Insights from senior executives about innovation in international markets

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Insights from Senior Executives about Innovation in International Markets Peter N. Golder

Innovation and the internationalization of business are two of the most important factors determining business success today. However, very few empirical studies have examined these factors together. This study uses a discovery-oriented approach to examine innovation in the international marketplace. The study’s findings are based on interviews with 64 senior executives including many current and former CEOs and presidents of multinational companies. The interviews were conducted in five countries over a period of several months. These findings provide insights into the thoughts of senior executives on innovation in international markets. Several novel insights that have implications for management practice and future academic research were discovered. Among these findings, executives stressed the importance of managing and disseminating knowledge throughout their companies during all stages of new product development. They highlighted several limitations in achieving this objective as well. Another finding is that firms adhere to several mechanisms that limit competition. In Japan, a well-recognized business hierarchy helps to form the market share goals of firms introducing new products. Companies in some categories seem to have an understanding that they will not introduce new products unless they are suitably differentiated from existing products. Other companies have bought out competitors to reduce competition. A third finding is that companies make concerted efforts to use standardized brand names and positioning. They find these efforts most suited to image-based products and children’s products. Finally, the country-based management structures of most companies make it very difficult to cross-subsidize new products across countries. © 2000 Elsevier Science Inc.

Introduction

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nnovation and the internationalization of business are two of the most important factors determining business success today [5,7,11,44]. Although many important studies examine these elements separately, several researchers note that very few studies examine them together [9,12,13,18,20,42,44]. Further, companies themselves tend to operate less internationally than they should [3,45]. Therefore, the general

Address correspondence to Peter N. Golder, New York University, Stern School of Business, MEC 8-79, 44 West 4th Street, New York, NY 10012-1126. J PROD INNOV MANAG 2000;17:326 –340 © 2000 Elsevier Science Inc. All rights reserved. 655 Avenue of the Americas, New York, NY 10010

objective of this paper is to examine innovation in an international context and contribute to a better understanding of this important topic. Several papers provide an excellent summary of current knowledge on new product development practices and performance (e.g., [6, 18, 32, 35]). However, these papers also point out several limitations. First, our understanding of new product practices tends to be based exclusively or predominantly on U.S. companies [18,35]. Second, although new product development varies by context, different environments are studied infrequently [18,32]. Third, the vast majority of previous research is project-based and lacks the general perspective of executive-level managers [32]. 0737-6782/00/$–see front matter PII S0737-6782(00)00053-9

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BIOGRAPHICAL SKETCHES Peter N. Golder is Associate Professor of Marketing at the Stern School of Business, New York University, 44 West 4th Street, MEC 8-79, New York, NY 10012-1126, PGolder@Stern. NYU.Edu. The author gratefully acknowledges Gerry Tellis’ fundamental role in starting this project and his contributions to the manuscript. The comments of Tim Devinney and three anonymous reviewers were most helpful in revising the paper. Funding for this research was provided by the Center for International Business Education and Research at the University of Southern California under a grant from the U.S. Department of Education.

This paper is an initial attempt to address these limitations. It has the following specific objectives: • To examine new product development practices in an international context; • To focus on the broad-based perspective of senior executives representing multiple industries; • To focus on the practices of multinational companies that have significant market share in their categories; • To uncover novel insights about international innovation; • To provide new directions for researchers to investigate and validate about international innovation. To accomplish these objectives, this study uses a discovery-oriented approach across a broad cross-section of companies [27,36]. Three aspects of this study make it relatively unique among papers published in the Journal of Product Innovation Management. First, data are collected from senior executives with a broad perspective on international innovation. Second, data are collected through in-person interviews. Third, data are collected in five countries from executives who have direct knowledge of practices in these countries and many more. Given the limited amount of research on international innovation, this exploratory study emphasizes findings that are novel and go beyond principles of new product development established in previous literature reviews [6]. In addition, some findings provide new explanations for known principles. Finally, similar to previous research [6,28], some findings confirm U.S. principles in an international context among senior executives who have rarely participated in previous research. These insights help to extend the domain of our knowledge beyond the U.S., as encouraged by previous researchers [12,18]. The remainder of the paper is organized as follows.

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First, I describe the method. Next, I present an organizing framework and the many findings from the research. Finally, I discuss the implications of these findings for managers and researchers.

Method The best way to ensure the participation of senior executives in this research was to collect data from them in person. Therefore, I conducted in-depth interviews with 64 executives in five countries. I asked each executive a series of open-ended questions, allowing them to focus their responses on the most important elements of each area. Interviews were arranged and conducted over a six-month period. Although extremely time-consuming, this approach offers the best means of uncovering novel insights about state-of-the-art practices in international innovation. This extensive data collection generated hundreds of pages of interview notes. These provide the basis for the paper’s findings. The executives I interviewed were guaranteed anonymity to secure their participation as well as to allow them to speak freely on sensitive topics. I conducted all interviews in person at each executive’s office, except for five U.S. interviews that I did by telephone. A common interview guide was used for each interview (see Appendix A). Questions on the following topics were covered: 1. 2. 3. 4. 5. 6. 7.

