Introduction To International Business 1

Chapter –1

I NTROD UCTIO N
TO
I NTERNATIONAL BUSINESS

1.1 MEANING
International business refers to the trade of goods, services, technology, capital
and/or knowledge across national borders and at a global or transnational scale. It
involves cross-border transactions of goods and services between two or more countries.
International business refers to the trade of goods, services, technology, capital and/or
knowledge across national borders and at a global or transnational scale.
It involves cross-border transactions of goods and services between two or more
countries. Transactions of economic resources include capital, skills, and people for the
purpose of the international production of physical goods and services such as finance,
banking, insurance, and construction. International business is also known as
globalization.
To conduct business overseas, multinational companies need to bridge separate
national markets into one global marketplace. There are two macro-scale factors that
underline the trend of greater globalization. The first consists of eliminating barriers to
make cross-border trade easier (e.g. free flow of goods and services, and capital, referred
to as "free trade"). The second is technological change, particularly developments in
communication, information processing, and transportation technologies. The world has
become a “global village.” The business has expanded and is no longer restricted to the
physical boundaries of the country.
Even countries that were self-sufficient now rely on other countries to purchase goods
and services. They are also ready to supply goods and services to developing countries.
There is a shift from independence to addiction. This is due to the development of new
communication modes and infrastructure equipment as a faster and more efficient means
of transportation. That brought the nations closer to each other. In addition to
technological developments, the World Trade Organization (WTO) infrastructure and
communication efforts implemented by governments of various countries are also one of
the main reasons for increasing trade exchanges between countries.
Definition of International Business
Roger Bennet defines, International business involves commercial activities that
cross national frontiers
According to John D. Daniels and Lee H. Radebaugh, International business is all
business transactions-private and governmental- that involve two or more countries.
Private companies undertake such transactions for profits, governments may or may not
do the same in their transactions.
International business comprises all commercial transactions (private and
governmental, sales, investments, logistics, and transportation) that take place between
two or more regions, countries and nations beyond their political boundaries. Usually,
private companies undertake such transactions for profit; governments undertake them
for profit and for political reasons. It refers to all those business activities which involve

 
2 International Bus. (Sem. – III)

cross border transactions of goods, services, resources between two or more nations.
Transaction of economic resources include capital, skills, people etc. for international
production of physical goods and services such as finance, banking, insurance,
construction etc.
A multinational enterprise (MNE) is a company that has a worldwide approach to
markets and production or one with operations in more than a country. An MNE is often
called multinational corporation (MNC) or transnational company (TNC). Well known
MNCs include fast food companies such as McDonald's and Yum Brands, vehicle
manufacturers such as General Motors, Ford Motor Company and Toyota, consumer
electronics companies like Samsung, LG and Sony, and energy companies such as
ExxonMobil, Shell and BP. Most of the largest corporations operate in multiple national
markets.
Areas of study within this topic include differences in legal systems, political systems,
economic policy, language, accounting standards, labor standards, living standards,
environmental standards, local culture, corporate culture, foreign exchange market, tariffs,
import and export regulations, trade agreements, climate, education and many more
topics. Each of these factors requires significant changes in how individual business units
operate from one country to the next.
Factors influences the growth in globalisation
There has been growth in globalization in recent decades due to the following eight
factors :
i) Technology is expanding, especially in transportation and communications.
ii) Governments are removing international business restrictions.
iii) Institutions provide services to ease the conduct of international business.
iv) Consumers know about and want foreign goods and services.
v) Competition has become more global.
vi) Political relationships have improved among some major economic powers.
vii) Countries cooperate more on transnational issues.
viii) Cross-national cooperation and agreements.
The International Business standards focuses on the following :
i) raising awareness of the interrelatedness of one country's political policies and
economic practices on another;
ii) learning to improve international business relations through appropriate
communication strategies;
iii) understanding the global business environment—that is, the interconnected-ness
of cultural, political, legal, economic, and ethical systems;
iv) exploring basic concepts underlying international finance, management,
marketing, and trade relations; and
v) identifying forms of business ownership and international business opportunities.
By focusing on these, students will gain a better understanding Political economy.
These are tools that would help future business people bridge the economical and political
gap between countries.
There is an increasing amount of demand for business people with an education in
International Business. A survey conducted by Thomas Patrick from University of Notre
Dame concluded that Bachelor's degree holders and Master's degree holders felt that the
training received through education were very practical in the working environment.
Business people with an education in International Business also had a significantly
higher chance of being sent abroad to work under the international operations of a firm.

