IBUS2002 Chap.4 Home and Host Country Effects on Multinationals
Home and Host Country Effects on Multinationals
Do all multinationals follow one model?
The Week 4 materials answer no. Perlmutter's typology describes ethnocentric, polycentric and geocentric orientations, with a regiocentric orientation added later. Home effects arise because firms develop practices in their country of origin and often draw senior managers from it; familiarity can lead to replication or, where home regulation is heavy, a wish to escape.
Host effects arise because firms enter countries for opportunities but meet local law and institutions that may force adaptation.
Which practices travel
Research summarised on the slides finds home influence strong for training and development, direct employee involvement and payment systems, and host influence strong for wage determination, hours, contract forms and employee representation.
Firms can introduce home practice, adapt to the host, build a hybrid or experiment. A US engineering company case shows a global forced ranking system reshaped in Britain, struck down in France for redundancy selection and softened by a German works council, while union avoidance met similar limits.
Mode of entry, the age of the operation and the degree of integration complete the explanation.
The analytical habit to build
Avoid asking whether home or host wins in general. Ask instead which practice is involved, which institutions govern it in the host, how the firm entered and how long it has been there.
That four-part question converts a vague tension into a specific prediction, and it is the best preparation for short answers on greenfield entry or orientations and for essays on staffing and pay.
What this chapter covers
- 01
Perlmutter's orientations
- 02
Home and host country effects
- 03
German and US ideal types
- 04
Forced ranking across European subsidiaries
- 05
Greenfield and brownfield entry
Worked example · free
Sort practices between home and host country influence
- 2Name the practices where home influence is strong.
- 2Name the practices where host influence is strong.
- 2Explain the pattern through regulation.
Key terms
- Ethnocentric orientation
- An ethnocentric orientation is a headquarters approach that manages subsidiaries according to home country practice.
- Forced distribution
- A forced distribution is an appraisal system that requires a fixed share of staff in each unit to be ranked as high and low performers.
- Greenfield site
- A greenfield site is a newly built operation, which lets a multinational design employment practices without inherited agreements.
Home and Host Country Effects on Multinationals FAQ
What are Perlmutter's orientations?
Ethnocentric firms follow a home country orientation, polycentric firms a host country orientation and geocentric firms a global orientation. A later addition, regiocentric, manages operations according to a regional model. Real firms mix orientations across different practices.
Which HR practices usually follow the host country?
The slides list wage setting, working hours, the type of employment contract, and representation with indirect consultation. These areas are heavily governed by national law and collective bargaining, which limits a multinational's discretion.
How did European institutions change the engineering firm's ranking system?
British managers ranked people already leaving as low performers and redrew units. A French attempt to use rankings for redundancy selection was found unlawful. German managers working with the works council moved low performers into training and narrowed the pay gaps the system prescribed.
Why does mode of entry matter for HR policy?
A new greenfield site lets the firm design practices from scratch and frequently starts without unions, as the firm's Hungarian operation did. An acquired or long-established site brings existing agreements, unions and expectations that are costly to change.
Exam move
Memorise the four orientations with one example of each, then the two empirical lists of home-dominated and host-dominated practices, and practise explaining the pattern through regulation. Build a German and US ideal-type comparison covering participation, contracts, variable pay and functional flexibility, and use it to predict friction when either firm operates in the other's country.
Work through the engineering firm case country by country, writing one sentence on the institution that changed the outcome in Britain, France and Germany. Add a paragraph on greenfield and brownfield entry using the Hungarian site. As a final check, write a 140-word answer to a question of your own on why a global HR policy can be uniform on paper but diverse in practice.
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