “degree of transnationality” is to compute an average of three
figures: (1) sales outside the home country to total sales, (2) assets outside the home country to
total assets, and (3) employees outside the home country to total employees. Viewed in terms of
these metrics, Nestlé, Unilever, Royal Philips Electronics, GlaxoSmithKline, and the News
Corporation can also be categorized as transnational companies.
Each is headquartered in a relatively small home country market, a fact of life that has compelled
management to adopt regiocentric or geocentric orientations to achieve revenue and profit
growth.
The geocentric orientation represents a synthesis of ethnocentrism and polycentrism; it is a
“worldview” that sees similarities and differences in markets and countries and seeks to create a
global strategy that is fully responsive to local needs and wants.
A regiocentric manager might be said to have a worldview on a regional scale; the world outside
the region of interest will be viewed with an ethnocentric or a polycentric orientation, or a
combination of the two.
However, recent research suggests that many companies are seeking to strengthen their regional
competitiveness rather than moving directly to develop global responses to changes in the
competitive environment
The ethnocentric company is centralized in its marketing management; the polycentric company
is decentralized; and the regiocentric and geocentric companies are integrated on a regional and
global scale, respectively. A crucial difference between the orientations is the underlying
assumption for each.
The ethnocentric orientation is based on a belief in home-country superiority. The underlying
assumption of the polycentric approach is that there are so many differences in cultural,
economic, and marketing conditions in the world that it is futile to attempt to transfer experience
across national boundaries.
A key challenge facing organizational leaders today is managing a company’s evolution beyond
an ethnocentric, polycentric, or regiocentric orientation to a geocentric one. As noted in one
highly regarded book on global business,
“The multinational solution encounters problems by ignoring a number of organizational
impediments to the implementation of a global strategy and underestimating the impact of global
competition.”
Innovation, Entrepreneurship, and the Global Startup
Kevin Plank, Under Armour
In less than 20 years Under Armour is on track to reach $ 2.0 billion in sales. Under Armour is
intent on building their brand into “the biggest brand in the land”. In 2012, only 6 percent of
Under Armour’s revenues were generated outside of North America. Some industry observers
think Under Armour is planning significant global product introductions times to coincide with
the 2016 Summer Olympic Games in Brazil.
Forces Affecting Global Integration and Global Marketing
(Learning Objective #6)
The remarkable growth of the global economy over the past 65 years has been shaped by the
dynamic interplay of various driving and restraining forces. Regional economic agreements,
converging market needs and wants, technology advances, and pressures to cut costs, pressures
to improve quality, improvements in communications and transportation technology, global
economic growth, and opportunities for leverage all represent important driving forces.
Multilateral Trade Agreements
A number of multilateral trade agreements have accelerated the pace of global integration. In
Europe, the expanding membership of the European Union is lowering boundaries to trade
within the region. NAFTA is expanding trade between the United States, Canada and Mexico.
Converging Market Needs and Wants and the Information Revolution
A person studying markets around the world will discover cultural universals as well as
differences. The common elements in human nature provide an underlying basis for the
opportunity to create and serve global markets. Most global markets do not exist in nature –
marketing efforts must create them. (For example, no one needs soft drinks.)
Evidence is mounting that consumer needs and wants around the world are converging today as
never before. This creates an opportunity for global marketing.
Multinational companies pursuing a strategy of product adaptation run the risk of falling victim
to global competitors that have recognized opportunities to serve global customers.
The information revolution — what some refer to as the “democratization of information” — is
one reason for the trend toward convergence. Thanks to satellite dishes and globe-spanning TV
networks (CNN and MTV), it seems as though almost everyone has the opportunity to compare
their lives against everyone else’s.
The Internet is an even stronger driving force. When a company establishes a presence on the
Internet, it is automatically a global company.
Transportation and Communication Improvements
Time and cost barriers associated with distance have fallen tremendously over the past 100 years.
The jet airplane revolutionized communication by making it possible for people to travel around
the world in less than 48 hours.