 
Introduction To International Business 3

1.2. SCOPE OF INTERNATIONAL BUSINESS

1. International trade : International business includes the import and export of
goods.
2. Service export and import : It is also known as invisible commerce. Invisible
commerce items include tourism, transportation, telecommunications, banking,
warehousing, distribution, and advertising.
3. Licenses and franchises : A license is a contractual arrangement that allows one
company (licensor) access to its patents, copyrights, trademarks, or technologies
to another foreign company (licensee) at a rate called royalties. Pepsi and Coca-
Cola are produced and sold worldwide under a licensing system. A franchise is
similar to a license, but a term used in connection with the provision of services.
For example, McDonald’s operates fast-food restaurants around the world
through its franchise system.
4. Foreign investment : It involves investing funds abroad in exchange for economic
profitability.
There are two types of foreign investment.
a) Foreign Direct Investment (FDI)- Investing in foreign assets such as plants and
machinery for the purpose of producing and marketing goods and services abroad.
b) Portfolio Investment- Investing in foreign company stocks or obligations to earn income
through dividends or interest.
1.3. FEATURES OF INTERNATIONAL BUSINESS
1. It includes two countries : international business is only possible when there are
transactions in different countries.
2. Use of currencies : Each country has its own different currency. This causes
currency exchange problems as foreign currencies are used to carry out
transactions.
3. Legal obligations : Each country has its own laws regarding foreign trade, which
must be complied with. Moreover, in the case of international transactions, there
is more government intervention.
4. High risk : International companies face great risks due to long distances, the risk
of fluctuations between the two currencies, and the risk of obsolescence.
5. Heavy document : Subject to a series of steps. Many documents need to be
completed and sent to the other party.
6. Time consumption : The time interval from sending and receiving goods to
payment is longer than that of domestic transactions.
7. Lack of personal contact : Lack of direct and personal contact between importers
and exporters.
1.4. FACTORS
Factor # 1. Culture : Due to the variety of cultures, companies need to learn about
foreign cultures before doing business abroad. Bad decisions can result from the improper
assessment of national preferences, customs, and customs. Many companies are aware
that culture is changing and are tailoring their products to that culture. For example,
McDonald’s sells Veggie burgers instead of beef burgers in India.
Factor # 2. Economic system : Companies need to be aware of the types of economic
systems used in the countries they are considering doing business with. The country’s
economic system reflects the degree of state ownership of a company and its intervention
in the company. Many companies usually prefer countries without excessive government
intervention. Governments have their own policies regarding business ownership, but
most policies can be categorized as capitalist, communist, or socialist.

 
4 International Bus. (Sem. – III)

Factor # 3. Economic situation : To forecast the demand for products in a foreign