Product development Entry timing Standardization versus differentiation Strategic goals Mode of Entry Choice of markets to enter Organization structure.

The interview guide provided a common structure for each interview but did not constrain the discussion from focusing on the most important and interesting issues. Interviews were intended to last between 45 minutes and 60 minutes. The actual average length was approximately 75 minutes, which attests to the managers’ interest in these topics. During each interview, I took notes on the interview guide. My objective was to record enough information to recall what was said, but not so much that the conversation would be hindered. After each interview, I took another 40 to 50 minutes to more fully document each executive’s responses. I chose not to record

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interviews so these executives could speak more freely. Tables 1–3 provide descriptive statistics about the final sample of interviews. All of the businesses listed in Table 1 sell consumer products. The professional services firms have clients that sell consumer products. These 48 businesses belong to 41 separate corporations. Table 2 presents the sizes of businesses in the sample. Although there is a wide range of revenue, it is best to think of a large multinational business when considering the results. Table 3 presents the titles of executives who participated. It seems unlikely that so many senior executives would have responded to written surveys or agreed to a recorded interview. The opportunity to collect insights from these seniorlevel executives with vast international experience is a strength of this study. Compiling the list of titles in Table 3 is somewhat imprecise because titles are not used equally across companies. However, the very high number of toplevel executives participating suggests that they are knowledgeable about the issues in this study. Even those executives with the title manager often had the responsibility of vice-presidents or higher in other businesses. One executive with a ‘manager’ title was the assistant to the president of the corporation. Another ‘manager’ was responsible for marketing operations for the entire United States. In addition, five of those with manager titles were secondary interviewees within a business, who were interviewed in addition to a more senior executive. The functional areas for the vice presidents, directors and managers were marketing, research and development, brand management and import/export. The sample includes a great breadth of knowledge across countries. There are executives from U.S. companies based in the U.S., Europe and Japan; executives from Japanese companies based in the U.S., Europe and Japan; and executives from European companies based in the U.S. and Europe. All of these executives work for multinational companies. This focus seems

Table 2. Size of Businesses in Interview Sample Revenues (Billion US$)

Number of Businesses

⬍1.0 1–3 3.1–10 ⬎10

9 11 15 13

appropriate because previous international research emphasizes how to become a multinational rather than on the strategies of established multinationals [13,26,37]. More importantly, the breadth and length of experience of these executives as well as the success of their companies make them very knowledgeable about best practices in their own business as well as their competitors’ businesses. Overall, these executives have cumulative experience of nearly 2000 years.

Insights from Senior Executives Several researchers have proposed frameworks for the new product development process. Figure 1 presents an organizing framework for the findings of this study. This framework is similar to those of Crawford [10] and Cooper and Kleinschmidt [8]. This framework includes the key stages that the executives in this study used to discuss international innovation. Also, this framework incorporates the notion that product development and market analysis occur concurrently. New product development can be discontinued at any time during the multiple steps of these stages. This framework also includes the idea that new product success depends on how a new product is managed after it has been commercialized. Important subelements for each stage are also included in Figure 1. Next, I present the findings of this study organized according to the five stages of the new product development process depicted in Figure 1. Given the breadth of topics covered and the limited space for discussing each finding, this presentation may stimu-

Table 1. Types of Businesses in Interview Sample Type of Business Food and beverages Consumer electronics Other high technology durables Non-food packaged goods Professional services Miscellaneous consumer goods

Number of Businesses 15 11 9 6 4 3

Table 3. Titles of Interviewees in Sample Titles

Number of Interviewees

CEO/chairman/president General manager/executive vice president Vice president/director Manager

11 12 29 12

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Figure 1

late follow-on questions. Interested readers should feel free to contact the author by email. Idea Generation Leveraging knowledge around the world is a key success factor. One of the benefits of operating internationally is the opportunity to transfer learning and innovations across markets [2,12,16,25]. Leadingedge companies share important knowledge throughout the new product development process (Figure 1). Although this sharing is desirable, previous research found that it is the exception rather than the rule in most multinational companies [37]. During product development, some companies find that multicountry product development teams work well. With improved computer and communication technologies, this type of structure may become more common. During market introduction, some companies use managers from other countries where the product has already become successful. These managers have more credibility than staff personnel to inspire the new operating unit to succeed with the new product. International brand

custodians can facilitate information transfer across countries to improve these processes even more. Leading-edge companies incorporate new product ideas from everyone: customers, employees, competitors, distributors, franchisees, suppliers, and other business partners. The idea of generating new product concepts from customers, employees and competitors is well established. Although companies vary in their efforts to implement this idea, all tend to recognize its importance. However, several companies look for new product ideas beyond these sources. These companies solicit ideas from all of their other business partners as well. Technical Evaluation and Product Development Companies often require product development groups to secure the support and participation of the operating unit that will introduce the new product. Traditionally, most companies developed new products in their domestic markets at R&D facilities. Today, many companies enhance that model by incorporating customer requirements sooner and better.

