Balancing Standardization and Adaptation for Product Performance in International Markets: Testing the Influence of Headquarters-Subsidiary Contact and Cooperation (1)

Abstract * We examine how MNCs balance standardization and adaptation in their international product designs. Specifically, we investigate how inputs from both a firm's headquarters and its foreign subsidiaries, together, shape the standardization-adaptation balance for the product's superior market performance. * Our survey of 128 products in the foreign markets of 62 MNCs reveals that a standardization-adaptation balance, when shaped through face-to face contact between headquarters-subsidiary managers, positively influences product performance. Additionally, headquarters-subsidiary co-operation enhances this influence on performance. Key Results * This paper provides evidence of how joint inputs of headquarters and subsidiaries make the standardization adaptation balance effective in international products. Introduction When introducing products in international markets, weighing the benefits of standardizing products across country markets versus adapting them to the differences among markets is often a significant concern to multinational companies (MNCs). Researchers have long debated the standardization-adaptation quandary (see Cavusgil/Zou/Naidu 1993, for a review). One side of this debate contends that standardizing products across country markets is not only desirable because of efficiency considerations, but also feasible because of the growing homogenization of country markets (Hout/Porter/Rudden 1982, Levitt 1983, Ohmae 1985). The other side in this debate, skeptical about both the benefits and the feasibility of standardization, cites the many intractable cultural, political, and economic differences among countries, and makes a strong case for adapting these products to local market requirements (Boddewyn/Soehl/Picard 1986, Quelch/Hoff 1986). Since the late 1980s however, both standardization and adaptation are believed to be equally important, and companies have been encouraged to balance these conflicting requirements in their international product designs (Cavusgil et al. 1993, Wind/Douglas 1987). While all international products are not designed with this objective, the proportion of international products that balance standardization and adaptation appears to be growing (Takeuchi/Porter 1986) and anecdotes justifying the merits of balancing standardization and adaptation come from a spectrum of industries. These include food and cosmetics (where adaptation would appear to be important) along with copiers and televisions (where standardization would appear to be critical) (e.g., Bartlett/Ghoshal 1989, Takeuchi/Porter 1986, Subramaniam/Rosenthal/Hatten 1998). The logic being that, by balancing standardization and adaptation, MNCs can not only simultaneously harness the benefits of efficiency and responsiveness (Prahalad/Doz 1987, Morrison/Roth 1992), but also coalesce into their products, inputs of both headquarters and foreign subsidiaries for greater competitive advantage (Subramaniam/ Venkatraman 2001). Our understanding, however, of how MNCs effectively balance standardization with adaptation in their product designs remains limited, despite the notable research attention the standardization/adaptation debate has attracted. Partly, this is because this debate has disproportionately channeled research to either establish the prevalence or dearth of standardization across markets (e.g., Boddewyn et al. 1986, Samiee/Roth 1992), or to delineate the contingencies influencing the likelihood of standardization or adaptation (e.g., Cavusgil et al. 1993, Jain 1989). Consequently, while this research gives us a good understanding of the conditions under which MNCs are more likely to either standardize or adapt their products, it provides few insights on how MNCs balance standardization with adaptation. This gap in our understanding is of concern, given the current thinking that standardization and adaptation are not necessarily either/or choices solely governed by product, market or technology contingencies. …