country, companies need to forecast the economic situation in that country. The overall
performance of a company depends on the company’s sensitivity to foreign economic
growth and the circumstances of that country.
Factor # 4. Exchange rate : Countries generally have their own currency. The United
States uses dollars ($), the United Kingdom uses British pounds (£), Canada uses
Canadian dollars (C $), and Japan uses Japanese yen (¥). Recently, 12 European countries
have adopted the euro (€) as their currency.
Exchange rates between the US dollar and currencies fluctuate over time. As a result,
the amount required by a US company to purchase a foreign supply may change, even if
the actual price charged to the supply by the foreign producer does not change.
Factor # 5. Political risks and regulations : Companies also need to consider the
political risks and regulatory environment of a country before deciding to do business in
that country. Political risk is the risk that a country’s political behavior can adversely affect
a company.
1.5. REASON FOR INTERNATIONAL BUSINESS
˜ Uneven Distribution of Natural Resources: Due to unequal distribution of
natural resources, all countries cannot produce goods at a low cost. As a
consequence, it has an impact on their productivity levels. Therefore, the
countries with less quantity of a natural resource either purchase the resource or
the actual product itself from the countries with an abundance of these. For
example, crude oil is exported from the USA as it is found in abundance there.
˜ Availability of Productivity Factors: The numerous production variables, like
labor, capital, and raw materials that are required to produce and distribute
diverse commodities and services are found in different quantities in different
countries. It gives rise to buying and selling of productivity factors among the
countries. For example, due to unemployment in India, foreign countries can
employ labor at chap rates from India.
˜ Specialization: Some countries specialize in producing goods and services for
which they have advantages such as education, favorable climatic circumstances,
and so on. It results in the business between different countries for the purchase
and sale of specialized products. For example, the Indian market specializes in
handcraft products which increases its exports to other countries.
˜ Cost Advantages: Production costs vary according to geographical, political, and
socioeconomic situations in different countries. Some countries are in a better
position to manufacture certain commodities at a lower cost than others. Firms
participate in international trade to purchase products that are cheaper in other
countries and to sell things that they can supply at a lower cost. For
example, China sells various goods at a low price to different countries all over
the world because of the cost advantage.
1.6. BENEFITS OF INTERNATIONAL BUSINESS
Benefits to countries
˜ Foreign Exchange : It assists a country in earning foreign exchange, which may
then be utilized to buy capital goods, technology, and other products from foreign
countries.
˜ More Efficient Resource Utilization : It is based on the comparative cost
advantage theory. It entails producing what your country can produce more
efficiently and trading the surplus production with other countries to purchase
what they can produce more efficiently. In this way, countries can make better use
of their resources.

 
Introduction To International Business 5

˜ Growth Possibilities and Job Opportunities : Countries can enhance their

manufacturing capacity to supply commodities to other countries through
external trade. If external trade holds, the production will rise, increasing the GDP
level of the country, resulting in economic growth. With more production, the
demand for more labor also rises. Therefore, the international business also
creates job opportunities.
Improved Standard of Living : International business allows individuals to
˜
consume goods and services from other countries. Consumption of a variety of
goods and services improves the standard of living of the people.
Benefits to firms
˜ Profit Opportunities : When compared to local business, international business is
more profitable. When domestic prices are lower, businesses can make more
money by selling their products in other countries.
˜ Increased Resource Utilization : Many enterprises anticipate international
growth and get orders from foreign clients to set up production capabilities for
their products that are more in demand in the local market. It enables them to
better utilize their excess resources.
˜ Growth Prospects : When demand falls or the domestic market reaches saturation
point, business enterprises become irritated. By expanding internationally, such
businesses can increase their growth potential significantly.
˜ Decrease Competition : When domestic competition is fierce, internationalization
appears to be the only option to achieve success and required growth. Many
businesses are motivated to expand into overseas markets because of the fierce
competition in the domestic markets.
˜ Improved Business Vision : Many firms’ existence and goodwill depend on their
ability to expand their worldwide business. The desire to expand and diversify, as
well as to take advantage of the strategic advantages of internationalization, is
expressed in the desire to become more international.
1.7. RISKS
˜ Faulty Planning
To achieve success in penetrating a foreign market and remaining profitable, efforts
must be directed towards the planning and execution of Phase I. The use of conventional
SWOT analysis, market research, and cultural research, will give a firm appropriate tools
to reduce risk of failure abroad. Risks that arise from poor planning include: large
expenses in marketing, administration and product development (with no sales);
disadvantages derived from local or federal laws of a foreign country, lack of popularity
because of a saturated market, vandalism of physical property due to instability of
country; etc. There are also cultural risks when entering a foreign market. Lack of research
and understanding of local customs can lead to alienation of locals and brand
dissociation. Strategic risks can be defined as the uncertainties and untapped
opportunities embedded in your strategic intent and how well they are executed. As such,
they are key matters for the board and impinge on the whole business, rather than just an
isolated unit.
˜ Operational risk
A company has to be conscious about the production costs to not waste time and
money. If the expenditures and costs are controlled, it will create an efficient production
and help the internationalization. Operational risk is the prospect of loss resulting from
inadequate or failed procedures, systems or policies; employee errors, systems failure,
fraud or other criminal activity, or any event that disrupts business processes.

