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.
One 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.
Associated Current Developments
As we began our research of associated current developments, we assumed it would be relatively easy to find stories of companies that had successfully completed the journey from being ethnocentric to being geocentric. Howard Perlmutter’s work is not new. His ideas date back to at least the 1960’s. Yet, our Google™ search did not turn up many companies laying claim to this successful transition. One company, Delphi, stood out as an enterprise that is working toward becoming geocentric. We will discuss the history of Delphi and examine its journey toward becoming geocentric. We will then draw some conclusions and examine its outlook for the future.
Delphi was originally a division of General Motors. According to Bellamy, Danielsson-Murphy, and Murphy, its core business was “automotive parts, including lighting, chassis, environmental systems, batteries, engine management, and seats (1998)”. The company wanted to increase its business with companies other than General Motors and therefore pursued a strategy that established an identity separate from that of its parent company. In other words, if Delphi wanted to do business with other automobile companies, it could not be seen as General Motors. This led to an organizational structure where most of the decisions for Delphi were made within the division and not by General Motors (Bellamy et al, 1998).
Delphi established a goal of having over half of its total sales from customers other than General Motors’ North American Operations. In support of this goal, Delphi recognized that it would need to be a global company. Bellamy et al wrote:
“Delphi currently employs over 206,000 people at 208 manufacturing facilities and 17 technical centers. They have sales of over 26 billion dollars and operate 46 joint ventures, almost half of which are in the Asia/Pacific region. Their global focus and expansion has been aggressive and widespread, and it seems they are attempting to become a truly global company. To illustrate, in 1996 Delphi “established 20 new business ventures, including 10 joint ventures, four all-new operations, and six acquisitions” on four continents (1998)”.
In February of 1999, Delphi sold 100 million shares of stock in an initial public offering. General Motors retained slightly more than 80 percent of the stock until May of that same year. At that time, Delphi became a separate company. In addition to improving its chances at getting business from companies other than General Motors, the company cited other benefits of becoming a separate company. These included greater capital financing flexibility, a simplified internal operating structure, improved operating efficiency, and stronger management incentive programs (Delphi: FAQ, 2004).
Delphi reported sales of $27.4 billion in 2002 and is located in 41 countries. 35 percent of its sales were from customers other than General Motors. This was up from 32 percent in 2001. It continues to pursue opportunities to increase this percentage. The company had a net income of $517 million in 2002 (2003 Factbook, pp. 2-9).
Earlier in this paper, we showed that there is an issue regarding just what a multinational company is. In the case of Delphi, we see a company that is located in 41 countries around the world. It is apparent that it is a multinational company. Nevertheless, we would like to know if the company culture clearly fits any specific orientation. Is this an ethnocentric, polycentric or geocentric company? Does it have elements of more than one of these?
The leaders of an ethnocentric company, as previously described, strongly control the activities of the company from their headquarters and do not look to promote people from other countries. This does not seem to be the case at Delphi. Reading the biographies of various members of its board of directors and senior leadership team members, it appears as though Delphi truly values the contributions of those who have different backgrounds. They are indoctrinated with the company’s values while at the headquarters but common values are important. Delphi is not an ethnocentric company (Delphi: Corporate Governance, 2004).
A polycentric organization, as previously described, allows the parts of its business located in foreign countries to exercise local control in their operating areas. It seems as though Delphi does this. In fact the Delphi Internet web site says, “Our regional presidents keep pace with Europe’s demand for diesel engine cars and mobile multimedia products, position Delphi to capitalize on the fast growing automotive markets in China and throughout the Asia Pacific region, and expand Delphi’s presence in highly competitive, critical markets in South America. They represent Delphi to the world (Delphi: Leadership, 2004)”. According to our textbook, it is also true that a polycentric organization is characterized by little flow of information to and from headquarters and between subsidiaries (Bartlett, Ghosal, and Birkinshaw, 2004, p. 64). This does not seem to be the case with Delphi. It emphasizes that its global lean manufacturing strategy has helped it improve quality and make its operations more efficient. Delphi plans to apply this knowledge beyond the manufacturing floor (2003 Factbook, p.11). This does not sound like a company without information flow between headquarters and manufacturing locations. It also does not sound like a company that fails to share information among operating locations.
The characteristics of a geocentric organization, as described in our textbook (Bartlett et al, 2004, p.64) when compared with Delphi are as follows:
It is our belief that Delphi is close to being geocentric although there may still be room for improvement in some areas.
We believe that becoming a geocentric organization is not easy. Delphi has done much that is necessary to achieve this goal and continues to make progress. It is interesting to note that our textbook states:
“Perlmutter’s (1969) concept of ethnocentric, polycentric, and geocentric multinationals is an interesting but different one. It takes the firm, not the industry, as the unit of analysis and is decoupled from industry structure. It focuses on management attitudes, the nationality of executives, and other aspects of organization. Perlmutter presents ethnocentric, polycentric, and geocentric as stages of an organization’s development as a multinational, with geocentric as the goal. A later paper (Wind, Douglas, and Perlmutter 1973) tempers this conclusion based on the fact that some companies may not have the required sophistication in marketing to attempt a geocentric strategy. Products embedded in the lifestyle or culture of a country are also identified as less susceptible to geocentrism. The Perlmutter et al. view does not attempt to link management orientation to industry structure and strategy. International strategy should grow out of the net competitive advantage in a global industry of different types of worldwide coordination. In some industries, a country-centered strategy, roughly analogous to Perlmutter’s polycentric idea, may be the best strategy irrespective of company size and international experience. Conversely, a global strategy may be imperative given the competitive advantage that accrues from it. Industry and strategy should define the organization and approach, not vice versa (Bartlett et al, 2004, p.314n)”.
We conclude that Delphi is close to being geocentric and that it is an appropriate goal for the company. As stated above, not all organizations should move toward a geocentric goal although many would benefit. We also note that the effort to be geocentric takes considerable time and effort.
References
Bartlett, Christopher A.; Ghosal, Sumantra; and Birkinshaw, Julian (2004).
Transnational Management: Text, Cases, and Readings in Cross-
Border Management, 4th Edition, McGraw-Hill/Irwin, New York, NY.
Bellamy, Michael; Danielsson-Murphy, Lotta; and Murphy, Thaddeus (February 12,
1998). Excerpt from: The Road to a Global Organization: Delphi Automotive,
Retrieved January 19, 2004 from
Delphi: FAQ. Retrieved January 20, 2004 from
Delphi: Corporate Governance. Retrieved January 20, 2004 from
Delphi: Leadership. Retrieved January 20, 2004 from
.
2003 Factbook. Retrieved January 20, 2004 from