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One executive commented that new products need to be “rooted in the real market” early on. Although basic research still tends to be a centralized function, product development is now more likely to require sponsorship from the operating unit that will be responsible for introducing the new product. This sponsorship is typically financial support and direct involvement of personnel from the operating unit. Two reasons were commonly cited for this arrangement. First, development dollars are spent more efficiently when an operating unit believes in the viability of a product. Second, securing the support of an operating unit is crucial to the success of any new product. Without this support, even innovative products may fail because success is so dependent on the implementation of any new product plan. New product projects tend to have difficulty gaining sponsorship from an operating unit, perhaps reflecting the risky nature of all new product development. Often, upper management is reluctant to direct an operating unit to introduce a new product because the local support would then be insufficient. Exceptions to these arrangements occur primarily in companies that manufacture more standardized products for global markets, for example, consumer electronics. The trend in these companies is to establish centers of research excellence that focus on specific core technologies. In some cases, these centers are located outside of a company’s domestic market. Products developed at these centers may still require a strategic plan prepared in concert with an operating unit. U.S. companies are more likely to work toward big breakthroughs in new product development whereas Japanese companies are more likely to rely on continuous incremental improvement. Although this finding is regarded as conventional wisdom by some, and may be disputed by others, the reasons given for its existence and persistence are quite interesting. One of the main reasons for the incremental approach of Japanese companies is the high cost of failure for individuals within Japanese society. Although developing new products is an inherently risky activity, Japanese tend to be more risk averse. There are two mechanisms that companies use to enjoy the organizational benefits of risk-taking while minimizing the individual costs. First, with consensus decision-making, individuals are less responsible for group decisions and actions [22]. Second, through an incremental product development process [34,41]. By using this approach, any missteps along

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the way are more easily considered a learning experience rather than a failure. This process of incrementalism can proceed all the way to commercialization. Rather than introducing the final product, some Japanese companies offer a prototype initially. Actual demand is assessed from sales of the prototype and the attributes of the final product are modified based on market feedback. If a new product fails at the prototype stage, it can be written off as a learning experience rather than a failed new product introduction. The competitive risk of going to market with a prototype is minimized by another important aspect of Japanese business. Each industry tends to be organized into a rigid structure where the relative market position of each firm is well established. Therefore, a company’s expected market share for a new product is known in advance and there is less fear about losing out on a good idea to the competition. I will discuss further evidence on the hierarchical structure of Japanese business in the section Market Analysis and Planning. The high cost of developing new technologies is driving companies to share development costs and to limit the number of potential alternatives considered. This trend is more evident with durable goods because of the proportionately higher development costs. One executive referred to the state of product development in the consumer electronics industry as “incestuous.” This manifests itself in codevelopment, technology licensing and even technology trading. In fact, the same companies compete in some categories while collaborating in others [38]. Another result of high development costs is that managers must focus on a single technology at a time when other technologies still show promise. They find it very difficult to support parallel development of new technologies. In contrast, previous research suggests that many companies have parallel product development programs [39]. One nondurable goods company did use parallel development in a marketing area. They developed a new product with two potential brand names until finally choosing one name close to market introduction. Standardization is not driven primarily by the increasing similarity of customers; it is simply a better way to manage an international company. Increasing similarities among consumers are often assumed to be the major factor behind global standardization [29]. Although this factor is important, executives stressed the importance of lower manufacturing costs. Japanese companies with their product orienta-

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tion have led the world in demonstrating this benefit. One U.S. president of a Japanese subsidiary felt tremendous pressure to standardize from manufacturing personnel in Japan. Even when whole products cannot be standardized, companies can benefit by standardizing components. Market Analysis and Planning Firms strive to establish well-behaved competition in their industries. Several executives spoke about trying to avoid competition as much as beat it. They feel that “direct competition bleeds everyone” and that it is best to participate in oligopolies with well-behaved competitors that have similar profit objectives. One typical obstacle to this structure is a family-owned business that is willing to accept lower profit margins. One executive spoke about purchasing a family business in his industry to lessen competition and increase profits for the remaining firms. A consumer electronics executive said that his company acquired a company to decrease competition. These views were more common in European markets. Firms will not enter markets without suitably differentiated products. Most executives are fully aware of the problems associated with introducing me-too products. They know that profit margins will be small in categories where price is the most significant point of differentiation. They also feel that only a limited number of brands can be successful in most markets. If an oligopoly already exists, many are willing to forego that market. This attitude exists even at a U.S. company with greater than 50% market share in its core market. Executives seem keenly aware that too much competition in a category hurts everyone’s profitability. Therefore, they are willing to stay out of other firm’s categories and seem to expect other firms to be willing to do the same. Standardization is not driven primarily by the increasing similarity of customers; it is simply a better way to manage an international company. In addition to lower manufacturing costs, executives stressed some market-based explanations for standardization. Another area where costs can be lowered is advertising, especially when a uniform positioning has been established. Another benefit of standardization is the ability to build and preserve brand equity through consistent positioning [23]. Brand equity is the most valuable asset of some companies. As worldwide communication and travel increase, inconsistent positioning will reduce the value of brands to consumers [37].