 
6 International Bus. (Sem. – III)

˜ Political risk
How a government governs a country (governance) can affect the operations of a
firm. The government might be corrupt, hostile, or totalitarian; and may have a negative
image around the globe. A firm's reputation can change if it operates in a country
controlled by that type of government. Also, an unstable political situation can be a risk
for multinational firms. Elections or any unexpected political event can change a country's
situation and put a firm in an awkward position. Political risks are the likelihood that
political forces will cause drastic changes in a country's business environment that hurt
the profit and other goals of a business enterprise. Political risk tends to be greater in
countries experiencing social unrest. When political risk is high, there is a high probability
that a change will occur in the country's political environment that will endanger foreign
firms there. Corrupt foreign governments may also take over the company without
warning, as seen in Venezuela.
˜ Technological risk
Technological improvements bring many benefits, but some disadvantages as well.
Some of these risks include "lack of security in electronic transactions, the cost of
developing new technology ... the fact that this new technology may fail, and, when all of
these are coupled with the outdated existing technology, [the fact that] the result may
create a dangerous effect in doing business in the international arena."
˜ Environmental risk
Companies that establish a subsidiary or factory abroad need to be conscious about
the externalizations they will produce, as some may have negative effects such as noise or
pollution. This may cause aggravation to the people living there, which in turn can lead to
a conflict. People want to live in a clean and quiet environment, without pollution or
unnecessary noise. If a conflict arises, this may lead to a negative change in customer's
perception of the company. Actual or potential threat of adverse effects on living
organisms and environment by effluents, emissions, wastes, resource depletion, etc.,
arising out of an organization's activities is considered to be risks of the environment. As
new business leaders come to fruition in their careers, it will be increasingly important to
curb business activities and externalizations that may hurt the environment.
˜ Economic risk
These are the economic risks explained by Professor Okolo: "This comes from the
inability of a country to meet its financial obligations. The changing of foreign-investment
or/and domestic fiscal or monetary policies. The effect of exchange-rate and interest rate
make it difficult to conduct international business." Moreover, it can be a risk for a
company to operate in a country and they may experience an unexpected economic crisis
after establishing the subsidiary.[20] Economic risks is the likelihood that economic
management will cause drastic changes in a country's business environment that hurt the
profit and other goals of a business enterprise. In practice, the biggest problem arising
from economic mismanagement has been inflation. Historically many governments have
expanded their domestic money supplying misguided attempts to stimulate economic
activity.
˜ Financial risk
According to Professor Okolo: "This area is affected by the currency exchange rate,
government flexibility in allowing the firms to repatriate profits or funds outside the
country. The devaluation and inflation will also affect the firm's ability to operate at an
efficient capacity and still be stable."[17] Furthermore, the taxes that a company has to pay
might be advantageous or not. It might be higher or lower in the host countries. Then "the
risk that a government will indiscriminately change the laws, regulations, or contracts
governing an investment—or will fail to enforce them—in a way that reduces an investor's

