Academic journal article Multinational Business Review

Product Customization for the U.S. Market: An Expert System Comparison of British, German, and Japanese Subsidiaries

Academic journal article Multinational Business Review

Product Customization for the U.S. Market: An Expert System Comparison of British, German, and Japanese Subsidiaries

Article excerpt

The decision process concerning whether or not British, German and Japanese subsidiaries customize their product for the U.S. market is examined by means of an expert system built with rule induction. Only those decisions by firms whose U.S. market performance qualified them as "successful" were used to train the system. Both German and Japanese subsidiaries that engage in extensive research and development in the U.S. and British subsidiaries that exported to the U.S. prior to manufacturing here, elect to introduce customized or locally designed products in the U.S. market. Otherwise, these foreign firms are found to employ a contingent decision mechanism that varies with the nationality of the parent firm.

INTRODUCTION

Foreign firms have been undertaking direct investments in the United States at an unprecedented pace in the last two decades. Such investments have increased from approximately $13 billion in 1970 to over $800 billion by the late 1990s. The major investors include European and Japanese firms. While several aspects pertaining to their investment decisions in the U.S. have been studied, the process employed by them in making strategic marketing decisions in the U.S. has been less than adequately examined. A strategic marketing decision that foreign firms have to make is whether to introduce locally (i.e. U.S.) designed products in the U.S. market. The purpose of this paper is to use an expert system (ES) framework to explore how "successful" (defined on the basis of actual performance) British, German and Japanese firms make this decision. The existence of a correlation between the nationality of a firm and its multinational strategies is argued by Swamidass and Kotabe (1993). A "successful" foreign firm is operationally defined as a firm having a minimum U.S. market share of five percent. In effect, such firms are accorded the status of "experts" and an attempt is made to study their decision making process for introducing locally designed products in the U.S. by an examination of their past decisions. While this investigation is exploratory in nature, it should offer some guidance to foreign firms in maintaining and enhancing their competitive position in the U.S. A secondary objective of the study is to demonstrate the use and potential applicability of ES technology in an international marketing context.

LITERATURE REVIEW

The issue of global standardization vs. customization of products in foreign markets has received widespread attention in recent years (Balbaaki and Malhotra, 1995, Cavusgil, Zou and Naidu, 1993) since Levitt's (1983) provocative article on globalization of markets. Proponents of product standardization offer the advantages of low cost due to economies of scale, rapid international product diffusion and the opportunity for implementing uniform promotional and post-sales strategies. Low cost leadership gives the firm greater flexibility in pricing, while rapid diffusion into several markets provides the firm with the advantage of being the first in a given market. It is argued that an effective method of pursuing the product standardization strategy would be to develop a "premium prototype" that would satisfy the needs of the more demanding customers globally. The same product would then be marketed to other customer segments in the same or different countries.

Opponents suggest that this strategy ignores the needs of diverse customer segments and would result in over-designed products for some countries (typically developing nations) and under-designed products for others (typically economically advanced countries). By ignoring the unique needs and product benefits desired by different market segments, a firm pursuing a standardization strategy bears the risk of becoming less competitive in hotly contested markets. On the other hand, a higher level of market orientation will lead to a higher level of customer satisfaction and loyalty that will, in turn, lead to higher market share (Varadarajan and Jayachandran, 1999). …

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