The EPRG Model
Growing Into a Global Company
Imagine that three different companies have decided to expand and open new international offices.
Company A struggles in its new location for several years, and ends up closing its office, because it never meets its leaders' expectations. Company B has a difficult start in its new location, but it slowly begins to improve, although not as quickly as the organization had hoped. However company C's office starts well and continues to exceed expectations, year after year.
So, what's the difference between these companies?
Each has a different perspective on international growth.
Company A believes that its home country has the best staff, resources, and practices, so it creates an exact replica of itself in the host country. Company B slowly realizes that professionals in the host country have a better understanding of the local culture and values, so it customizes its approach to reflect the needs of the new culture.
Company C, however, believes that each international office is unique, right from the start. It encourages local professionals to apply for jobs, and it customizes processes and performance metrics to fit the host culture's values and beliefs.
Companies that expand internationally have a number of challenges to overcome; and one of the biggest is to change their perspective to adapt to their new markets. Your organization is most likely to succeed if you can model it after Company C, and embrace the global culture that we are all now part of.
In this article, we'll look at the EPRG Model – a model that international organizations can use to develop a strategic, global approach to international expansion.
Last updated in 1973, this is an old model. We describe it in this article, but we then discuss how business has evolved since it was published.
About the Model
Howard Perlmutter, a professor at the Wharton School of Business and a pioneer researcher into corporate globalization, developed the original EPG Model after studying how international corporations built their businesses and evolved in host countries. Perlmutter explained the model in his 1969 article, "The Tortuous Evolution of Multinational Corporations," published in the Columbia Journal of World Business.
The original EPG Model outlined three profiles, or orientations, that defined an organization's international business strategy. In 1973, Perlmutter, along with his colleagues, Yoram Wind and Susan Douglas, added a fourth element to the EPG Model: regiocentrism. They published the updated model, now called the EPRG Model, in the April 1973 Journal of Marketing.
The four profiles are:
- Ethnocentrism – Companies apply the values of their home country to the new office.
- Polycentrism – Companies begin to appreciate the values and working styles of the host nation.
- Regiocentrism – Companies realize that that even regional offices need to adopt a tailored approach to work.
- Geocentrism – Team members are chosen for their skills and experience, regardless of their nationality or location.
Put simply, these four profiles reflect the attitude that your organization has toward its international operations. You could also look at these as stages of organizational evolution; as your organization becomes more international, it's likely to move from ethnocentrism through to geocentrism. Each profile requires a different management strategy, as each has different costs and benefits.
Because geocentrism is the most open, flexible, and culturally-attuned perspective, your ultimate goal will often be to help your organization achieve this mind-set.
According to the authors, organizations that have recently expanded overseas sometimes have an "ethnocentric attitude"; that is, managers (sometimes subconsciously) believe that their domestic techniques, processes, performance metrics, and staff are superior to those in the foreign country. As a result, they make few, if any, changes to the internal processes and techniques that they apply to the new office. The foreign office is managed, and perhaps even staffed, by professionals who have relocated from the home country.
As the organization evolves, it begins to take on a "polycentric" attitude; it realizes that local professionals in the host country, using local techniques, can be more effective in this new market. These local professionals are integrated into the new office, and performance metrics and processes that suit them are established. Some domestic professionals are sent back home.
A polycentric attitude can quickly run into problems with control and coordination; and this is especially true if the international office has expanded into several different regions within the host country. Here, the organization takes on a "regiocentrist" attitude, which recognizes that professionals within different regions of the host country should be encouraged to develop their own staff, strategies, techniques, and processes.
If these regional strategies are successful, the organization may transition to a "geocentrist" perspective over time. This attitude dissolves nationalities, borders, and ethnicities. Put simply, the organization works with professionals who are best suited to do the job, no matter where they live or where they're from. There is no bias shown to domestic or home country professionals.
Identifying Your Current Perspective
Below, we've outlined each element in the EPRG Model. You can start to use the model by thinking about which element best describes your organization's current situation. We can then look at strategies that you can use to steer your organization toward the geocentrist perspective, if this is appropriate.
Ethnocentric literally translates as "nation-centered." Organizations with this perspective believe that they'll succeed if they transfer their people, processes, techniques, and even values to the country that they have expanded into.
In ethnocentric organizations, home standards, performance metrics, strategy, and personnel are applied automatically when an expansion takes place. These organizations may keep offices in the host country simple and basic, and there is little room for flexibility or innovation.