 
Introduction To International Business 7

financial returns is what we call 'policy risk.'" Exchange rates can fluctuate rapidly for a
variety of reasons, including economic instability and diplomatic issues.
˜ Terrorism
Terrorism is a voluntary act of violence towards a group(s) of people. In most cases,
acts of terrorism is derived from hatred of religious, political and cultural beliefs. An
example was the infamous 9/11 attacks, labeled as terrorism due to the massive damages
inflicted on American society and the global economy stemming from the animosity
towards Western culture by some radical Islamic groups. Terrorism not only affects
civilians, but it also damages corporations and other businesses. These effects may
include: physical vandalism or destruction of property, sales declining due to frightened
consumers and governments issuing public safety restrictions. Firms engaging in
international business will find it difficult to operate in a country that has an uncertain
assurance of safety from these attacks.
˜ Bribery
Bribery is the act of receiving or soliciting of any items or services of value to
influence the actions of a party with public or legal obligations. This is considered to an
unethical form of practicing business and can have legal repercussions. Firm that want to
operate legally should instruct employees to not involve themselves or the company in
such activities. Companies should avoid doing business in countries where unstable forms
of government exist as it could bring unfair advantages against domestic business and/or
harm the social fabric of the citizens.
1.8. INTERNATIONAL BUSINESS VS DOMESTIC BUSINESS VS INTERNATIONAL
TRADE
˜ Domestic or national business refers to business transactions within a country’s
territorial limits. Other names for it include internal business and house trade.
International business refers to production and trading outside of one’s nation.
Therefore, company activities that cross national borders are referred to as global
or external business. Along with the international trade of products and services,
internal business also encompasses the movement of money, people, and
intellectual property, including patents, trademarks, know-how, and copyrights.
˜ International business has always relied heavily on international trade, which
consists of goods, exports, and imports. However, recent years have seen a
significant increase in the reach of global commerce. International trade services
include communication, banking, travel and tourism, transportation,
warehousing, distribution, and advertising. They are closer to international clients
and provide them with more efficient services at lower costs.
˜ Businesses have started investing more money abroad and producing goods and
services there. All these falls under the umbrella of global industry. However,
internationalization is a much broader phrase that includes the production and
trade of commodities and services across borders.
1.9. WHAT IS THE EPRG FRAMEWORK?
EPRG stand for Ethnocentric, Polycentric, Regiocentric, and Geocentric. It is a
framework created by Howard V Perlmuter and Wind and Douglas in 1969.
It is designed to be used in an internationalization process of businesses and mainly
addresses how companies view international management orientations. According to the
EPRG Framework (or the EPRG Model), there are four management approaches that an
organization can take to get more involved in international business substantially.
The EPRG Framework suggests that companies must decide which approach is most
suitable for achieving successful results in countries abroad.

 
8 International Bus. (Sem. – III)

For this reason, the EPRG Framework can be a useful tool to utilize if a company does
not know yet how to manage business activities between companies in the local country
and a host country. The EPRG Framework is additionally useful for making strategic
decisions.
Different attitudes towards company’s involvement in international marketing
process are called international marketing orientations. EPRG framework was introduced
by Wind, Douglas and Perlmutter. This framework addresses the way strategic decisions
are made and how the relationship between headquarters and its subsidiaries is shaped.
Perlmutter’s EPRG framework consists of four stages in the international operations
evolution. These stages are discussed below.
Ethnocentric Orientation
The practices and policies of headquarters and of the operating company in the home
country become the default standard to which all subsidiaries need to comply. Such
companies do not adapt their products to the needs and wants of other countries where
they have operations. There are no changes in product specification, price and promotion
measures between native market and overseas markets.
The general attitude of a company's senior management team is that nationals from
the company's native country are more capable to drive international activities forward as
compared to non-native employees working at its subsidiaries. The exercises, activities
and policies of the functioning company in the native country becomes the default
standard to which all subsidiaries need to abide by.
The benefit of this mind set is that it overcomes the shortage of qualified managers in
the anchoring nations by migrating them from home countries. This develops an affiliated
corporate culture and aids transfer core competences more easily. The major drawback of
this mind set is that it results in cultural short-sightedness and does not promote the best
and brightest in a firm.
Regiocentric Orientation
In this approach a company finds economic, cultural or political similarities among
regions in order to satisfy the similar needs of potential consumers. For example, countries
like Pakistan, India and Bangladesh are very similar. They possess a strong regional
identity.
Geocentric Orientation
Geocentric approach encourages global marketing. This does not equate superiority
with nationality. Irrespective of the nationality, the company tries to seek the best men
and the problems are solved globally within the legal and political limits. Thus, ensuring
efficient use of human resources by building strong culture and informal management
channels.
The main disadvantages are that national immigration policies may put limits to its
implementation and it ends up expensive compared to polycentrism. Finally, it tries to
balance both global integration and local responsiveness.
Polycentric Orientation
In this approach, a company gives equal importance to every country’s domestic
market. Every participating country is treated solely and individual strategies are carried
out. This approach is especially suitable for countries with certain financial, political and
cultural constraints.
This perception mitigates the chance of cultural myopia and is often less expensive to
execute when compared to ethnocentricity. This is because it does not need to send skilled
managers out to maintain centralized policies. The major disadvantage of this nature is it
can restrict career mobility for both local as well as foreign nationals, neglect headquarters
of foreign subsidiaries and it can also bring down the chances of achieving synergy.

