A study comparing American, Japanese and German companies operating in the United States

Strategies of gaining competitive advantage at the generic and business unit level: A study comparing American, Japanese and German companies operating in the United States

Shah, Abhay

This study investigates the differences in Porter’s generic and business level strategies of U.S., Japanese, and German companies operating in the United States. The study found that even though the companies from the three different countries were selling their products in the same market (U.S), they followed different generic and business level strategies in order to achieve competitive advantage.

INTRODUCTION

Scholars have been very interested in the differences in behaviors of different companies with different country of origin. However, researchers have not studied differences in generic strategies and business unit level strategies of U.S., Japanese, and German companies operating in the U.S. The objective of this study is to overcome this shortcoming.

LITERATURE REVIEW

Strategy has been considered as a course of action consciously, and deliberately taken by top management, and as an analytical exercise by staff strategists (Porter 1985).

Porter’s Generic Strategies

Porter’s (1985) book, “Competitive Advantage: Creating and Sustaining Superior Performance” stimulated many scholars to study how companies gain competitive advantage and formulate competitive strategy. According to Porter (1985), a firm can gain competitive advantage if it is able to create value for its buyers.

Companies can provide this superior value by offering products/services that are lower in prices than that of their competitors, or by offering benefits that are so unique that consumers are willing to pay a higher price for them. The former generic strategy is called the strategy of -cost leadership” while the latter is labeled the strategy of “differentiation”. The third strategy: “focus”, is when a firm chooses a narrow segment within its industry and tailors its offerings (strategy) to that segment. Finally, Porter labels firms that follow each generic strategy, but do not achieve any of them as “stuck in the middle”.

If a firm wishes to pursue the strategy of cost leadership, it has to be the low cost producer. A firm may gain cost advantage through economics of scale, proprietary technology, cheap raw material, etc. The strategy of differentiation involves offering a different product, a different delivery system, or using a different marketing approach. And it is up to the management of the company to decide which factors it wants to emphasize in order to gain competitive advantage (Porter, 1985).

A study of European, Japanese and U.S. companies by Arora and Gambardella (1997) found that in comparison to U.S. industries, European and Japanese industries have greater competitiveness if the underlying competencies are not product specific. Similarly, the study by Doyle, Saunders, and Wong (1986) found that Japanese companies had a long-term perspective. They were much more interested in growth and long term strategies to capture market share (volume) at the expense of immediate short term profits, and subsequently they report having lower profits than their American counterparts (Haar, 1989). Even though the Japanese are seen as great performers, they do not make a lot of money (Johansson and Yip, 1994).

Japanese firms spend far more than their European and American counterparts in R&D activities, and this may explain their superiority over them when marketing in other countries on issues like product and process innovation. The Japanese have learned to cut product adaptation since it results in lower profitability and lower market share. Japanese companies increasingly emphasize product standardization since it results in economies of scale in marketing and production (Kotabe, 1990).

Japanese companies have also been known to pursue globally integrated strategies so that they can benefit from cost reductions, improved product quality, and higher customer preference in order to gain competitive advantage (Hout, Porter and Rudden, 1982). The Japanese have also been known to be very flexible and quick to strategically adapt to changes. Most of the expenditure on research by Japanese companies are in applied research rather than basic research, but when exporting, Japanese companies have also excelled in production process improvements as well as product development innovation (Johnson, 1984).

Business Level Strategies

Business level strategies are those that a corporation’s business unit has to develop in order to stay competitive and profitable. Strategies at this level include marketing strategies and production/manufacturing strategies.

Production/Manufacturing and Quality Issues Quality is believed to be an important corporate strategy, and American and European firms are trying to catch up with Japanese firms by improving their quality standards. The Japanese pioneered the concept of “Quality” during the 1940s, and it did a lot to improve their position as a world economic power.

The American Society for Quality Control indicates that 60% of the directors and top managers believe that quality is a management concern. Research shows that only 20% of U.S. computer firms expect to center their use of technology on meeting client expectations. During 1991, only 20% of the automotive companies included customers in their design teams. This was expected to increase to 43% by the late 1990s (Computerworld, 1992).

