Which of the following is an advantage of adopting a geocentric staffing approach?

Outline

I. Abstract

II. List of figures and tables

III. List of abbreviations

1 Introduction
1.1 Research problem
1.2 Course of investigation

2 Multinational Corporations
2.1 Corporate Strategy
2.2 MNC`s Function and Global Distribution
2.3 The EPG Concept

3 Pros of the Geocentric Staffing Concept
3.1 Limitation to the Geocentric pattern
3.2 Pros of the Geocentric Staffing Concept

4 Cons of the Geocentric Staffing Concept

5 Conclusion
5.1 Summary
5.2 Critical Acclaim
5.3 Outlook

IV. List of References

V. Declaration of Originality

VI. CD- ROM

I. Abstract

The basic idea of every business enterprise on the globe is to strive for profit maximization. To realize this particular objective corporations have to operate across international borders. In doing so, it is assumed that there is a company-network consisting of the mother company that is always located in the home-country, whereas the subsidiaries are situated in the host-countries. Moreover it is important to recognize that there are different approaches how to fill the senior executive positions within the whole company group. One of the very first scientists, who dealt with this issue, was Howard Perlmutter in 1969. He firstly found out that there is a clear distinction of three orientations how Multinational Corporations would be differentiated:

The ethnocentric perspective, also defined as the home-country-perspective. The polycentric orientation, called as the host-country-perspective.

The geocentric approach, the world-wide-perspective, which is the most specialized orientation, gained particular recognition.

The aim of this research paper is to allow an insight into the specifics of Multinational Corporations, with special focus on the geocentric staffing approach.

The following keywords are mentionable:

Geocentric, ethnocentric, polycentric, staffing, recruiting, Howard Perlmutter, subsidiaries, headquarters, Multinational Corporation, corporate strategy, ERP model

JEL classification:

F23 Multinational Firms, International Business

B00 History of Economic Thought, Methodology

J01 Labor Economics: General

II. List of figures and tables

Table 1: Distribution of multinational Corporations

Table 2: Differentiation of the three staffing orientations part I

Figure 1: Differenttiation of the three staffing orientations part II

Figure 2: The objective to reach the geocentric approach

III. List of abbreviations

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1 Introduction

1.1 Research problem

Geocentrism from a science-orientated aspect usually means that the earth is the center of the universe. As in former times mentioned by the famous astronomer Claudius Ptolemy, who lived around AD 100-170: “The earth is spherical, at the center of the cosmos, and stationary” (Weinert, 2008, p. 9). The basic principle of geocentrism in an economically focus, with special regard to Human Resource Management, is that the company is globally seeking for management personnel. Assuming that there is no difference between any nationality within the corporation (Niehoff et al., 2001, p. 281).

Staffing is a complex subject area of Human Resource Management and deals with an emerged personnel requirement within a company. Donald Caruth describes in his monograph about planning, recruiting and selecting of workforce, the following definition of staffing:” A complex endeavor involving a number of diverse tasks, ranging from job analysis to performance appraisal, from employment interviewing to career development, from hiring to termination” (Caruth et al., 2008, p. 1).

Dr. Howard Viktor Perlmutter was a professor of Social Architecture in the Department of Multinational Enterprise at the University of Pennsylvania (Perlmutter et al., 1979). He is one of the most recent pioneers on the subject of corporate internationalization and globalization. After publishing an article in the Columbia Journal of World Business in 1969, about distinguishing multinational corporations, he grew in popularity (Perlmutter, 1969). Dr. Howard Perlmutter passed away on November 8, 2011.

This research paper aims to give an insight into multinational corporations and describes the two main perspectives of pros and cons regarding to geocentric staffing, mentioned by H. Perlmutter. Moreover it has to be clarified whether the approach of geocentric staffing specifically in multinational corporations makes sense.

1.2 Course of investigation

Based upon the research question that has been postulated in chapter 1.1, a description of multinational corporations will be given in chapter 2. The focus of this chapter is situated on the derivation of the terminology of multinational corporations. At the same time an appropriate definition of corporate strategy will be set up. After touching involving risks of corporate strategy, an elementary function of multinational corporations and an analysis of the derivation of the largest multinational enterprises will be presented. With special regard to what Howard Perlmutter found out in 1969, the reader gains a brief insight into the notion of the EPG-model as well as the inherent characteristics.