 
Introduction To International Business 9
EPRG Framework approaches
Ethnocentric
In this approach of the EPRG Framework, the company in a local country that wants
to do business overseas does not put in much effort to do research abroad about the host
country’s market. Instead, most of the market research is executed in the headquarters in
the local country.
With this approach, the company seeks for markets abroad that share the same
characteristics as the local market so that the marketing strategy does not have to be
adapted. More specifically, the ethnocentric approach uses the same marketing strategies
that are created by local personnel and further utilized multiple countries.
It is many times possible that companies that utilize this approach believe that local
products should not be adapted to the local need of countries abroad because the products
are already of high quality. Another reason could be that a specific product is sold in large
volume in the local market, and for this reason, it is believed it will do the same in other
markets abroad.
The ethnocentric approach of the EPRG Framework has benefits but also downsides.
At first, the company saves a lot of operational costs that can be invested elsewhere. But
the downside is that the company does not build up new knowledge about the market
abroad, which could substantially increase sales volume if products and strategies would
be adopted to the needs of the host country.
Polycentric
In the polycentric approach of the EPRG Framework is the opposite of the
ethnocentric approach. A company that utilizes this approach carefully consider different
markets abroad to identify host countries that could potentially offer the most benefits.
It means that if a company has a local headquarter and a separate office overseas in a
host country that manages the operations in that or more countries, the marketing
strategies are locally created and implemented based on the local needs.
Businesses that utilize the polycentric approach of the EPRG Framework strongly
believe that every market has its differences. For this reason, these types of companies
implement different marketing strategies for each market.
In the polycentric approach, it is therefore easier to make strategic decisions based on
current cultural differences and political differences. Companies that use this approach
can also more easily adapt to changes in the market because of their decentralized
decision-making authorities.
The downside is that the local headquarter has less control over its operations abroad.
As long as the business operations in the host country demonstrate to be successful, this
might not be a problem. But if the business operations overseas show to be not too
profitable and result in losses, it is more difficult for the local company to minimize those
losses.
However, companies that use this approach learn by doing. For this reason, a
learning effect occurs, and new knowledge is an intellectual asset of the company.
If a company is the first to enter a market or offer an unfamiliar product, the local
company has first-mover advantages. It could have the best location in a host country to
operate the business, and this could additionally substantially increase profit margins.
Regiocentric
In a regiocentric approach of the EPRG Framework, businesses create and implement
internationalization strategies for specific regions. Companies that utilize this type of
approach use this for the area in which the local business is operated.
It can also be that an organization utilizes two kinds of approaches. An organization
can use a regiocentric approach for the business in the region in which it operates. And the

 
10 International Bus. (Sem. – III)

same organization can use a polycentric or ethnocentric approach to do business in