In a recent survey regarding the relationships of corporate management and the board of directors, it was found that boards of directors are not concerned about quality issues (Quality Progress, 1993). Many U.S. firms have initiated quality programs, but they also report that they are not being implemented properly. Some use quality audits to assess the results of their programs.

Germany has the highest labor cost in the world. However, despite this shortcoming, Germany consistently earns high praise for the quality of its products and services (Bowles, 1993). Consumers typically regard goods made in Germany to be better than those from the U.S. or Japan (Mussey, 1992). The International Quality Study by Ernst & Young (1992), examined firms in the automotive, banking, computer, and health care industries in Canada, Germany, Japan and the United States. The results of their study exhibit that German corporations are twice as likely as their North American counterparts to turn consumer requirements into their products and services and Japanese companies are three times more likely to do so.

Furthermore, studies reveal that Japanese managers emphasize the systematic application of process simplification and cycle-time reduction to improve quality more than managers of other countries. European and Japanese multinationals also evaluate information regarding the business consequences of quality performance more than U.S. companies (Ernst & Young, 1992).

Marketing Issues

Marketing has typically been considered as part of the strategic business unit level strategy, and has been defined as “customer orientation, competitor orientation and inter-functional coordination”. Japanese companies are becoming more customer oriented in comparison to American or European companies (Deshpande, Farley, and Webster, 1993), and have thus been very successful in the countries they have ventured into.

Japanese companies rely quite heavily on marketing for their success overseas. Even though Japanese companies possess production efficiencies, for marketing purposes they adapt their marketing to differences in customer tastes, competitors, product specifications, etc. (Doyle, Saunders and Wong, 1986).

The study by Doyle, Saunders, and Wong (1986) found that Japanese companies focused on quality and product extension, and spent more on promotion deals in order to achieve their objectives of high market share and ultimately dominating the market. Similarly, Kotabe (1990) found that Japanese corporations think that strategies relating to product are more successful than those employing price, promotion or organizational synergy.

RESEARCH METHODOLOGY

The Sample

Questionnaires were mailed to 860 CEOs of American, Japanese and German companies with operations in the US. Names of companies were randomly selected from the Directory of Foreign Owned Companies Operating in the U.S. and from the American Manufacturers’ Association.

The Questionnaire

The first section of the questionnaire contained six items relating to company background. The second part of the questionnaire contained three items relating to strategic goals. The third part of the questionnaire contained thirteen items on what firms did in order to gain competitive advantage. Finally, in the fourth part, respondents had to identify key problem areas. The mailer contained the questionnaire, a short letter explaining the purpose of the study, and a self addressed stamped envelope. To encourage response, if respondents desired, they were promised a brief summary of the findings of the study.

Data Analysis

The data was analyzed using means, medians, analysis of variance (ANOVA), and KruskalWallis test of significance.

RESULTS

The Response Rate

Altogether, 160 (18.6%) completed questionnaires were received. However, only 136 of these were usable, resulting in a usable response rate of 15.8%. 63 of the usable questionnaires came from US firms, 48 from Japanese firms, and finally, 25 from German firms. Table I shows the characteristics of the companies.

Table I shows that currently in the US, Japanese and German companies tend to be much smaller than their American counterparts, and consequently their sales are also smaller. Profits for US companies have increased in the last 5 years, while that for Japanese and German companies have remained the same. Japanese firms consistently underestimate their achievements (Johansson and Yip, 1994) and thus their low response on profits. It Is also very likely that Japanese companies are at the initial stages of penetrating the US market, and are trying to build market share at the expense of profits. Japanese companies see other Japanese companies as their major competitors. This is also supported by the findings of Hanssens and Johannson (1991), who state that Japanese firms pattern their overseas strategies on their Japanese competitors. It is a little surprising to find that Japanese companies have a planning horizon as short as US or German companies. Maybe they are adjusting to the volatile and rapidly changing environment in the US, and do not see the advantages of long term planning.

Next, the strategic choice of companies from the three countries was analyzed. Table 3 reports the findings. Only product design, price differentiation, backward integration and forward integration were statistically significant. Although other items were not statistically significant, there are differences among firms from the three countries signifying that they attach different levels of importance to them.

