Factors affecting international product design
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Factors affecting international product design GC Hadjinicola1 and KR Kumar2 1
University of Cyprus and 2 University of Southern California
In this paper we examine the impact of changes of such factors as tariffs/import cost, exchange rate, and unit savings derived from economies of scale, on the product design of four international strategies which are characterised by two dimensions. The ®rst dimension describes whether the company offers a standardised or a customised product. The second indicates whether the company centralises its production to a single facility in one country or decentralises its production to facilities located in each country. To address the above issue, we present a model that has elements from marketing and manufacturing. For the case where the product has one attribute, we show that when tariffs/import cost decrease, an international enterprise should respond by enhancing the features of its products. Similarly, the product features should be enhanced when the exchange rate increases or the unit savings derived from economies of scale increases. Numerical examples indicate that an international enterprise should change its production con®guration from decentralised to centralised, in environments of high tariffs/import cost. Furthermore, an international enterprise should change its product policies from customised to standardised when the savings derived from economies of scale are high, and the exchange rate increases. Keywords: exchange rate; manufacturing policy; marketing policy; tariffs
Introduction In many industries, the battleground in global competition is shifting to rapid new product development, production and distribution. For example, in the personal computer industry, product lifecycles are less than 2±3 years. Within this time frame, product design/launch, production rampup/global distribution, and production ramp-down/inventory mop-up have to occur ¯awlessly. A one-month delay in product design critically affects the product launch, `eating' into the high-pro®t phase of the life cycle, making the difference between a ®nancial success and failure. One of the critical success factors in such competition is creating a tight integration between product design and production con®guration strategies that can react quickly to changes in the market environment. Product design strategies are strongly affected by advances in technology. Speci®cally, improvements in communication, transport, and travel are driving consumers around the world to be aware of, and demand the same set of products.1 Facing this phenomenon termed globalisation of markets, Levitt states that `companies must learn to operate as if the world were one large marketÐignoring super®cial regional and national differences.' Nevertheless, the belief of the existence of homogeneous markets and therefore, the offering of a standard product design worldwide, has been challenged by the traditional paradigm that Correspondence: Dr GC H
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