countries outside the region.
Businesses that use a regiocentric approach of the EPRG Framework many times believe
that the markets in the region share the same characteristics of the market in the home
country.
It is still challenging to determine countries in one region that share the same
characteristics. Consider, for example; some companies use this approach for NAFTA
countries, which include the United States, Canada, and Mexico.
All countries are in the same region but still have some different characteristics. The
same implies for the Benelux, which include Belgium, Netherlands, and Luxembourg. The
countries are in the same region, but Belgium has different market characteristic than the
Netherlands and Luxembourg.
The reason why companies use this approach to group countries into for example
NAFTA and Benelux. is depending on the type of industry and product or service. Every
organization has its way of internationalization.
Geocentric
A geocentric approach of the EPRG Framework means that a business strongly
believes that it is possible to utilize one type of strategy for all countries, regardless of the
cultural differences.
However, companies that use this approach attempt to create products or offer
services in a way that best suit national and international customers. This means that
instead of believing that their product or service is excellent and that it will sell in other
markets, like in the ethnocentric approach, these organization proactively adapt their
products and services that best meet the global needs.
Companies sometimes prefer this type of strategy of the EPRG Framework because it
does not involve many adoptions, which minimizes operational costs. These companies
use one strategy to sell a product or service, and could for this reason, achieve economies
of scale.
Organizations that have a geocentric approach are many times considered as key
international businesses because these companies utilize a combination of the polycentric
and ethnocentric approaches.
It means that organizations with a geocentric approach of the EPRG Framework can
identify similar cultural characteristic, and they can convert the different cultural
characteristics into mutual characteristics.
Ethnocentric Orientation in EPRG Framework
Under this orientation, the management beliefs that marketing practices followed
in the home country will succeed in the foreign markets. No adaptation is required to
launch a business into another country.
In this orientation Foreign markets are looked as just extended arms of domestic
markets. In such firms all foreign market operation planning and strategizing is done from
the home base. There is little or no differentiation in products, price and promotional
measures according to international market.
The management is inclined over hiring top executives from home country because
they have a notion that domestic nationals have more supremacy over driving the
business.
Advantages of Ethnocentric Orientation
˜ There is better coordination between the home and host country as strategic
decisions are taken centrally for all subsidiaries.
˜ Saves cost of hiring top level management in international market as officials can
migrate from the home country whenever required.

 
Introduction To International Business 11

The parent company can have a better watch on the operations and hence exercise
˜
an effective control over the subsidiary.
Disadvantages of Ethnocentric Orientation
˜ It shows cultural short-sightedness of the organization.
˜ The failure rate of business decisions under this approach is relatively high.
Example of Ethnocentrism
Nissan’s earliest exports from Japan were automobiles designed for mild Japanese
winters. When exported to USA, a company with extreme winters, these vehicles were
difficult to start.
There were locations in Northern Japan where there were comparatively chilled
winters but the car owners here would put blankets over car hoods. Nissan management
assumed that even US customers would do that.
Nissan tried for a long time to design cars in Japan and shove it in the US market. But
all was for vain.
Similar was the case when Walt Disney decided to venture into France with similar
marketing strategies as in US. The minister of culture in Paris announced that the park be
boycotted because it was an unwelcome symbol of American Clichés and consumer
society.
At the same time there were political clashes between the US government and French
Farmer associations. There were operational errors that existed.
For instance, keeping their strategies similar to US, they had declared this amusement
parks to be alcohol-free. But this did not play very well in country where a glass of wine
for lunch is a given.
Polycentric Orientation in EPRG Framework
This orientation is completely opposite to the mindset in ethnocentric orientation. The
manager under this approach believe that all markets are different in nature and thus
have their different needs.
There is complete autonomy for subsidiaries to formulate their own marketing and
operational plans. There are executives from host countries who carry out the decision
making.
Advantages of Polycentric Orientation
˜ Lower manpower cost as it does not require specialized officials from home
country to run operations.
Local officials have knowledge about the local market and hence take market
˜
centric decisions.
Disadvantages of Polycentric Orientation
˜ Lower control of headquarters over host country management.
˜Overall cost of the company generally tends to rise due to targeted offerings and
promotions.
Example of Polycentricism
McDonald’s is a prominent example of a firm following polycentric approach. Having
originated in USA, its menu in USA is centered around their local preference which is beef
and meat. When coming to India, it realized that Indians are culturally averse to eating
beef.
It not only took off his its offering in beef but came up with vegetarian offerings for
the Indian subcontinent. European McDonalds often serves wine in addition to soft
drinks. There is a special Dutch cookie Mcflurry on the menu in Netherlands.

