EPG Model

From Wikipedia, the free encyclopedia

This article may need to be wikified to meet Wikipedia's quality
standards. Please help by adding relevant internal links, or by improving
the article's layout. (December 2010)

This article is an orphan, as few or no other articles link to it.

Please introduce links to this page from related articles; suggestions may
be available. (April 2010)

This page is a new unreviewed article.

This template should be removed once the page has been reviewed by someone
other than its creator; if necessary the page should be appropriately tagged for
cleanup. If you are the article's creator, you can seek feedback on your
new article. (April 2010)

EPG Model is an International Business model including three dimensions - Ethnocentric, Polycentric and
Geocentric.[1] These three dimensions allow executives to more accurately develop their firm's general
strategic profile.[2]

Contents
[hide]

• 1 Overview

• 2 Elements of the EPG Model

○ 2.1 Ethnocentrism

 2.1.1 Costs and Benefits of

Ethnocentrism

○ 2.2 Polycentrism

 2.2.1 Costs and Benefits of

Polycentrism

○ 2.3 Geocentrism

 2.3.1 Costs and Benefits of

Geocentrism

• 3 See also

• 4 Further reading

• 5 References

[ edit]Overview
The EPG Model is a framework for a firm to better pinpoint it's strategic profile in terms of International
Business Strategy. It contains three elements - Ethnocentrism, Polycentrism and Geocentrism.

The Importance of the EPG Model is mainly in the firm's awareness and understanding of its specific focus.
Because a strategy based mainly on one of the three elements can mean significantly different costs or
benefits to the firm, it is necessary for a firm to carefully analyze how their firm is oriented and make
appropriate decisions moving forward. In performing an EPG analysis, a firm may discover that they are
oriented in a direction that is not beneficial to the firm or misaligned with the firm's corporate culture and
generic strategy. In this case, it would be important for a firm to re-align its focus in order to ensure that it is
correctly representing the firm's focus.

Each of the three elements of the EPG Profile are briefly highlighted in the table below, showing the main
focus for each element, as well as its correlating Function, Products, and Geography.[3]

Ethnocentrism Polycentrism Geocentrism

Based on
Definition Based on ethnicity Based on political orientation
geography

Strategic Orientation/Focus Home Country Oriented Host Country Oriented Global Oriented

Function Finance Marketing R&D

Product Industrial products Consumer goods -

Geography Developing countries - US and Europe

[ edit]Elements of the EPG Model

[edit]Ethnocentrism

There is no international firm today whose executives will say that ethnocentrism is absent in their
organization.[4] The word ethnocentrism derives from the Greek word "ethnos", meaning “nation” or
“people,” and the English word center or centrism.[5] A common phrase set for ethnocentrism is “tunnel
vision.” In this context, ethnocentrism is the view that a particular ethnic group’s system of beliefs and
values is morally superior to all others.[6] Ethnocentrism is characterized by or based on the attitude that
one’s own group is superior to others.[7] The ethnocentric attitude is found in many companies that have
many nationalities and culture groups working together. It is a natural tendency for people to act
ethnocentrically because it is what they feel comfortable with.[8] It is based on past experiences and learned
behaviors and norms.[9]
The ethnocentric attitude is seen often when home nationals of various countries believe they are superior
to, more trustworthy and more reliable than their foreign counterparts.[10] Ethnocentric attitudes are often
expressed in determining the managerial process at home and overseas.[11] There is a tendency towards
ethnocentrism in relations with subsidiaries in developing countries and in industrial product divisions.[12]

Organizations that are designed with an ethnocentric focus will portray certain tendencies. These include
an organizations headquarters that’s decision-making authority is relatively high. Home standards are
applied to the evaluation and control of the organization.[13] These standards are to ensure performance
and product quality. Ethnocentric attitudes can be seen in the organizations communication process.[14] This
is evident when there is constant advice, and counsel from the headquarters to the subsidiary.[15] This
advice usually bears the message, “This works at home; therefore it must work in your country".
[16]
Organizations that portray ethnocentrism usually identify themselves with the nationality of the owner.
[17]
For example, Wal-Mart is seen as an American company because its headquarters are located in
America. The crucial critical concept of ethnocentrism in international organizations is the current policy
that recruits from the home country are hired, and trained for key executive position in the organization.
[18]
The ethnocentric attitude is a centralized approach. With the centralized approach, the training
originates at the headquarters and than corporate trainers travel to the subsidiaries, and often adapt to
local situations.[19]