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A third benefit of standardization is that successful marketing programs in one country are often successful in other countries. This point is illustrated by an international company that sells a food product in Germany. When the product was introduced in the United States with a different positioning, it flopped. The product only became successful when the positioning was standardized with that of Germany. Of course, standardized positioning does not work in all cases. But when there is uncertainty about positioning, several executives prefer to try a positioning that has already worked. Standardization is easiest for image-based products and children’s products. Most managers are strongly supportive of efforts to standardize some elements of their product and marketing programs. Foremost among these are the efforts to standardize brand names and positioning. Executives reported that the easiest products to standardize are image-based products, where beverages and especially soft drinks are the prototypical examples. Previous research has found that fashion-oriented products and premiumpriced products are easiest to standardize [33]. Even when the actual physical product changes across countries, beverage companies have been successful standardizing brand names and positioning. One executive claimed that his company sold “140 physically-different varieties of the same brand with the same positioning around the world.” Other categories where the underlying benefits are fairly uniform across countries are children’s products. One executive related that his experiences taught him that “the values of 10 year olds are similar around the world.” Therefore, brand names and positioning in these categories can be standardized more easily. The structured, hierarchical nature of Japanese business and society lead to several interesting outcomes. The relative status of businesses and individuals is well established in Japanese society [14]. These hierarchies help to limit competition among Japanese companies. Traditionally, one of the effects of these hierarchies has been that aggressive, lower-tier companies had to achieve success outside Japan, for example, Sony and Honda. This structure also has other effects. First, several Japanese companies have a predetermined belief about their appropriate market share in new product categories. One company said “10% market share was right for them.” Another company’s “goal is to be the No. 3 firm” in their markets. This firm went so far as to align themselves with the No. 3 Japanese firm in a related industry and the No. 3 U.S.

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firm in the same related industry. A third company found itself in a quandary when an extremely successful new product caused its market share to approach the industry leader. Rather than trying to pass the leader, remarkably, this company reduced its support of the new product feeling that “30% market share was enough.” Interestingly, this same company had the explicit goal of being the leading Japanese brand sold in the U.S. Apparently, the executive of this business did not feel that the hierarchical restrictions applied outside of Japan. Another effect of these hierarchical industry structures makes it very difficult for U.S. firms to compete in Japan. Two U.S. companies accustomed to being leaders in the U.S. market said that they have difficulty convincing their Japanese employees to strive to be any higher than the No. 3 company in their industries. As lower-tier firms, these companies have difficulty recruiting Japanese accustomed to being at the top of the social hierarchy. Those that are hired feel that the companies should “know their place” and “be satisfied with being No. 3.” This cultural clash is very difficult for managers of these U.S. subsidiaries working in Japan. The price sensitivity of consumers varies across countries. Price sensitivity tends to decrease across countries as incomes increase. However, across the U.S., Europe and Japan, most executives feel that Japan has the lowest price sensitivity, with Europe next and the U.S. highest. Higher service requirements and more traditional distribution structures might be the cause of lower price sensitivity in Japan and Europe, although much more research is needed to establish the importance of these factors. One executive felt that Japanese were ashamed to own lower quality products, thereby limiting price competition. Previous research has compared price and advertising elasticities in the U.S. and Europe, but not in Japan. Price elasticities were found to be higher in the U.S. [15,43], whereas advertising elasticities were higher in Europe [1,15]. Some executives rely on gut feel rather than quantitative forecasts to make market entry decisions. Most executives feel that marketing research is limited in its ability to forecast demand for new products. One manager admitted to not really knowing which new products will be successful. One chairman and one vice president were willing to rely on “gut feel” to determine whether to introduce a new product. Another executive of a toy company was used to the