At the beginning of chapter 3 the geocentric perspective is characterized and in the following summarized. Thereby, the investigation will initially focus on the process of multination-corporation-development. Presented is a figure, which demonstrates that every enterprise develops from a home- or host-country orientation, to a multinational corporation with global perspective. To gain a better understanding of the geocentric perspective, in the following section some relevant advantages of geocentric staffing will be presented.

Apart from many advantages the geocentric staffing method includes, the subject of chapter 4 deals with the most important disadvantages of this particular staffing concept. This chapter describes that in the process of relocating and recruiting international managers, high costs are going to emerge for multinational companies. It is also considered that some countries might have restrictions, which makes it difficult to recruit appropriate employees.

In the conclusion (chapter 5) a summary of the findings, a critical acclaim and an outlook will be given. Furthermore a description of the detailed results of the investigation is presented. In addition to that an answer of the research question raised above will be exhibited.

2 Multinational Corporations

2.1 Corporate Strategy

Companies spread all over the world located in any kind of branch of industry have to face a difficult challenge every year. They need to operate equal on enormous markets with highly innovative and ingenious competitors. For reasons of globalization and new innovative technologies, markets in general develop to unpredictable system (Berman et al., 2002, p. 1).

The most important basic principle of every corporation, for achieving company’s goals on a long term period, is the corporate strategy. Alfred Chandler mentioned this in his survey about strategy and structure: “Strategy can be defined as the determination of the basic long-term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals” (Chandler, 2003, p. 13). In general you could paraphrase corporate strategy as a company’s basic structure, where the achievement of the fixed goals stands in the center of every enterprise

The senior management is principally responsible for the planning of these business objectives (Dransfield, 2001, p. 3). Robert Dransfield describes in his monograph “Corporate Strategy” that the determination of strategies is also linked with a high risk of negativeness: “If the strategies created by senior manager are inappropriate then this will lead to ineffective choices being made at all levels within the organization” (Dransfield, 2001, p. 3).

Nonetheless, besides high-risk strategy finding, external effects could influence company’s targets, so that corporate strategies have to be reconsidered. The only solution by remaining competitive in this case is to operate international. Regarding to the meaning of internationalization in this context is to give an insight into the characterization of multinational corporations.

2.2 MNC`s Function and Global Distribution

In terms of elementary functions, multinational corporations could bring along advantages for any country. Thus, MNCs do not only play an important role for developed countries, also developing countries can make efficient use of them. In this case industrial countries drain on the resources of the developing countries. In compensation they will be supplied with advanced technology, capital and access to new markets (Assembly, 1974, p. 4).

According to an analysis of the UNCTAD (the United Conference on Trade and Development) in 2008, the number of all MNCs in the world was about 82.100. This figure also includes 800.000 subsidiaries, which account for a third of worldwide exports of services and goods. Subsidiaries are essential parts of every MNC and are located beyond of the mother country (Birkinshaw, 1997, p. 207). Additionally, the UNCTAD estimates that approximately 80 million people are deployed in daughter companies, which represents a share of 4 per cent of the entire global employment (Bildung, 2010).

The following table provides an overview regarding to the origin of the largest multinational corporations and the total amount of all MNCs, as measured by the total turnover in 2008:

Number of multinational corporations Total MNC`s worldwide = 82.100

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TABLE 1: SOURCE: OWN TABLE, REFERRING TO (BILDUNG, 2010)

2.3 The EPG Concept

While investigating MNCs, the special focus will be on the geocentric orientation. This approach reflects an essential component of the famous EPG-typology formed by Howard Perlmutter in 1969 (Aggrarwal et al., 2010, p. 8).

Howard Perlmutter was criticizing that the terminology of multinationality so far, was objectively defined as statements e.g. about capital expenditure in foreign countries, the number of subsidiaries or the amount of foreign labor. However, H. Perlmutters opinion was that another variable in this context plays an important role. At this point he referred to the importance of the recruiting of the top management (Perlitz, 2004, p. 119).