There are many costs that ethnocentrism can incur on an international organization. Using the centralized
approach can cause inefficient staffing problems in the organization, this is because the employed staff will
incur high financial costs to the global business as they have to pay for the transfer costs of the staff
coming from the home country to overseas.[20] This also could bring inefficiency to the business if the new
staff is not able to fit in and be culturally compatible in their newly situated location. There is often
ineffective planning due to poor feedback from the international subsidiaries.[21] The organization may see
capital flight, as the best men in the foreign subsidiary will seek other employment opportunities.
[22]
Ethnocentric organizations may lose their ability to build a high caliber local organization, which could
lead to fewer innovations. This in turn could cause a lack of flexibility and local responsiveness.[23]

[edit]Costs and Benefits of Ethnocentrism

Costs Benefits

Ineffective Planning due to poor

Simple organization
feedback

Greater communication and

Subsidiary ‘valuable’ executive flight
control

Fewer innovations
Inability to build a high caliber local org.

Lack of flexibility and responsiveness

[24]

[edit]Polycentrism

Polycentrism is one of the three legs in the EPG framework that “identifies one of the attitudes or
orientations toward internationalization that is associated with successive stages in the evolution of
international operations” [25]

Polycentrism can be defined as a host country orientation; which reflects host countries goals and
objectives with respect “to different management strategies and planning procedures with regard to
international operations.”[26] Under a polycentric perspective, a company’s management team believes that
in international business practices local preferences and techniques are usually found most appropriate to
deal with the local market conditions. In the most extreme views of polycentrism, it is the “attitude that
culture of various countries are different, that foreigners are difficult to understand and should be left alone
as long as their work is profitable.”[27]

Although there is great benefit to taking into consideration local preferences in the host country when it
comes to international business practices, a polycentric approach has its obstacles once implemented. A
polycentric approach “gives rise to the problems of coordination and control.”[28] Management usually loses
coordination of its international subsidiaries usually because they are forced to operate independently of
one another, and establish separate objectives and plans which meet the host countries criteria. “Marketing
of the company’s products are organized on a country-by-country basis, and marketing research is
conducted independently in each country.”[29]

Management is unable to have total control over the company in the host country because it is found that
“local nationals have a better understanding and awareness of national market conditions, more so than
home office personnel.”[30] This is very accurate in several aspects of the products delivery including pricing,
customer service and well-being, market research, and channels of distribution. Therefore, the majority of
control in the host countries practices is lost, and the company is forced to manage its operations from the
outside. “Local nationals occupy virtually all of the key positions in their respective local subsidiaries, and
they appoint and develop their own people.”[31]

There are a few other drawbacks to the polycentric approach which may restrict a multinational company
from completely realizing its full potential in the host country. The first drawback of a polycentric approach
is that the “benefits of global coordination between subsidiaries such as the development of economies of
scale cannot be realized.”[32] This basically restricts the company for mass production of its products, as
they are forced to manufacture its products with the local preferences being the priority of production.
[33]
Secondly, the fact that because all of the subsidiaries work independently of one another, learning
across geographic regions is not applied to one another. Therefore knowledge that could be beneficial
across all regions is lost, and subsidiaries could be worse off than if they had obtained the knowledge.
[34]
Lastly is that the “treating of each market as unique may lead to the duplication of facilities.”[35] By
focusing on the business practices of local preferences and techniques which pertain to the local market
conditions, the subsidiary in the host country could mimic that of local companies and appear less
appealing to local consumers.

In concluding, a polycentric approach should only be used within a company in which there is a certain
amount of comfort in allowing the host country to make all major decisions, following their own procedures
and objectives. It must be understood that there is limited control or communication between the home and
host-country, and products and distribution may vary across countries. Companies should evaluate all legs
of the EPG model before implementing a strategy, as all companies differ in international strategy among
industry and region.

[edit]Costs and Benefits of Polycentrism

Costs Benefits

Waste due to duplication Intense exploitation of local markets

Better sales due to better-informed local

Localization costs of “universal” products
management

Inefficient use of home-country experience More initiative for local products

Excessive regard for local traditions at expense of global

More host government support
growth

Good local managers with high morale

[36]

[edit]Geocentrism

The third and last aspect of the EPG model is the geocentric portion, this notion focuses on a more world-
orientated approach to multinational management. The main difference of geocentrism compared to ethno
and polycentrism is that is does not show a bias to either home or host country preferences but rather
spotlights the significance of doing whatever it takes to better serve the organization.[37] This is evident in
the sense that upper management does not hire or delegate responsibility to an individual because they
best exemplify the host or home countries opinions. Instead, management selects the person best suited to
foster the companies goals and solve problems world wide.[38] The purpose of this is to build an
organization in which the subsidiary is not only a good citizen of the host nation but is a leading exporter
from this nation in the international community and contributes such benefits as (1) an increasing supply of
hard currency, (2) new skills and, (3) a knowledge of advanced technology.[39]

