Ethnocentric Approach:

 Is a staffing approach where subsidiaries are managed by staffs from Parent Country Nation. In
ethnocentric approach, Parent Country Nations are dispatched to fill in key position of a
subsidiary in host-country.

 The mind set of management is ‘what work at home, will work here’ Some of the reasons to
pursue ethnocentric management system are lack of qualified personal, competency or special
technical knowledge in Host Country Nations

 The need for centralized control, risk management, needs for parent-subsidiary to maintain
good communication and coordination are another reasons to practice ethnocentric
management.

 However, there are several limitations associated with ethnocentric system where Host Country
Nations has limited opportunity for career promotion and leads to high turnover. Adaptation of
expatriates to host country takes much longer time and often leads to poor decision and cross-
cultural conflict may occur.

 operating cost to sustain expatriates expenses being viewed as unjustified by HCNs.

Examples:
Panasonic, Sony and Hitachi. In Mastec organization, the staffing approach for subsidiaries in
Thailand, Vietnam and India adopted ethnocentric system due to lack of competency of HCNs
and the needs for corporate communication. Most of the customers in India and Thailand are Japanese
manufacturers, therefore an expatriate with Japanese language ability to communicate with customer’s
parent company in Japan is still vital.

 Nissan’s early international operations as being ethnocentric, in that they did not design cars
specifically for, say, the United States; they exported cars that were designed for use in Japan. The
authors provide a humorous anecdote, wherein the automaker admitted that they thought that since
Japanese owners would place blankets on their car hoods in the winter to keep them warm enough to
start that Americans would do the same thing.

Polycentric Approach :
 In polycentric staffing approach, multinational firms rely on the HCN to run the business
operation and rarely PCN are transferred to foreign subsidiary. Each subsidiary is treated
as an independent business entity with decision making autonomy.
  In some cases, PCN belief that foreign markets are too difficult to understand and
therefore a join venture alliance was formed.

 The benefits of polycentric are local subsidiary has more leverage to run business
operation and achieve fastest local response to market demand.

 Polycentric system allows continuity of management by HCNs in foreign subsidiary.

 Language barrier, cross-cultural adaptation problems and high relocation cost to sustain
expatriate expenses were eliminated.

 The disadvantage of polycentric is bridging gap between HCNs and PCNs at headquarter
due to language barrier, conflicting of national loyalties and compliance to headquarter
HRM policies. There are potential risks of subsidiary become federation, isolated from
headquarter and not pursuing corporate business goals.

Examples:
. In Mastec’s organization, the establishment of subsidiaries in Indonesia and Malaysia was
under joint venture alliance and operate under polycentric system. In order to maintain a reasonable
level of control and to provide managerial and engineering support, virtual assignments system
was implemented with frequent business trips to visit the subsidiary company by the respective
manager.

Phillips Electronics, headquartered in Eindhoven, Netherlands, was until recently very much
following a polycentric orientation, which assumes that each country is unique in terms of its target
consumer behavior, as well as demos, psychographics, price elasticity, color affinities and associations,
etc. Corresponding marketing approaches are intended to be unique and invariably led by in-country
managers with a high-degree of autonomy. This worked well for Phillips until more
globally/geocentrically oriented companies such as Japan’s Matsushita began competing with them atop
multinational strategies that, as the RAI Foundation presents it, leveraged efficiencies enabled by the
integration of marketing activities across borders .

Geocentric Approach:
 The management style in geocentric staffing system focuses on global operation to draw best
talents and resources.
  Each subsidiary and headquarter are interdependent of each other to make unique contribution
based on their comparative advantages.

 The strengths of geocentric approach are multinational firms able to develop a pool of global
executive for deployment throughout the global organization. It encourages career
development and promotion of high-potential executive regardless of nationality.

 However, in the process of collecting wisdoms and deploying expertise globally, host
government may intervenes recruitment using immigration control to encourage employment
of HCNs.

 Extensive international socializing between PCN, HCN and TCN to support geocentric staffing
system needs centralized control which reduced independency of subsidiaries and the staffing
decision is time consuming.

 High cost associated with cross-cultural training, relocation expenses and the need to have
compensation package with international standard gives substantial financial burden to the
firms.

Example:
Mercedes Benz, where the company sources raw materials around the world from the lowest-cost
perspective and assembles their cars in Germany where the best technology is located.
Assignment 2
Name Saad umer

Registration No 5150

Subject Introduction to Management

Degree BBA