chapter  7
10 Pages

The Tortuous Evolution of the Multinational Corporation

ByHoward V. Perlmutter

Two hypotheses seem to be forming in the minds of executives from international firms that make the extent of their firm's multinationality of real interest. The first hypothesis is that the degree of multinationality of an enterprise is positively related to the firm's long-term viability. The second hypothesis stems from the proposition that the multinational corporation is a new kind of institution—a new type of industrial social architecture particularly suitable for the latter third of twentieth century. Polycentric firms are those which, by experience or by the inclination of a top executive, begin with the assumption that host-country cultures are different and that foreigners are difficult to understand. Executives can draw their firm's profile in ethnocentric (E), polycentric (P) and geocentric (G) (EPG) dimensions. The costs of ethnocentrism are ineffective planning because of a lack of good feed-back, departure of the best men in the subsidiaries, fewer innovations, and an inability to build a high calibre local organization.