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idea of introducing new products without research and “just see what sells.” Commercialization Many executives appreciate the potential benefits of being a pioneer but also recognize the costs and risks of this strategy. Pioneering new markets provides significant opportunities for firms and significant benefits if the new product is successful. Potential benefits include easier access to distribution and shelf space, and the possibility of preempting subsequent entrants. In addition, customers develop experience with the pioneering brand and the pioneer can learn about their customers. Executives realize that the potential benefits of pioneering must be weighed against its costs and risks [17,24,30]. New products are expensive to develop and market, so companies do not believe that they can be first with everything. When new products are not successful, pioneers risk developing negative associations. Moreover, one executive felt that if a later entrant introduced a superior product, “customers would feel cheated” by the pioneer. Finally, even when pioneers are successful, their success can lead to arrogance and complacency that allow other companies to get ahead. Several executives feel that the concept of pioneering is not relevant in some markets. For example, in China, several packaged-goods companies entered at about the same time making the differences between pioneering and following meaningless. Many companies prefer to be a late entrant in new markets. Several companies have strengths that allow them to enter late and still be successful [30,40]. A benefit of entering late is that demand for the new product has already been established. Strengths that enable late entry include better technology, strong brand names, ready production capacity, and extensive distribution. Other companies do not have these strengths, yet are still willing to accept their role as followers. These less-strong companies often achieve lower revenues, but with much lower development costs, they are still profitable. Extreme forms of follower organizations exist within the hierarchical structure of Japanese industries. One Japanese follower organization wouldn’t even consider entering the U.S. market with a new consumer electronics product before the leading firms in that industry had already done so. Some companies willing to enter late base their

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decisions on marketplace factors. One said that the most important factor is just to participate in a growing market. As long as they are established by the start of the growth stage, they are satisfied. Another reason some firms are not concerned about pioneering is their recognition that small firms pioneer many new markets. Managers believe that these firms can be overtaken or even purchased if they become successful. Strong local support is the key factor in determining where products are introduced, although certain countries are thought to have specific benefits and risks. Much research suggests that country selection decisions are based on broad socioeconomic factors and market-specific factors [23]. However, new products are often received skeptically, even by managers within the company. Therefore, new products are most likely to be introduced into markets where there is strong local support. Often this market is the one that sponsored development of the new product. Home country markets are still the most common market to begin selling a new product. However, some companies recognize specific benefits and risks of certain countries. The U.S. is characterized by some as a “home run market.” Success provides huge benefits but failure has large costs. One benefit of succeeding in the U.S. market is that it has strong signaling value in other markets. In contrast, the risks in Europe are more scattered where each market can be tackled somewhat separately. One of the benefits of Japan is that it is easier to control and monitor feedback, especially for Japanese companies. In addition there tends to be quicker acceptance or rejection of products in Japan and the U.S. This feedback tends to be slower in Europe and slower again in South America. A few companies have the goal of introducing their products simultaneously in all markets, or at least the largest markets. This practice is more common with durable goods and in high technology companies where customer needs and tastes are more standardized and high development costs need to be recovered more quickly. With nondurable goods, global launches are uncommon and global brands almost always start as local brands. Informal processes play a surprisingly important role in moving new products across countries. Formal processes seek to move successful products into other markets that are culturally similar. Brand managers or brand custodians play a role in convincing other countries to carry a new product. However,

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individual country managers have the largest say in deciding to carry a new product. Executives acknowledge that these decisions are often made in an ad-hoc manner based on personal connections. Some U.S. subsidiaries of Japanese companies conceded that corporate headquarters sometimes dictated product introduction decisions. Further, one of these executives said that communications almost always went up and down in the organization rather than across. Unless companies are well established in a foreign market, there is a tendency to introduce innovations with a local partner. Even large multinational companies prefer to work with local partners in new markets. One of the benefits of this arrangement is lower cost. Even more important is the ability to expand quickly by using the capabilities of the partner in manufacturing, distribution and personal contacts. Perhaps most important is that local partners help to bridge cultural gaps. One European-company CEO commented that Japan was “radically different” in terms of culture. Most companies maintain a longer-term goal of sole ownership. One of the ways they are often able to buy out their local partners is to call for dramatically increased investment. If the local company is not able to invest a proportional share, it might be willing to sell out. Also, additional investment may extend the time to break-even beyond the period a local partner is willing to wait to recoup its investment. In working with local partners, companies find it advantageous to limit the number of distributors in each market. They find that competition among distributors leads to unwanted price-cutting. The frequency of acquiring brand names to enter new markets varies across countries. Strong brand names are very important in many product categories. Companies with good products and no brand names often find it more advantageous to acquire brand names to speed their market entry. European companies tend to use this strategy more often than U.S. companies and much more often than Japanese companies. One European-company Chairman believed it could take decades to build a new brand in an industrialized country. The downside to acquiring brand names is the difficulty in standardizing branding and positioning across countries. The importance of product champions is widely recognized. Many companies stress the importance of a product champion who passionately believes in a new product and is committed to find a way to make

