The Tortuous Evolution of the Multinational Corporation
Ask four different people and you will get four different answers as to what a multinational company is. Some companies will think that they are multinational because their products are marketed in many different countries, have manufacturing located around the world, or even because they have executives who are non-American. But what is the big deal with a company being multinational? This is because many companies regard being multinational with prestige and respect.
Executives of firms have different criteria in which they rate if their firm is multinational or not. They have different reasons for wanting their firm to be multinational. The first is that they see a company that is multinational as having a great long-term lookout. Another reason is that this is seen as a different type of company. It is seen as a different type of company for a few reasons. The major reason is that this type of company is seen as one that will bring together the world.
What makes it so difficult to define whether a company is multinational or not? There are three primary characteristics that set companies apart from each other in regards to how they are A company will never express one of these characteristics fully, but will end up having all of these characteristics, but there will be one that will dominate. What is the ethnocentric characteristic that a company can posses? This trait is shown when a company’s base has the attitude of “we are better than the rest of the company that is in different countries than ours.” This is very much an implied attitude that is felt throughout the locations that are outside of the home country.
In an ethnocentric organization, there are a few characteristics that will stand out. You can look at the way that the headquarters does business. For example, when looking at how communications flow, there will be much communication to the subsidiaries. This communication will take the form of orders, or commands. Another attitude that will stand out is that they will not change what is expected from one country to another. They feel that they should treat all employees the same, and the employees should all give the same amount of work to the company. Where would an ethnocentric company look to fill a vacancy among its ranks? These types of companies recruit from within. This recruiting from within will also take place in its home country.
When you think about ethnocentric, it basically means that a firm bases things on its home country. This is from the way it does business to what it expects out of its employees. The executives will be from the home country as well. The next characteristic that a firm can have is polycentric. A polycentric company is one that the headquarters is more hands off in the way the company is run. In this type of multinational the headquarters believes that the local offices know how to best run their part of the business. The main control that the executives want is over the financials.
This type of multinational is more prevalent in European companies. These companies believe that the locals are the ones who know what the consumer wants and how the local government works. The executives in this type of multinational are not too concerned about having their hands is the operations of the business, as long as the locations are making them a profit.
Polycentric companies pride themselves on the fact that each subsidiary is its own entity. This allows each to develop their own culture and characteristics. The one problem with the home company being discontented is that it leaves the executives at the other locations feeling left out of the communication loop. ne of the problems with a polycentric company is with the way that executive positions are filled. The problem comes into play that the company will mostly likely not promote the executives from the other countries. This is because they don’t think that executives from other countries should manage in foreign countries. This is a very limiting career choice for managers in host countries.
The final characteristic is geocentrism. A geocentric company is one that is looking to build good relations with the host country by leading in exports, and benefiting the country in many ways. The goal of geocentrism is to have the whole company work as one, not as independent satellites. When a company employs geocentrism, the managers are looking out for the good of the entire organizations. When the company is making decisions, they will make a decision that will benefit the entire organization, not just their own country. This type of system also requires changing the incentive system. This would require changes to have the managers thinking more globally.
A geocentric company has open lines of communication. This is shown that the communication is not just given from the headquarters. The flow of communication flows up and down in the organization. Management does not hold the belief that they know what is best and can learn from all the areas of the company. In this type of company when an executive position opens up, the company believes that the best person, no matter where they are from, will get the position.
As stated earlier, no company is 100% any of these three characteristics. Most companies are striving to be more geocentrism. While on the road to becoming more geocentric, companies must benchmark where they have been to be able to plan their future strategies. Companies are finding the need to transition away from ethnocentrism. This is because they are finding that it will cost them more to stay in business. The costs that will affect the company are ineffective planning and not getting the backing of the employees. Once a company starts to transition out of ethnocentrism, they will start to notice difference that will make the company run smoother. The biggest difference will be in communication.
Polycentrism and geocentrism hit the companies in their bottom line. This is because of the money that it cost for some of the efforts that they have to do to stay in business. When looking at polycentrism this happens by duplication of efforts. This is because of each subsidiary running as if it were its own stand-alone company. The biggest cost for geocentrism is the travel expense that is incurred. This happens because of executives being located globally.
With the trend to be a geocentric business, many companies are resorting to appointing executives for looks. This is an attractive option for businesses because it allows them to give the appearance of being well rounded. When a business is trying to make the transition over to geocentrism, it should be done in small steps. It is easier for a company to start to overhaul one department at a time and learn from their mistakes. This way when it is time to impact the larger departments many of the obstacles have already been over came and the employees are looking froward to the change.
