Let’s start by setting some context on why talking about International Business is important and then we will deal with more Intricate topics like the EPRG Framework for taking strategic decisions in International Marketing.
If you ask an MBA student, what are some of his/her dream companies, this is what the students have to say:
In order to simplify our discussion let’s just focus on some of these companies and get to know some facts about them.
The above tiles are indicative of the fact that some of the Big names that we want to work for in future are highly International in nature. These rapid developments in internationalization need a revolution in the old format of business practices.
There are massive organizations that have failed in the attempt of reaping benefits of this global regime. Walmart’s expansion with its big-box model to Brazil where Mom-and-Pop stores dominate is a case in point for how decisions have to be dealt with a reformed approach in international markets. That’s where our topic of discussion which is the EPRG Framework will help us.
Remember, a big business-like Walmart could absorb the loss due to its strong cash position but not all businesses have the same luxury.
Hence in this article let’s get to know why businesses expand into international markets and get to know about a very important framework that helps them make strategic decisions- EPRG Framework.
Why International Business?
Before getting on with our discussion on the EPRG approach we need to first establish why is it important to diversify into International operations? Let’s try and list some reasons out.
The rapid spread of informational through television and internet has aided firms to reach out to customers from around the world with their communications.
Companies can adapt the same message according to the people of different countries which helps them to reach a larger audience and at the same time keep their costs under control.
Have a look at this Coca-Cola Commercial adapted according to three countries:
An important factor for companies to seek global operations is cost competitiveness. Cost competitiveness is realized when firms achieve economies of scale and their operational costs come down. Internationalization helps in achieving both.
In the 1980s, Nike realized that it was losing its competitiveness due to rising costs. Until then it had most of its operations in US. It shifted its manufacturing to countries in Asia and in 1982, 86% of its footwear were being sourced from Korea and Taiwan.
Global Market Opportunities
It may be a scenario that the domestic market is saturated or is plush with a high competition. At the same time there are markets abroad that have huge market potential for growth.
Professionals dealing with International Business have to identify those opportunities and then leverage the market potential from these locations. For an example, do hear from Mr. Bharti Mittal himself on his views on Airtel expanding into African territories.
On diversifying into International markets, all companies seek to find similarities between domestic and international markets. They strive to make marketing strategies and campaigns standardized as far as possible in order to have a limit on their costs.
But more than often, market heterogeneity hinders this standardization. Company management have different orientations on the relationship between domestic and International Operations.
Let’s understand these orientations through the EPRG model in International Marketing.
EPRG Framework- What is it?
EPRG framework was introduced by Wind, Douglas and Perlmutter focusing on International marketing operations. It describes the different attitudes that the management of a company has about International Markets.
The EPRG framework addresses the ways strategic decisions are made in the company and what is the nature of relationship between the companies headquarters and its subsidiaries outside.
It consists of 4 stages and the framework states that companies operate in one of the following four ways in International markets.
EPRG Framework- Stages
There are four types of orientations known as the EPRG orientation in framework.
We will have a look at the detailed description of all the four types in the next segment of the article. Not only that we will also weigh in the advantages and disadvantages of all the four types.
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.
- 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.
Do read the full case of Disney in France for a better understanding.
Moving on to the next stage in the EPRG framework.
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.
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.
With that we move to our third type of orientation under the EPRG framework.
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.
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.
- 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.