Approaches of International Business

Approaches to International Business

Multinational companies (MNCs) use the ethnocentric, polycentric, and geocentric models to manage their global operations, particularly in the areas of human resources, marketing, and overall business strategy. A company's approach to incorporating cultural differences into its business strategy in international markets is reflected in these ways.

1. Ethnocentric Approach

An ethnocentric strategy is one in which a company's foreign operations are based on the norms and traditions of the home country. Using the same standards and processes that are successful at home, headquarters keeps a tight rein on the company's overseas operations.

defining features

When it comes to staffing, parent-country citizens, who are expatriates from the home country, are typically chosen to fill key managerial roles in foreign subsidiaries.

The decision-making process is centralised, with the home office making the important decisions. Limited in their independence, foreign subsidiaries mostly serve as outposts of the parent company.

It is common practice in marketing and operations to simply transfer products and marketing techniques from one market to another, without making any adjustments, when expanding into international markets.

Positive aspects:

Maintains uniformity in all markets with regard to brand image, quality, and business methods.

There is less potential for misunderstandings and misalignment when policies are driven by a unified culture and language, which simplifies communication.

Knowledge and practices created at headquarters can be more readily disseminated throughout the organisation, leading to efficient knowledge transfer.

Negative aspects:

Cultural Ignorance: Not taking local needs into account might result in strategies or items that don't connect with local clients, which in turn decreases market success.

The high expense and complexity of sending employees to work in other nations is known as the cost of expatriates.

There is a chance that local employees and stakeholders will be resistant because they may feel undervalued. This could make it harder for them to interact with the company and adopt the brand.

For instance, when expanding into a new international market, a fast food franchise established in the United States could replicate its menu, pricing strategy, and promotional strategies while also appointing American managers to key positions in the local leadership team to ensure consistency in quality.

2. Polycentric Approach

The polycentric strategy takes into account the foreign market's cultural norms and business climate while giving preference to local practices. Every subsidiary operates mostly on its own and is seen as a separate organisation that serves its own market.

defining features

When it comes to staffing, key roles are usually filled by natives of the host country, who have a good grasp of the culture, customer habits, and market trends.

○Decentralized decision-making: Each subsidiary has the authority to make decisions based on its own local circumstances. While headquarters may offer some assistance, in general, subsidiaries are given the freedom to work freely.

○ Marketing and Operations: In order to cater to local tastes and preferences, products, services, and marketing campaigns are tailored.

Positive aspects:

Greater cultural sensitivity and relevance to local consumers can lead to increased brand acceptance and commercial success through local adaptation.

Saving Money on Staffing: Hiring locals can save money compared to sending expats and they usually have a better grasp of the local business environment.

Motivating and empowering local managers can boost morale and engagement by making them feel valued and in control.

Negative aspects:

Confusion for worldwide customers and inefficiencies in operations can result from a lack of standardised processes and brand image across markets, which can cause inconsistency.

The implementation of global strategies or the sharing of best practices might be hindered when activities are run independently, which creates difficulties in global coordination.

The possibility of duplication exists, which could result in increased expenses and unnecessary work for each subsidiary.

As an example, a consumer goods corporation with a subsidiary in India could run ads that speak to Indian culture and allow the subsidiary to make product variants that are more suitable to local tastes (such as employing local ingredients in personal care items).

3. Geocentric Approach

The world is seen as a single market under the geocentric approach, which aims to merge and integrate both global and local activities. The company takes a global view, trying to strike a balance between being consistent on a global scale and being responsive to local needs.

defining features

Positions are filled by the best qualified candidates, irrespective of their country, in terms of staffing. Workers might come from a variety of nationalities, including those of the parent country, the host country, and even a third country.

○Decision-Making: In order to achieve alignment between global strategy and local execution, decision-making is a collaborative process that involves both headquarters and local subsidiaries.

○ Marketing and Operations: Finds a happy medium between being too rigid and being too flexible; while keeping some aspects of core products the same, this approach may be adjusted to fit different markets.

Positive aspects:

The ability to hire top personnel from all over the globe, fostering variety and knowledge, is a benefit of optimised talent utilisation.

One way to gain an edge over the competition is to employ a balanced strategy that combines global efficiencies and brand consistency with local responsiveness.

Fostering unity and common goals can be achieved by creating a consistent company culture in all markets, leading to improved global cohesion.

Negative aspects:

Coordination across several areas is necessary to manage such an integrated global system, which may be both complex and costly.

Problems may arise during implementation due to the necessity for effective communication and the ability to resolve conflicts, as well as the possibility of encountering opposition in some markets.

Regulatory and cultural hurdles: When attempting to standardise methods, it can be difficult due to variations in regulations or local norms.

Take, for instance, a multinational tech company that offers a smartphone—a product with universal specifications—but lets its regional marketing and sales techniques change according on customer tastes and market conditions. Top talent from all over the globe would make up the workforce, and the main office and regional branches would collaborate closely to meet both global and regional goals.

Synopsis of Comparisons

● Ethnocentric: Products and services are standardised, and there is centralised control centred on the values and practices of the native country.

● Polycentric: Foreign subsidiaries have autonomy, local adaptation is the goal, and control is decentralised.

The term "geocentric" refers to an integrated global viewpoint that prioritises global talent while also balancing global consistency and local response.

diverse industries and phases of global expansion call for diverse approaches, each of which has its own set of advantages. As time goes on and their global reach grows, many MNCs shift from an ethnocentric to a polycentric or geocentric perspective.

4. Regiocentric Approach

The Regiocentric Approach is in the middle, between the geocentric and polycentric points of view. With this plan, companies treat different places or countries like they are one big market. Strategies, staffing, and policies are made for individual regions instead of planning on a national or international level.

Features and traits

The focus is on the regional level, with each country being seen as its own market and being split into different areas.
People from inside the area are chosen as personnel managers, not just from the home or partner countries.

Not every choice is made at the main office; some are made at the area level.

Adaptation means changing plans and strategies to fit the needs, preferences, and economic situation of the area.


It gives you more freedom than ethnocentric and polycentric methods, but it doesn't connect people all over the world like geocentric does.

Thoughts

Each part of the world, like the Americas, Europe, Asia, the Middle East, and Africa, is run by a different set of regional management teams.

Regional offices help the car company meet the needs of customers in different parts of the world. Two examples are Toyota Europe and Toyota North America.

Through a plan called "regional product strategy," Unilever makes sure that snacks and soaps sold in Asia and Europe have different tastes.