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Ethnocentric Orientation A person who assumes that his or her home country is superior to the rest of the world is said to have an ethnocentric orientation. Ethnocentrism is sometimes associated with attitudes of national arrogance or assumptions of national superiority; it can also manifest itself as indifference to marketing opportunities outside the home country. Company personnel with an ethnocentric orientation see only similarities in markets, and assume that products and practices that succeed in the home country will be successful anywhere. At some companies, the ethnocentric orientation means that opportunities outside the home country are largely ignored. Such companies are sometimes called domestic companies. Ethnocentric companies that conduct business outside the home country can be described as international companies; they adhere to the notion that the products that succeed in the home country are superior. This point of view leads to a standardized or extension approach to marketing based on the premise that products can be sold everywhere without adaptation. As the following examples illustrate, an ethnocentric orientation can take a variety of forms: _ Nissan’s earliest exports were cars and trucks that had been designed for mild Japanese winters; the vehicles were difficult to start in many parts of the United States during the cold winter months. In northern Japan, many car owners would put blankets over the hoods of their cars. Nissan’s assumption was that Americans would do the same thing. As a Nissan spokesman said, “We tried for a long time to design cars in Japan and shove them down the American consumer’s throat. That didn’t work very well.”30 _ Until the 1980s, Eli Lilly and Company operated as an ethnocentric company: Activity outside the United States was tightly controlled by headquarters and the focus was on selling products originally developed for the U.S. market.31 _ For many years, executives at California’s Robert Mondavi Corporation operated the company as an ethnocentric international entity. As former CEO Michael Mondavi explained, “Robert Mondavi was a local winery that thought locally, grew locally, produced locally, and sold globally. . . . To be a truly global company, I believe it’s imperative to grow and produce great wines in the world in the best wine-growing regions of the world, regardless of the country or the borders.”32 _ The cell phone divisions of Toshiba, Sharp, and other Japanese companies prospered by focusing on the domestic market. When handset sales in Japan slowed a few years ago, the Japanese companies realized that Nokia, Motorola, and Samsung already dominated key world markets. Atsutoshi Nishida, president of Toshiba, noted, “We were thinking only about Japan. We really missed our chance.”33 In the ethnocentric international company, foreign operations or markets are typically
viewed as being secondary or subordinate to domestic ones. (We are using the term domestic to mean the country in which a company is headquartered.) An ethnocentric company operates under the assumption that “tried and true” headquarters knowledge and organizational capabilities can be applied in other parts of the world. Although this can sometimes work to a company’s advantage, valuable managerial knowledge and experience in local markets may go unnoticed. Even if customer needs or wants differ from those in the home country, those differences are ignored at headquarters. Sixty years ago, most business enterprises—and especially those located in a large country like the United States—could operate quite successfully with an ethnocentric orientation. Today, however, ethnocentrism is one of the major internal weaknesses that must be overcome if a company is to transform itself into an effective global competitor. Polycentric Orientation The polycentric orientation is the opposite of ethnocentrism. The term polycentric describes management’s belief or assumption that each country in which a company does business is unique. This assumption lays the groundwork for each subsidiary to develop its own unique business and marketing strategies in order to succeed; the term multinational company is often used to describe such a structure. This point of view leads to a localized or adaptation approach that assumes products must be adapted in response to different market conditions. Examples of companies with a polycentric orientation include the following: _ Until the mid-1990s, Citicorp operated on a polycentric basis. James Bailey, a former Citicorp executive, explains, “We were like a medieval state. There was the king and his court and they were in charge, right? No. It was the land barons who were in charge. The king and his court might declare this or that, but the land barons went and did their thing.”34 Realizing that the financial services industry was globalizing, then-CEO John Reed attempted to achieve a higher degree of integration between Citicorp’s operating units. _ Unilever, the Anglo-Dutch consumer-products company, once exhibited a polycentric orientation. For example, its Rexona deodorant brand had 30 different package designs and 48 different formulations. Advertising was also executed on a local basis. Top management has spent the last decade changing Unilever’s strategic orientation by implementing a reorganization plan that centralizes authority and reduces the power of local country
managers.35 Regiocentric Orientation In a company with a regiocentric orientation, a region becomes the relevant geographic unit; management’s goal is to develop an integrated regional strategy. What does “regional” mean in this context? A U.S. company that focuses on the countries included in the North American Free Trade Agreement (NAFTA)—namely, the United States, Canada, and Mexico—has a regiocentric orientation. Similarly, a European company that focuses its attention on Europe is regiocentric. Some companies serve markets throughout the world, but do so on a regional basis. Such a company could be viewed as a variant of the multinational model discussed previously. For decades, a regiocentric orientation prevailed at General Motors: Executives in different parts of the world—Asia-Pacific and Europe, for example—were given considerable autonomy when designing vehicles for their respective regions. Company engineers in Australia, for example, developed models for sale in the local market. One result of this approach: A total of 270 different types of radios were being installed in GM vehicles around the world. As GM Vice Chairman Robert Lutz told an interviewer in 2004, “GM’s global product plan used to be four regional plans stapled together.”37 Geocentric Orientation A company with a geocentric orientation views the entire world as a potential market and strives to develop integrated global strategies. A company whose management has adopted a geocentric orientation is sometimes known as a global or transnational company.38 During the past several years, longstanding regiocentric policies at GM such as those previously discussed have been replaced by a geocentric approach. Among other changes, the new policy calls for engineering jobs to be assigned on a worldwide basis; a global council based in Detroit determines the allocation of the company’s $7 billion annual product development budget. One goal of the geocentric approach: Save 40 percent in radio costs by using a total of 50 different radios. 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. As new global competitors emerge on the scene, management at
long-established industry giants such as GM must face up to the challenge of organizational transformation. A decade ago, Louis R. Hughes, a GM executive, said, “We are on our way to becoming a transnational corporation.” Basil Drossos, former president of GM de Argentina, echoed his colleague’s words, noting, “We are talking about becoming a global corporation as opposed to a multinational company; that implies that the centers of expertise may reside anywhere they best reside.”39 For the moment, GM is still the world’s number one automaker in terms of revenue. Table 1-9 compares the two companies just prior to the onset of the global economic crisis; even then, Toyota surpassed GM in terms of profitability and market value. In 2008, Toyota sold more vehicles worldwide than GM. As GM teetered on the brink of bankruptcy in 2009, it was clear that it would have to be remade as a smaller, leaner company. 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. Harley-Davidson and Waterford serve world markets from the United States and Ireland, respectively. By contrast, Gap sources its apparel from lowwage countries in all parts of the world; a sophisticated supply chain ensures timely delivery to its network of stores. Although Gap is a global brand, it focuses primarily on the key U.S. market. Harley-Davidson, Waterford, and Gap all may be thought of as global companies. Transnational companies both serve global markets and utilize global supply chains; in addition, there is often a blurring of national identity. A true transnational would be characterized as “stateless.” Toyota and Honda are two examples of companies that exhibit key characteristics of transnationality (see Exhibit 1-7). At global and transnational companies, management uses a combination of standardized (extension) and localized (adaptation) elements in the marketing program. 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. Rather, such decisions are made on the basis of ongoing research into market needs and wants.
