The EPG Model
It can be difficult for any organization to maintain its focus and direction, but that is especially true of firms that do business on an international level. When an organization grows to the point of having operations in more than one country, it will always run the risk of going off in too many different directions to be successful. Instead of moving in directions that are not going to allow the business to ultimately reach its desired destination, it is important that the organization remain focused on its core values and culture in order to thrive.
It is against that backdrop that the EPG model comes into focus. This is an important business model which can be used to help organizations who compete on an international level ensure that they are working toward the right goals and objectives. If the ‘strategic profile’ of the company is out of line with what they are trying to accomplish, trouble will likely be soon to follow. Fortunately, using this model can be a quick and easy way to bring things back into line.
The ‘EPG’ in the title of this model stands for the following –
Knowing where your organization lies under these three headers is important, whether you happen to find your company under just one or perhaps a combination of two or three.
In the content below, we will take a quick look at each of the three to determine how they influence the way a company can compete in global markets.
The idea behind ethnocentrism is the concept that the organization is going to default to the thinking, traditions, and more of its home country. For instance, if a company is based in the United Kingdom and has leadership from the U.K., that background is going to shape its decision making. Even if there are plenty of branch offices in locations around the world, the company will default back to the ways of doing business in the U.K. because that is what they know best.
There are both positives and negatives to running an organization in an ethnocentric manner. On the plus side, running the business this way can keep things simple. As noted earlier, it is not easy to run a business that is operating around the globe, as there will always be the potential to get off-track in terms of goals and the overall direction of the business. By sticking with an ethnocentric approach, you should be able to keep everyone moving in the same direction – even if they don’t necessarily always agree with the decision making or strategy coming from the home office.
On the downside, it can be hard to properly grow the business in other nations when making decisions based on how things are done at home. Since most decisions are based on the line of thinking that applies to the home market, those choices might not be entirely relevant in other places. Also, if local branches are not trusted to make decisions in a manner that they see fit, those employees may look for other opportunities where they will be more valued as an asset to the business.
In contrast to ethnocentrism, polycentrism defaults to the strategies, methods, and techniques of the host country when it comes to decision making for the organization. Instead of looking back to the country of origin for the business when making choices, an organization working with a polycentric approach will put more trust in the people working in the various countries in which they operate. Rather than taking a ‘one-size-fits-all’ approach to decision making and management, there will be more diversity in the company based on how each individual country should be handled.
As is usually the case, there are positives and negatives to be seen with this pattern. On the plus side, the local offices around the world tend to be more engaged and more satisfied with their work since they are valued and trusted. Sales are often boosted as a result, since the company remains in touch with local trends, cultures, and more. On the downside, however, there is a concern regarding duplication which can cause costs to rise. Putting more emphasis on the local offices will create a situation in which those offices are doing the same work that is being done in other parts of the world – causing costs to rise unnecessarily. Also, the experience and knowledge that is possessed by the home country office may go to waste, since the emphasis will be placed on locals in branch offices.
The final element within this model is geocentrism, which is the approach taken by organizations trying to use a ‘world view’ in order to run their business. In many ways, this is an approach that falls somewhere between the first two that we have covered. A geocentric organization will not default to either the customs and traditions of their home country or the host country. Rather, this kind of organization will focus only on what they think is best for the needs of the organization and its customers. To the greatest extent possible, nationalities are largely ignored in this system, with the company being run as a global enterprise rather than a large corporation which is deeply rooted in one specific nation.
Unification is the ultimate goal of a geocentric operation. The company does not want to have divisions within its ranks based on nationality. Instead, they want to operate as a cohesive unit, just as a company would that is operating in just one country. While there can be drawbacks to this plan in terms of travel costs and educational investments, there are also benefits in the form of a better global outlook and an elevated level of goods and services.
The right way to approach running a business on an international scale is going to depend on the business at hand, the people involved, and plans for the future. Each of the three options included in this model can be successful in the right circumstance, and each can fail in the wrong situation. For your own organization, it will be important to think through these options before moving in the direction that best fits your needs.
- The EPG model is a framework for a firm to better pinpoint its strategic profile in terms of international business strategy.
- The model states that a multinational organisation holds one of three orientations at any point in time:
- Ethocentric orientation is where the organization’s senior management believe that nationals from the organisation’s home country are more capable to drive international activities forward than non-native employees.
- Polycentric orientation assumes that host country cultures are different making a centralised approach unfeasible.
- In Geocentric orientation nationalities are largely ignored, with the company being run as a global enterprise rather than a large corporation which is deeply rooted in one specific nation.
- The model suggests that most multinationals start out with an ethnocentric view, evolve to polycentrism and finally adopt geocentrism.
- The EPG Model provides insight in how far an organisation has internationalised.