IBUS 618 Dr. Yang 1

Ethnocentric ApproachAdvantages:

To ensure new subsidiary complies with overall corporate objectives and policies

Effective communication Efficient coordination Broadening the view of expatriates

and the chance of growth for expatriates

Direct control of foreign operations Diffusing central value, norms and

beliefs throughout the organization Has the required level of

competence No need for a well developed

international internal labor market Assignments as control

Disadvantages:

Limits the promotion opportunities of Host Company Nationals, leading to reduced productivity and increased turnover among the HCNs

Longer time for Parent Company Nationals to adapt to host countries, leading to errors and poor decisions being made

High cost

Adaptation of expatriates uncertain

Potential failure rate likely to be higher

Government restriction

Considerable income gap, high authority, and increased standard of living may relate to lack of sensitivity

IBUS 618 Dr. Yang 2

Polycentric Approach

Advantages:Employment of HCNs eliminates language barriers, avoids adaptation of PCNs, reduces the need for cultural awareness training programs

Employment of HCNs allows a multinational company to take a lower profile in sensitive political situations

Employment of HCNs is less expensive

Employment of HCNs gives continuity to the management of foreign subsidiaries (lower turnover of key managers)

IBUS 618 Dr. Yang 3

Polycentric Approach

Disadvantages:Difficult to bridge the gap between HCN subsidiary managers and PCN managers at headquarters ( language barriers, conflicting national loyalties, cultural differences)

HCN managers have limited opportunities to gain experience outside their own country

PCN managers have limited opportunities to gain international experience

Resource allocation and strategic decision making will be constrained when headquarter is filled only by PCNs who have limited exposure to international assignment

IBUS 618 Dr. Yang 4

Geocentric Approach

Advantages: Ability of the firm to

develop an international executive team

Overcomes the federation drawback of the polycentric approach

Support cooperation and resource sharing across units

Disadvantage:Host government may use immigration controls in order to increase HCNs employmentExpensive to implement due to increased training and relocation costsLarge numbers of PCNs, HCNs, and TCNs need to be sent across bordersReduced independence of subsidiary management

IBUS 618 Dr. Yang 5

Regiocentric Approach

Advantages:Allow interaction between executives transferred to regional headquarters from subsidiaries in the region and PCNs posted to the regional headquartersProvide some sensitivity to local conditionsHelp the firm to move from a purely ethnocentric or polycentric approach to a geocentric approach

Disadvantages:Produce federalism at a regional rather than a country basis and constrain the firm from taking a global stanceStaff’s career advancement still limited to regional headquarters, not the parent country headquarters