 
12 International Bus. (Sem. – III)

Another firm with its polycentric approach is google. Do you care to notice the
changing doodles each day! Rather than attempting a single doodle worldwide, it adapts
itself according to different countries. There may be a different person being honored in
India and at the same time some other festival being celebrated in USA.
Regiocentric Orientation in EPRG Framework
In this approach, the management is of the mindset that similar countries that
happen to exist in the same region are similar in identity. This means that strategies that
are developed for the home country can work very well in these regional countries also.
The management of the company figure out the economic, social and political
similarities between the native and the oversees region and satisfy similar needs and
demands of the customers.
Advantages of Regiocentric Orientation
Cultural fit is the biggest advantage of regiocentricism as managers find it
˜
convenient to communicate with each other and other employees.
˜ The customers from the same region have similar likabilites and hence it is easy to
communicate and deliver to them.
Disadvantages of Regiocentric Orientation
It may lead to confusion between regional objectives and global objectives. The true
essence of globalization may become blurry.
Example of Regiocentricism
Coca Cola has been using a regiocentric approach in formulating its messages for a
basket of countries which includes India, Pakistan and Bangladesh.
Goodyear International, the tire major also has clubbed various countries with similar
policies and economic landscape. Asia-Pacific is one region, Europe is another and the rest
of the world is divided into Latin America, North America, Middle East and Africa.
Geocentric Orientation in EPRG Framework
Geocentric orientation is a truly global orientation. The management with this
mindset sees the whole world as a potential market.
The management considers that there are minimal differences in terms of marketing
environment amongst different countries. Thus, it is beneficial for a company to keep
a ‘world Oriented’ view rather than a country specific, multi-domestic approach.
The management identifies similarities and differences between markets and
countries and seeks to create a global strategy responsive to local needs.
Advantages of Geocentric Orientation
˜ A geocentric approach makes it possible for businesses to be competitive
wherever they are launched.
It’s a win-win situation for both the firm and the international markets as it is
˜
standardized but at the same time very agile.
Disadvantages of Geocentric Orientation
It is a challenge to find a management that is capable of adapting to multiple styles at
once.
There is a benefit lost in terms of being experts in one country or domain.
Example of Geocentricism
KFC has a ‘vegetarian thali’ and a Chana snacker to cater to vegetarians in India.
Viacom’s MTV channels are branded according to the country they are operated in
namely MTV India, MTC China, MTV Korea and many more. It hires more people from
these nationalities and plays according to respective cultures.

 
Introduction To International Business 13

Organizations go through different stages of the EPRG framework in their global

lifecycle. They start with ethnocentricity and may eventually change to geocentricism
passing through some phases of polycentricism.
The differences in EPRG orientations ultimately lead to companies involving in the
market selection process differently. It is understandable that an ethnocentric orientation
would lead companies to take up a less rigorous method for market selection as they
perceive all countries to have similar markets.
Whereas a polycentric orientation would mean companies indulging in a very
rigorous process for market selection.
Conclusion
˜ EPRG framework addresses the way strategic decisions are made influenced by
the four EPRG orientations
˜ Ethnocentric Orientation or Home country orientation sees the home market as
superior and sees similarities in other markets to their own
˜ Polycentric Orientation views each country as unique and outlines the
differences associated with each new country
˜ Regiocentric orientation can see similarities amongst a bunch of countries and
differences with the rest of the world
Geocentric orientation is truly global and it has a world-view and considers the
˜
whole world as a potential market.
EPRG Framework conclusions
Determining which approach to utilize is dependent on the type of business and in
which industry it operates. Due to globalization, many companies operate abroad or are
willing to do business overseas. However, doing business abroad really depends on the
size of the company and the experience they have.
Even if a business does not know yet what type of approach of the EPRG Framework
/ EPRG Model is most suitable to the current position of the company, it is always good to
research potential markets in term of what size, characteristic, and similar available
products in the market.
There is a lot to learn from competitors. This knowledge is free, and it could help to
identify what opportunities are available, and thus, which approach of the EPRG
Framework is best for an internationalization process.

QUESTIONS FOR SELF-PRACTICE

1. Explain the features of international business
2. Explain the scope of International business
3. Explain the ERPG
4. Explain the benefits of International trade
Short notes :
1. Factors influences the growth in globalization
2. International business
3. Benefits of International Business
4. ERPG framework