Perlmutter’s Models of Managing Globally
Essay title: Perlmutter’s Models of Managing Globally
The company wishes to start its operations abroad ought to choose the character of this subsidiary and the way it is going to be managed. Perlmutter (1969) comes out with the concept of four styles of managing abroad.
Ethnocentric subsidiary is managed mainly by home country nationals, with the home country language and culture. Therefore, the recruitment for majority management positions takes place in home country (Muijen et al 2000). For example, the unwritten policy of Ikea is that CEO of any of its overseas units is more likely to be Swedish. In consequences, companies are using home routines and methods to manage its subsidiary, assuming that something that works in their countries must work in anothers (Permutter 1969). This is somehow wrong attitude and this model fail to take under consideration factors present at the foreign markets such as cultural differences, legal issues and marketing differences in terms of customers preferences (Heer and Noon 2001). However, enthusiast of this approach very often claim that it is difficult to find sufficient managers on the foreign and in consequence less known market. They also stresses that home country exaptriates give the headquarter
more control over its overseas unit. Enthnocentrism, however widely criticised is still present in some corporate behaviour and only american citizens can reach senior management positions in american companys subsidiary (Perlmutter 1969).
On the contrary, Perlmutter presents the polycentric approach. It assumes that host country cultures are different and difficult to understand. Therefore, local people know more about local culture, employment relations and legal issues regarding human resources management, so then the subsidiary should have strong local identity (Suutari and Brewster 1999). Therefore, local units can operate independently with high level of autonomy and very little, mainly financial control form headquarter
(Mabey, Salam & Storey 1998). So, headquarter
is very often not even interested in operational method of its subsidiary as long as it makes profits (Perlmutter 1969). However, polycentric approach pushes the organisation towards denentralised structure and home country company may very easily loose control over its host country unit (Mabey, Salaman & Storey 1998). In compare to the ethnocentric company which is relatively cheap option, polycentric approach may generate some dual costs such as keeping two separate
R&D units for in both home and host countries.
Therefore, the third Perlmutters concept of geocentrism is based on greater centralisation, coordination and integration. This model compromise universal home country standards with local advantages of host country environment (Temple 2001). Within legal and political boundaries, companies should look for the best people for the particular role, regardless of their nationality. Even though, those companies are very often subject to