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it successful. One company executive said it is of “life or death importance for new products.” Although product champions are highly regarded during product development, their role during and after commercialization is less well known. New products are rarely greeted with immediate market acceptance. Sometimes the product attributes must be modified, whereas other times a more appropriate market segment must be identified. The support of a strong product champion is required to work through these initial setbacks. Product champions reside at various levels of an organization. The important determinant is that their authority must be commensurate with the resources required for each new product. One Japanese company had a corporate board member serve as the product champion for an important new product. An executive at this level may have been required, in part, because of the reluctance of lower-level managers to take on this risk. Although failed product champions in Japan are less likely to be officially demoted or fired, they still can suffer a loss of stature within the organization. Product Management One of the best ways to manage standardization and transfer knowledge is with international brand custodians. Many companies manage their international standardization efforts with international brand custodians. These custodians can harmonize the positioning of brands when necessary or ensure that positioning stays consistent. In addition, they can promote the introduction of successful brands in other markets. Although few companies introduce new products globally right away, it is important to move successful products into other markets quickly. Brand custodians can facilitate this process. Another thing brand custodians should do right away is to register their brand names in all countries. Some companies in the past found that others had already registered their brand names when they were ready to enter a new country [21]. Companies have found it preferable to manage their new product investments as a portfolio. Developing new products is a risky activity with many failures. Rather than evaluating each new product separately, one company treats all new products as a portfolio investment [44]. This has several benefits. First, managers are more willing to take on riskier projects knowing that they will not be evaluated individually. Second, the perceived risk of new product development is lower when projects are evaluated

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collectively. Third, new products can be nurtured for a longer time before they are expected to be profitable on their own. Organization structures still tend to be arranged by country. Country-based management structures tend to predominate across all companies. This is especially true for nondurable goods companies. But even durable goods companies with international markets tend to be organized by country. In companies with international brand custodians, authority still tends to reside within each country. The most striking exception to country-based authority were the U.S. subsidiaries of Japanese companies that were required to carry some products that they did not want to carry. Country-based structures have two major effects. First, the ability of firms to subsidize a new product in one market with profits from another market is extremely limited. Although researchers have promoted the idea of cross-subsidization [16,19], only a few executives think it occurs in a meaningful way in their company. Second, performance goals are established at the individual country level rather than on a global basis. This creates tension between global and local strategies. To overcome this tension, some companies are considering establishing world-wide responsibility in a single country for each product line. The period that companies are willing to wait to break-even on new products varies considerably. Some companies are willing to wait ten years to breakeven on a new product or in a new country when it is perceived as strategic. One country where several executives are willing to wait ten years is China. One executive conceded that the payback on their China investment would “not meet an investment banker’s criteria,” but felt that it was important to be in this strategic market. At the other end of the time scale, a country like Bangladesh needs to show profitability in the first year or two to be of interest. Across all companies, the time to break-even tended to fall within a range of 3–5 years for new products and new countries. Strategic goals vary with the intensity of competition. Some companies are willing to accept lower profitability in some highly competitive markets. One European packaged-goods company accepts lower profit margins in the United States in an effort to limit the profitability of a strong U.S. company. They believe that if they withdrew from the U.S. market, the U.S. company would use their increased profits to be more competitive in foreign markets.

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Product-oriented goals can be important drivers of strategy. Most companies in this study have the explicit goal of establishing and maintaining product quality leadership. They recognize that it is much easier for another company to sell a marginal product at a lower price than to produce a superior product. Companies selling durable goods with strong experience curve effects are very aware of the importance of generating volume early on as a way to lower production costs. As costs and prices move lower for these goods, companies add product features in an effort to maintain specific price points. Finally, some companies are not willing to discontinue some unprofitable products because they provide ancillary benefits such as contributing to their umbrella image or they provide technological benefits. The product orientation of Japanese companies leads to several surprising marketing policies. As discussed previously, Japanese companies tend to have a product orientation. This leads to several surprising policies. First, there is a feeling that market share and sales volume must be earned rather than bought. Therefore, advertising is viewed more as a cost rather than an investment and consequently, there is less advertising for new products. Second, their product orientation leads to a greater tolerance of gray markets in some companies. Even though profit margins are reduced, the total volume of production is increased, which keeps factories busy. Third, in product categories where image plays a dominant role in purchase decisions (e.g., beverages), Japanese companies still emphasize product quality. Two Japanese executives thought that higher quality ingredients and better production processes were more important than communicating an appealing image to consumers. The limited emphasis on marketing is illustrated by one large Japanese multinational that still refers to marketing as sales and logistics. Japanese companies show more reluctance to exit an unprofitable market. Several Japanese executives said that once their factories start to manufacture products, they are committed to them. Their reluctance to withdraw unsuccessful products is attributed to “losing face” and the political strength of manufacturing within the organization. One president of the U.S. subsidiary of a Japanese company thinks that this situation is changing slowly, however, he conceded that it would still take at least 2 years to withdraw an unprofitable product. Recent research about withdrawing failing products might be interesting to extend to an international context [4].