Hence, the main position of H. Perlmutter was that there is a different recognizable behavior of companies operating on foreign markets (Schmid et al., 2006, p. 1). Accordingly there is a clear distinction of three major approaches how to look at a MNC. Therefore Howard Perlmutter created the so called EPG model in 1965 which has been at first published in French. This model extended with support of D. Heenan to the EPRG model in 1979 (Sielhorst, 2008, p. 8), whereas the following investigation only deals with the idea of the EPG-Typology.

The EPG notion is a three letter acronym which stands for ethnocentric-, polycentricand geocentric orientation of an internationalized company (Sielhorst, 2008, p. 11). The subsequent table should distinguish the three typically approaches of MNCs, with special focus on the staffing field and control area:

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TABLE 2: SOURCE: OWN TABLE, REFERRING TO H. PERLMUTTER (PERLMUTTER, 1969, P. 12).

According to the previous table, the ethnocentric perspective could be specified as an orientation where the top management of subsidiaries originally comes from the home country. The people who are selected for top management are also called as expatriates (Gomez et al., 2012, p. 76). In this context an internationalized enterprise will have to do an average payment, up to third of a million US dollar every period to relocate expatriates (Gomez et al., 2012, p. 78). In this connection the employees of the native country are seen more qualified and even more intelligent than the labor of the foreign nationality (Perlitz, 2004, p. 119). As a result of recruiting native-country managers for the foreign affiliates, a sufficient communication and coordination between the mother- company and the corresponding subsidiaries is existing (Welge et al., 1998, p. 196). A disadvantage, which results from that perspective, is the fact that local labor force might be discouraged in the way of recruiting employees from the company headquarters (Welge et al., 1998, p. 196). This might lead to inefficient working results in their particular positions.

By looking at the polycentric approach, this scheme reflects a policy whereas the corporation insists that the workforce, which is recruited for the affiliates, comes from the host country. This could be a distinctive benefit in terms of knowing the host culture, local conditions and law basis (Paul, 2011, p. 165). But also a financial advantage, by saving personnel costs may be considered. Furthermore, subsidiaries can realize a fast adaption into external markets, as a result of integrating highly motivated foreign personnel (Welge et al., 1998, p. 196).

However, some drawbacks of the polycentric approach must be taken into account. In the course of seeking domestic labor for the executive board positions within the daughter company, it might be hard to find appropriate personnel (Gomez et al., 2012, p. 78). Moreover, within the polycentric management concept, it is relevant to note that all important decisions are made by the foreign executive board. Additionally communication problems might emerge, resulting from different languages between headquarters and daughter companies. As a result this will lead to an increasing loss of control for the mother company (Scherm, 2011, p. 1114).

As it is shown in the ethnocentric- and as well as in the polycentric orientation, it has to be considered that a control of the headquarter over the affiliates always involves many risk factors (Fayerweather, 1989, pp. 944-945).

According to that, C. Vance noticed: “A geocentric orientation is aimed at solving the problems associated with an ethnocentric as well as a polycentric orientation” (Vance et al., 2011, p. 112). Additionally, the geocentric perspective might be an appropriate alternative and describes a management concept, whereas the mother company and the subsidiaries operate as a global unity. A most adopted enterprise composition, within this orientation is the “matrix division structure” (Vance et al., 2011, p. 113). This orientation reflects the most sophisticated scheme, developed by Perlmutter. Regarding to what Howard V. Perlmutter has written in his article about international marketing strategies, the most talented and skilled employees, in a worldwide context, are recruited for the headquarter as well as for the affiliates: “Geocentrism is characterized by the attitude of the best men for the job irrespective of national origin” (Perlmutter et al., 1973, p. 15).

This concept is constructed on the idea that the worldwide resources are used as efficiently as possible (Perlitz, 2004, p. 120). This pattern will be discussed in a wider context with pros and cons in the following chapter.

The following graphic should visualize the differentiation between the three orientations, firstly mentioned by H. Perlmutter in 1969:

Ethnocentrism Polycentrism Geocentrism

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FIGURE 1: SOURCE: OWN GRAPHIC = Headquarters = Subsidiaries

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