The sole goal of geocentrism is to globally unite both headquarters and subsidiaries.[40] The firms
subsidiaries are thus neither satellites nor independent city states, but parts of a whole whose focus is on
worldwide objectives as well as local objectives, each part making its unique contribution with its unique
competence.[41] Furthermore, geocentrism boils down to product differentiation, diversifying functions in the
sense that different markets require dissimilar behavior, and lastly geographic location.[42] Out of all aspects
of a business there are two that are predominantly geocentric - research and development and marketing.
[43]
As stated previously this is because different markets, regions, and countries require distinctive ways of
approaching them. For example, the standards in which the home country operates are going to be much
different from how the host country operates. What is accepted as a permissible way of treating employees
in the United States, the home country, may not be acceptable to Chinese employees, in the host country.
In addition, consumer tastes vary greatly from home country to host country, and going even further these
tastes will continue to change from country proving that for R&D to be effective it must be world-oriented.[44]

It is the overall goal of geocentrism to form a collaborative network between headquarters and subsidiaries;
this arrangement should entail a set of universal standards that can thus be used as a guideline when
attacking key business decisions.[45] Such decisions include the management and start-up of new plants,
ideas of how to market a product to a new consumer base, and product alterations. The most effective way
to enforce geocentrism is with a formal reward system that encourages both subsidiary and headquarters
managers to work for global goals rather than just defending home country values. This ideology is a great
example of how today’s business must manage both global and local issues in order to succeed in the end.
[46]

While there are many obstacles that will hinder a company's ability to become geocentric, there are also a
handful of forces which will drive them towards this. For instance, there is the loss of national sovereignty
when one nation is dominated by another - this can lead to a loss in economic and political nationalism.
[47]
There is also the feeling from host countries that receive disproportionate reimbursement from
international profits that only fuels the lack of trust toward big corporations felt by political leaders of host
countries.[48] On the other hand, there are also forces that push an organization to the geocentric notion of
managing a multinational corporation (MNC).[49] The first and most obvious of these is competition, if one
company is to enter a new country or market it forces rivals to do the same in order to maintain pace.
[50]
Secondly, there is a large amount of customers available to MNC’s internationally that require a
geocentric approach in order to effectively targeted. A third force causing this movement is the abundance
of growing world markets, occurring in areas such as income earning age population, rising GDP’s, and
escalating disposable income in areas such as China and Korea.[51]

With that said geocentrism is an ideology that must be accepted by any corporation operating globally in
order for any sort of success and long term stability to attained. However, there are certain aspects of the
business life in which ethnocentrism and polycentrism are more adequate models to follow, but functional
smoothness and success in both home and host countries is dependent upon upper managements ability
to select individuals who are world orientated as apposed to home or host country centered.[52]

[edit]Costs and Benefits of Geocentrism

Costs Benefits

High communication and travel costs Integrated global outlook

More powerful total company

Educational costs at all levels
throughout

Time spent in consensus decision-making Better quality of products and services

International headquarters bureaucracy Worldwide utilization of best reaources

“Too wide” distribution of power Improved local country management

Personnel problems, especially those of international executive

Greater commitment to global objectives
reentry

Higher global profits

[53]

[ edit]See also
Ethnocentrism Polycentrism

[ edit]Further reading
Barlett et al (2008) Transnational Management: Text, Cases and Readings in Cross-Border Management.
5th ed. New York: McGraw-Hill. P. 60-63.

Perlmutter, H. (1969) “The Tortuous Evolution of the Multinational Corporation".Columbia World Journal of
Business. P. 9-18.

[ edit]References
1. ^ Barlett et al (2008) Transnational Management: Text, Cases and
Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.
2. ^ Barlett et al (2008) Transnational Management: Text, Cases and
Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

3. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

4. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

5. ^ All About Philosophy. “Ethnocentrism” [Internet], Available from:

<http://www.allaboutphilosophy.org/ethnocentrism-faq.htm>.

6. ^ All About Philosophy. “Ethnocentrism” [Internet], Available from:

<http://www.allaboutphilosophy.org/ethnocentrism-faq.htm>.

7. ^ The Online Merriam-Webster Dictionary. [Internet], Available from:

<http://www.merriam-webster.com/dictionary/ethnocentrism>.

8. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

9. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

10. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

11. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

12. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

13. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

14. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

15. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

16. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

17. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

18. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.
19. ^ Barlett et al (2008) Transnational Management: Text, Cases and
Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

20. ^ Unknown. (1997) “The Tortuous Evolution of the Multinational

Corporation” [Internet], California State University. Available from:

<http://www.sbe.csuhayward.edu/~skamath/powerpoint/mgmt6710_s11/i

ndex.htm>.

21. ^ Unknown. (1997) “The Tortuous Evolution of the Multinational

Corporation” [Internet], California State University. Available from:

<http://www.sbe.csuhayward.edu/~skamath/powerpoint/mgmt6710_s11/i

ndex.htm>.

22. ^ Unknown. (1997) “The Tortuous Evolution of the Multinational

Corporation” [Internet], California State University. Available from:

<http://www.sbe.csuhayward.edu/~skamath/powerpoint/mgmt6710_s11/i

ndex.htm>.

23. ^ Unknown. (1997) “The Tortuous Evolution of the Multinational

Corporation” [Internet], California State University. Available from:

<http://www.sbe.csuhayward.edu/~skamath/powerpoint/mgmt6710_s11/i

ndex.htm>.

24. ^ Unknown. (1997) “The Tortuous Evolution of the Multinational

Corporation” [Internet], California State University. Available from:

<http://www.sbe.csuhayward.edu/~skamath/powerpoint/mgmt6710_s11/i

ndex.htm>.

25. ^ Calof, L.J., Beamish, W.P. "The right attitude for international success."
Business Quarterly, 1994: 105-110.

26. ^ Calof, L.J., Beamish, W.P. "The right attitude for international success."
Business Quarterly, 1994: 105-110.

27. ^ Perlmutter V.H., Heenan A.D. "How multinational should your top
managers be?" Harvard Business Review, 2000: 1-13.

28. ^ Calof, L.J., Beamish, W.P. "The right attitude for international success."
Business Quarterly, 1994: 105-110.

29. ^ Calof, L.J., Beamish, W.P. "The right attitude for international success."
Business Quarterly, 1994: 105-110.

30. ^ Calof, L.J., Beamish, W.P. "The right attitude for international success."
Business Quarterly, 1994: 105-110.
31. ^ Perlmutter V.H., Heenan A.D. "How multinational should your top
managers be?" Harvard Business Review, 2000: 1-13.

32. ^ Wind, Y., Douglas, P.S., Perlmutter,V.H. "Guidelines for Developing

International Marketing Strategies." Journal of Marketing, April 1973.

33. ^ Wind, Y., Douglas, P.S., Perlmutter,V.H. "Guidelines for Developing

International Marketing Strategies." Journal of Marketing, April 1973.

34. ^ Wind, Y., Douglas, P.S., Perlmutter,V.H. "Guidelines for Developing

International Marketing Strategies." Journal of Marketing, April 1973.

35. ^ Wind, Y., Douglas, P.S., Perlmutter,V.H. "Guidelines for Developing

International Marketing Strategies." Journal of Marketing, April 1973.

36. ^ Unknown. (1997) “The Tortuous Evolution of the Multinational

Corporation” [Internet], California State University. Available from:

<http://www.sbe.csuhayward.edu/~skamath/powerpoint/mgmt6710_s11/i

ndex.htm>.

37. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

38. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

39. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

40. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

41. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

42. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

43. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

44. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

45. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

46. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.
 47. ^ Barlett et al (2008) Transnational Management: Text, Cases and
Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

48. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

49. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

50. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

51. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

52. ^ Barlett et al (2008) Transnational Management: Text, Cases and

Readings in Cross-Border Management. 5th ed. New York: McGraw-Hill.

53. ^ Unknown. (1997) “The Tortuous Evolution of the Multinational

Corporation” [Internet], California State University. Available from:

<http://www.sbe.csuhayward.edu/~skamath/powerpoint/mgmt6710_s11/i

ndex.htm>.

Categories: Business

• Log in / create account

• Article
• Discussion
• Read
• Edit
• View history
Top of Form

Bottom of Form
• Main page
• Contents
• Featured content
• Current events
• Random article
• Donate to Wikipedia
Interaction
• Help
• About Wikipedia
• Community portal
• Recent changes
• Contact Wikipedia
Toolbox
Print/export
• This page was last modified on 25 December 2010 at 23:12.
• Text is available under the Creative Commons Attribution-ShareAlike License;

additional terms may apply. See Terms of Use for details.

Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a non-profit
organization.
• Contact us

• Privacy policy

• About Wikipedia

• Disclaimers