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Next, I will discuss the implications of these findings.

Discussion The insights from these interviews lead to many managerial implications. The findings and limitations of this research suggest several directions for future research. I will present these implications and research directions in the same order as the findings in the paper, that is, based on the new product development process in Figure 1. Managerial Implications Successful new product development is largely dependent on collecting and sharing market intelligence. This effort applies to a company’s own operations as well as its competitors. Competitive intelligence can be particularly useful when another company is using a sequential market introduction strategy. In this case, it may be possible to introduce a similar product in another market before a competitor’s product. Another element of market intelligence is generating new product ideas. These should be sought from traditional sources such as customers and employees, but should also be sought from suppliers, distributors and other business partners. The final component of utilizing market intelligence is sharing it across organizations. International brand custodians can be very useful in this process. They can speed the transfer of knowledge about successful new products. Although companies widely recognize the importance of sharing market intelligence, they still believe that this sharing is not done very well. Perhaps better use of computer and communication technologies would facilitate this process. However, many executives would argue that personal relationships are a necessary basis for successful use of these technologies. A second key to new product development is the involvement of operating units in the new product development process. Although this may not be appropriate for radical new products with completely unknown market potential, many companies have found that it optimizes spending on many new product development projects and promotes successful market introduction. Moreover, this arrangement is more likely to lead to finding a product champion who is often critical to the success of new products. A third area that has proven beneficial with new product development in many companies is develop-

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ing partnerships and alliances. Although these have been used primarily in research and development, many companies may want to more fully consider using alliances to accomplish marketing objectives. Fourth, managers should look for additional elements of their product and marketing programs to standardize. Even when their customers’ tastes are not converging, standardization can lead to enhanced efficiency of a company’s operations. Fifth, the perceived inability to forecast new product demand can be addressed in two ways. Companies should keep a better record of success and failure with past products. This information could be used to benchmark the projected success of new products. Unfortunately, these data are not readily available in most companies. Another way to improve forecasting is through enhanced awareness and more frequent application of new product models (e.g., conjoint analysis, awareness-trial-repeat, market structure, perceptual maps, etc.). Sixth, managers of new products should be fully aware of the downside of pioneering new markets. Although this strategy provides the opportunity to be successful, it also involves many costs and risks. Finally, managing new products as a portfolio may be a good way for companies to accept the risks of new product development. Also, fledgling new products could be supported in the market for a longer time before they need to be profitable on their own.

Theoretical Implications and Directions for Future Research The exploratory nature of this study makes it difficult to confirm new theory, however, the study’s findings suggest several new considerations for the new product development process. In particular, organizational characteristics and constraints play an important role in product development. The processes of managing knowledge and directing information in an organization surround product development and commercialization. Therefore, frequent communication between individuals developing new products and individuals analyzing market opportunities is critical. Its importance is heightened with really new products when these steps occur concurrently over a long period. Another theoretical implication is that cultural differences should be considered more fully in explaining differences in new product development across countries. These explanations may be particularly impor-

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tant when comparing U.S. and European companies with those from Japan. This study’s findings as well as its limitations suggest many directions for future research. First, the study’s discovery-oriented approach limits the generalizability of the findings. Sample sizes on some topics are small and all issues were not discussed in all interviews. Further, responses could be biased due to interactions with the interviewer or a desire to promote the interviewee’s company. Therefore, researchers should select findings from this research and use more traditional methods to establish the generalizability of these findings. Researchers may even want to think of this study’s findings as propositions for future research. However, each finding did have the support of several executives and was not refuted by others unless exceptions are noted. Another direction for future research is to closely examine the idea generation stage. The executives in this study had limited insights into the competitive advantages of their firms in this area. Perhaps, this reflects their unwillingness to share this information. However, I believe the more likely explanation is that companies do not keep systematic records about how ideas for new products are generated. In addition, there is very limited understanding about what differentiates those ideas that lead to success from those that lead to failure. This situation presents an opportunity for researchers to compile and disseminate this valuable information. A third area for future research is to study how to improve information transfer within organizations. Although most executives believe this is very important, they also recognize that it is done too often through informal and ad-hoc processes. Future research should consider the best organizational forms for information dissemination and the informal processes that promote information dissemination. This information could be used to develop a model of communication that surrounds the new product development process. A fourth area is to determine whether new products developed with the support of an operating unit are more successful than those developed without this support. Although most firms believe that this is important, they do not base this belief on broad empirical evidence. Further, if the support of an operating unit is important, what type of support is best, for example, full or partial funding? many or few people involved? frequency of contact? A fifth area to examine is parallel development programs. Although research from the 1980s suggests