In 1970, 75 million passengers traveled internationally. By 2011, that figure rose to almost 980
million.
The newest communication technologies, such as e-mail, video teleconferencing, and Wi-Fi,
mean that managers, executives, and customers can link up electronically from virtually any part
of the globe without traveling at all.
A similar revolution is occurring in transportation technology. The costs associated with physical
distribution – in both money and time – have been greatly reduced.
Product Development Costs
The pressure for globalization is intense when new products require major investment and long
periods of development time. The pharmaceutical industry provides a good example of this
driving force.
Today, the process of developing a new drug and bringing it to market can span 14 years and
exceed $400 million. Such cost must be recovered globally because no single national market is
likely to be large enough to support investments of this size. (Refer to Table 1- 6).
Quality
Global companies “raise the bar” for all competitors in an industry. When a global company
establishes a benchmark for quality, competitors must quickly make their own improvement and
come up to par. Global marketing strategies can generate greater revenue and greater operating
margins, which, in turn, support design and manufacturing quality.
World Economic Trends
Prior to the global economic crisis that began in 2008, economic growth had been a driving force
in the expansion of the international economy and the growth of global marketing for three
reasons:
a) Economic growth in key developing countries has created market opportunities that
provide a major incentive for companies to expand globally.
b) Economic growth has reduced resistance that might otherwise have developed in
response to the entry of foreign firms into domestic economies. (When a country such as
China experiences rapid economic growth, policy makers are more likely to look
favorably on outsiders.)
c) The worldwide movement toward free markets, deregulation, and privatization is the
third driving force. (Telephone company privatization is an example.)
Leverage
A global company possesses the unique opportunity to develop leverage. In the context of global
marketing, leverage means some type of advantage that a company enjoys by virtue of the fact
that it has experience in more than one country.
Leverage allows a company to conserve resources when pursuing opportunities in new
geographical markets.
Four important types of leverage exist:
1) Experience Transfers – A global company can leverage its experience in any
market in the world by drawing on management practices, strategies, products,
advertising appeals, or sales or promotional ideas that have been market-tested in
one country and applied to another.
2) Scale Economies – The global company can take advantage of its greater
manufacturing volume to obtain traditional scale advantages. Finished products
can be manufactured by combining components manufactured in scale-efficient
plants in different countries.
3) Resource Utilization – A global company has the ability to scan the entire world
to identify people, money, and raw materials that will enable it to compete most
effectively in world markets.
4) Global Strategy – The global company’s greatest advantage is its global strategy.
A global strategy is built on an information system that scans the world business
environment to identify opportunities, trends, threats, and resources. A global
strategy is a design to create a winning strategy on a global scale. Note: A global
strategy is NO guarantee of ongoing organizational success. (Consider InBev’s
acquisition of Anheuser-Bush, Daimler-Chrysler, and Deutsche Post’s DHL unit.)
Restraining Factors
Despite the impact of the driving forces previously discussed, several restraining forces may
slow a company’s efforts to engage in global marketing. Luckily, in today’s world the driving
forces predominate over the restraining forces. That is why the importance of global marketing is
steadily growing.
Important restraining forces include:
a) Management Myopia and Organizational Culture – Management may simply ignore
opportunities to pursue global marketing. A company that is ethnocentric (or
“nearsighted”) will not expand geographically. Myopia is a recipe for market disaster if
headquarters attempts to dictate when it should listen. Successful global marketing
requires a strong local team “on the ground” to provide information about local markets.
b) National Controls – Every country protects the commercial interests of local businesses
by maintaining control over market access and entry in both low- and high-tech
industries. Today, tariff barriers have been largely removed in high-income countries.
Still, nontariff barriers (NTBs), such as “Buy American” campaigns, make it difficult for
companies to gain access to local markets.
c) Opposition to Globalization – To many people, globalization represents a threat.
Globaphobia is used to describe an attitude of hostility toward trade agreements or global
brands. Opponents of globalization include labor unions, university students and
nongovernmental organizations (NGOs).