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Howard Perlmutter: Internationalization of Multinational Corporations

Howard Perlmutter

 
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Howard Perlmutter's work from 1969 revolves around the internationalization of multinational corporations (MNCs). Howard Perlmutter can be seen as one of the pioneers within theories concerning the evolution of MNCs, and attempted to make predictions to how the viability and legitimacy of MNCs would change over time, and how MNCs will potentially evolve.  

 

Howard Perlmutter was interested in how MNCs were thinking about doing business on a global scale, and how this mindset was shaping the companies' orientation towards doing business around the world. The orientation of a MNC can be reflected in its product offerings, organizational culture, way of managing foreign workers, recruitment of employees for top positions etc.

 

Howard Perlmutter found three distinctive orientations, which he labeled: Ethnocentric, Polycentric and Geocentric .

 

These inherent orientations all have some probable consequences for how companies following one of these orientations are doing business. Howard Perlmutter's research indicates that senior management in an international organisation holds primarily one of these three primary orientations, which will shape the mindset of the company and structure its outlook on how to conduct business.

 

Ethnocentric Orientation - orientated towards home country

The prevailing attitude of senior management in this orientation is that the way of doing business, at home, is applicable to the rest of the world. The attitude is probably that national employees and leaders are more capable to maintain international tasks than non-native employees recruited in the host-country. The practices and policies of headquarters are transferred to the international subsidiaries, which need to comply with these standards.

The advantages of this orientation are e.g. that positions will be occupied by qualified nationals, and that it creates a unified organizational culture. Likewise, this orientation helps to transfer core competences to to the subsidiaries of the company.

The disadvantage of this orientation are e.g. that the MNC will potentially not develop foreign and more regional knowledge, and that its organizational culture will reflect only the preferences of the MNC's home country members. Likewise, problems may occur concerning the differentiation of goods and services, where international shortsightedness may hinder an adjustment to differentiated wishes and demands.

 

Polycentric Orientation - oriented toward host country

The assumption of managers in this orientation is that the "one-size-fits-all" approach is unfeasible. Subsidiaries are managed as autonomous units, who are allowed to manage their operations as they see fit. This leads to a broader organizational culture, where top positions are not as heavily staffed by nationals from headquarter, and potentially to a better understanding of local needs and demands.

The disadvantage of this orientation is however that headquarters can be separated from its subsidiaries, and that the company looses some economic benefits such as economies of scale. Likewise, it may be diffucult for the MNC to develop and maintain a unified organizational culture.

 

Geocentric Orientation - oriented towards the whole world

This orientation does not regard nationality as a competitive advantage or disadvantage. The employees are recruited from all over the world, so that the best people are recruited to solve global problems. The MNC tries to develop both global differentiation and global integration between headquarter and foreign subsidiaries. The focus is therefore to gain the potential advantages of an integrated company, and to gain the advantages of differentiation in e.g. product offerings.

 

Howard Perlmutter observed most MNCs start out with an ethnocentric orientation moving towards polycentrism. Lastly, MNCs will potentially adopt the geocentric orientation, when its sees itself pushed to become both globally sensitive and internally integrative. This evolution can be compared to the studies conducted by Christopher A. Bartlett & Sumantra Ghoshal, who discovered four distinct international strategies for MNCs.

 
 
 
 
 
Date Created: 2009-08-16
Posted by: Admin
 
 
 

Related resources:

What is Michael Porter's 5 forces?
Global strategies for MNCs: Christopher A. Bartlett & Sumantra Ghoshal 
What is the Balanced Scorecard? 
What is the PESTEL Framework?
What is the BCG Matrix?
What is Michael Porter's Diamond Model?
Reference(s)
 
The Tourtous Evolution of MNCs
Perlmutter, Howard; (1969); World Business; Elsevier
Keywords:
Online MBA, Online MBA Courses, Howard Perlmutter, MNC, Ethnocentric Orientation, Polycentric Orientation, Geocentric Orientation, Internationalization, International Strategies, Business Strategy

 


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