Polycentric organizations recognize the mistakes that they may have made with an ethnocentrist, "one size fits all" approach. The evolution to polycentrism often takes place when a new office doesn't perform as well as projected, and as managers in the home country struggle to explain why.
Polycentrist organizations begin to appreciate the values, beliefs, working styles, and potential of the host country and its professionals. Managers start to realize that "different" might not mean "bad," and that professionals in the host country might have some good ideas on strategy and techniques that are culturally appropriate. As this evolution takes place, the organization begins to embrace the new culture, and to value its uniqueness.
Organizations that evolve into a regiocentric perspective will have opened offices in several different regions of the host country. These regions might differ widely in their values, working styles, and expectations. As a result, the company realizes that each regional office needs to adopt an approach to work that reflects these differences.
Geocentrism takes a "world view" regarding its people and their talents. In the eyes of a geocentric organization, it doesn't matter who you are, where you live, or where you're from; staff members are chosen based on their talent, ability, and experience.
Geocentric organizations are comfortable collaborating with regional and with home offices. Locations outside the home country are not seen as "satellites," but as crucial parts of a whole organization. Business processes and techniques may vary widely depending on the location, but, in the best cases, quality standards are consistently high throughout the organization.
Moving to a Geocentric Perspective
The geocentric perspective is often the most desirable for any organization because it allows organizations to adapt flexibly to local conditions and thereby exploit local opportunities. Geocentric organizations see the entire world as their market, and they select their talent from around the world.
You can use several strategies to develop a more geocentric perspective in your organization.
Step 1: Raise Cultural Awareness
Brainstorm ways that your organization can become more culturally sensitive. Use Hofstede's Cultural Dimensions and the Seven Dimensions of Culture to learn about the similarities and differences between your country and the country (or countries) that your organization is expanding into.
Organize and schedule cultural awareness and sensitivity training for your team, and teach everyone the basics of cross-cultural business etiquette. If your organization is expanding into a specific market, take time to learn what's unique and special about this new culture, and communicate that uniqueness to your team on a regular basis. (Our Managing In… series of articles in the Team Management section can help you here.)
For example, think about highlighting a different international office each month on your organization's blog or social media pages: talk about the culture, highlight individual team members, and discuss their values, career goals, and accomplishments.
Last, establish clear rules that prohibit unhelpful behaviors. Everyone in every office should know the consequences of any "exclusionist" behavior.
Step 2: Develop Cross-Cultural Management Strategies
Each local office needs to adapt appropriately to the workplace values, expectations, strategies, and techniques that are appropriate in the host country. To do this, leadership teams should visit international offices to meet with team members, face to face.
They need to discuss the selection of local managers, how training will be given, and how strategy development and local marketing will be handled. Encourage managers to learn more about cross-cultural leadership , and make sure that your domestic management team knows how to communicate and collaborate with foreign managers.
Also, make sure that your leaders from all cultures know how to manage and communicate within a diverse team. Use Wibbeke's Geo-Leadership Model to guide the way that you train yourself and others to lead in a cross-cultural way.
Step 3: Monitor and Maintain Progress
Monitor your organizational culture regularly. You can use the Cultural Web to make sure that you're staying true to your overall strategy, and to the values and beliefs that you want to promote internally. An organization's culture will only stay open-minded, flexible, and accepting if its leaders communicate and promote these values.
Help your team learn how to collaborate effectively with professionals from different cultures. Invest in training at all locations so that your entire global team has the knowledge and tools that it needs to contribute to the organization's success.
Keep in mind that cultural and sensitivity training, while informative, is still just a one-time event. Leaders in every part of the organization, and in every culture, need to reinforce the message that the organization welcomes the creativity that comes with a diverse, global team.
40 years on from the publication of Perlmutter's EPRG Model, international organizations often adopt a matrix style of management rather than a pure version of the EPRG Model.
This typically involves local executives reporting to two managers: a country manager, responsible for meeting the needs of the local market; and functional managers, responsible for maintaining quality, brand, shared values and suchlike throughout the organization. This ensures that things that are valuable to the organization as a whole aren't lost as the company expands, and that the company doesn't degenerate into a lot of "little kingdoms."
Howard Perlmutter, along with two colleagues, developed the EPRG Model after researching how international corporations built their businesses and evolved in host countries. The model outlines four perspectives, or stages of organizational mindset evolution, that organizations develop when they expand internationally.
The four perspectives are:
Leaders can use this model to pinpoint where their own organization fits within the model. This enables them to better shape their strategy and approach with global offices.