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that these were common [39], this study found that they might be used much more selectively. Therefore, understanding the conditions under which they are more and less likely is important. Further, understanding whether they lead to greater success with new products is even more important. A sixth area to investigate is how competition becomes well behaved in some industries but not others. Game-theoretic approaches could be useful to examine this phenomenon. Or perhaps a cultural explanation is more important. A seventh area to address is the issue of standardization. Are children’s products and image-based products really more standardized across countries? And if so, is this the result of similar customer needs or just the result of smaller markets or some other factor? An eighth area to examine is the unique nature of Japanese business. Do Japanese companies understand and promote a marketing orientation within their companies? Is the hierarchical structure more common in some industries than others? Is risk-taking becoming more acceptable among Japanese individuals and society? Is advertising being used more frequently to introduce new products? Are Japanese less responsive to advertising and price? Does the hierarchical structure of Japanese business reflect itself in greater market share stability for existing products and market shares for new products that are similar to those of previous products? A final direction for future research is to develop criteria and measurement scales for evaluating brand transferability across countries. This information would be highly valued by executives and could lead to fewer new product failures as well as speed the introduction of successful products.

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Appendix A Interview Guide I. Product Development 1. Are there established criteria for what new products your company will develop? What are they? 2. If no established criteria exist, what factors do you use to decide? 3. Are products developed and introduced by plan or on an ad hoc basis? 4. Where do new product ideas generally come from? R&D? Marketing? Customers? Competition? 5. Do those products that become successful have a product champion? How does that role affect success? 6. How is your research budget for new products determined? As percent of sales? Relative to competition? 7. At what level is your research budget determined? Division? Company? 8. Is market demand evident during development of most new products? 9. How many years will you work to develop a new product? 10. Is strategic planning done concurrently with product development or only near the end of product development? 11. How much time do you take to plan your entry strategy? Years? Months? 12. Is strategy well-defined in writing before introduction in each market? 13. How do you decide how much research and development to conduct after introduction? 14. What funding level is typical for post-introduction R&D? II. Entry Timing 1. 2. 3. 4. 5.

Do you try to be an early entrant in new product markets? Is it beneficial for you to be first? Is it more important to be first or early in some markets? Do you try to differentiate your products when entering late? What stage of the PLC is too late to enter?

III. Standardization vs. Differentiation 1. 2. 3. 4. 5.

How much variation is there in core product characteristics across countries? Do you try to use the same brand names across markets? How much variation is there in product positioning across countries. Is there a global market for your products? Which products? Are there regional or national markets for your products? Which products?

IV. Strategic Goals 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

What performance goals do you have for new products Are the goals different during an introductory period as compared with the long-term? Do you seek to maximize profits? Over what time horizon? What period do you desire to reach break-even? Is Market share leadership important? Is Product Quality Leadership important? Is Cost Leadership important? Do you try to pre-empt competition or force them to withdraw? Do you accommodate the entry of new firms? Are you willing to stick with an unprofitable product if there is hope of future profitability? For how long? What is your pricing strategy? Skimming? Penetration? What is your distribution strategy? Selective? Intensive? What is the role of advertising and promotion?

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V. Mode of Entry 1. 2. 3. 4. 5. 6. 7. 8. 9.

Do you typically enter with a wholly-owned subsidiary? Do you typically enter with a joint venture? Do you typically enter through an OEM arrangement? Do you typically enter via exporting? Do you enter some markets via acquisition? Do you enter some markets by using a licensing strategy? How do you decide which mode of entry to use? What factors are important in deciding? Product characteristics? Market Characteristics? Firm capabilities? Do you always test market products before full-scale launch? What factors do you use to decide whether or not to use a test market?

VI. Choice of Markets to enter 1. 2. 3. 4. 5. 6. 7. 8. 9.

10.

How do you decide which foreign markets to enter after the domestic market? Are there any products that you would sell in a foreign market prior to selling in your domestic market? How important is prior experience in that foreign matter? Are there any synergies between markets or products that make it easier to enter certain countries? What are these synergies? How do you use the performance of a product in the domestic market or other foreign markets to guide your decision about whether or not to enter a certain country? Does success in other markets affect entry timing, mode and scale? What factors determine the success of a product in a foreign market? Do the factors differ among countries? What obstacles are present for entering specific countries? What factors are important in evaluating countries? Political stability? GNP/capita? Total GNP? Population? Growth rate? Are specific segments evaluated? Currency convertibility? Economic stability—inflation, monetary policy? Is corruption an important factor in some markets?

VII. Organization Structure 1. 2. 3. 4.

Does your company have a new product committee? Is this function centralized or decentralized? International products division? Or each product handles international sales independently? Is profitability measured by product for all countries or by country for all products or by product and country? Does your structure allow or encourage cross-subsidization across products or markets?

VIII. Demographics 1. 2. 3. 4.

How long have you been involved in market entry strategy decision-making? What is your current position? What positions have you held previously? What type of products are you involved with planning? Consumer or industrial products? Durable or non-durable products? Frequently or infrequently purchased?