Except for cost reduction, and Superior quality and reliability, the Japanese are consistently higher than both the US and German companies. This is not very surprising, and it is consistent with the findings of earlier studies. American companies seem to be getting more cost conscious and are putting more emphasis on reducing cost than their Japanese and German counterparts. Japanese companies still put more emphasis on R&D, product differentiation. product design, product variation and process development than their US and German counterparts.

Table 2 shows the mean response of American, Japanese and German companies on the issue of strategic objectives. Consistent with the findings of previous studies, Japanese companies in this sample have less of a short- term profit goal than their German and American counterparts. However, they do have a goal that is more longterm oriented towards increasing market share. Finally, LIS companies seem to have a goal that is more oriented toward beating competition than their German or Japanese counterpart.

Japanese companies are getting larger due to their global push and are thus emphasizing large-scale manufacturing. Consistent with earlier findings, German companies rely more on superior quality and reliability than the Japanese and US companies. Earlier studies have also found that the Japanese rely quite heavily on price in order to penetrate a market and gradually increase their market share based on low price. The Japanese have also been found to use technology to be competitive, and the findings of this study support the above.

The Japanese have been known to work very closely with their distributors in order to penetrate a market and maintain this relationship in order to stay ahead. The Japanese are also known to have very strong control of their suppliers. The findings of this study support both of these earlier propositions.

Table 4 shows what executives thought were key problem areas, which hurt implementation of strategies in their companies.

A study by Johansson and Yip (1994) found that Japanese companies complain about too much centralization. The findings of this study overwhelmingly support that view. The Japanese think that they are not getting enough support from almost the different areas in their company.

The Japanese emphasize research on intermediaries more than American or German companies. Americans pay much more attention to customer panels and focus groups than the Japanese or Germans.

One could assume that Japanese companies think that relying on intermediaries may give them an unbiased view of the customer. For instance, if marketing research is done using intermediaries, then intermediaries may be more truthful since they do not care whose products they sell, as long as customers keep coming to their store to buy any manufacturer’s product.

Marketing Issues

Table 7 shows the importance respondents attached to the different elements of the marketing mix.

Japanese companies focus more attention on intermediaries and R&D before developing new products than German or American firms. The Japanese also give more importance to company policies and focus more on customers when deciding on distribution channels than the Americans or Germans. Japanese companies also pay more attention to customers before giving discounts than Americans or Germans. When setting price and giving temporary discounts, Japanese companies also give more attention to intermediaries than American or German companies. The above results clearly show that Japanese companies involve intermediaries much more than their German or American counterparts.

DISCUSSION/ CONCLUSION

This is the first study that investigates Porter’s generic strategies, and business-unit level strategies of American, Japanese and German companies operating in the US. The findings show that German companies tend to behave more like US companies. Maybe this could be traced to the similar European culture shared by American and German companies. German firms have been in the US much longer than Japanese firms, and may have assimilated more and adopted more of the American practices of doing business, while at the same time also being influenced by the dictates of their parent company from their home country. There were differences among U.S., German and Japanese companies in almost all of the issues that were part of the study. However, not all were statistically significant, and one should be cautious in interpreting those that were not statistically significant.

Based on the findings of this study, one can conclUde that Japanese firms rely quit heavily on activities that result in lower costs in the long run, thus signifying that they are using the low cost strategy. One could also argue that the American and German companies could be viewed as “stuck in the middle”. This can be supported with recent happenings in the US consumer and industrial goods market where the Japanese have beaten both the German and US companies in a number of areas. For instance, the Japanese have decimated US companies that were involved in manufacturing TVs, VCRs, and other electronic goods. The Japanese have also done a tremendous job in the US auto market in a number of segments, and lately, in the luxury segment. Lexus had overtaken Mercedes Benz as the best selling import in the luxury segment in just a few years. The Japanese have also upstaged the Germans in such products as upscale cameras, stereos, etc.

The findings of the study are consistent with others in the past; i.e., Japanese firms are more aware of competitors’ quality than U.S. and German finns. Japanese firms work more closely with their suppliers to improve quality, and also incorporate customer needs in their quality program more than U.S. and German firm.

Japanese companies emphasize intermediaries more than American and European companies. It is likely that Japanese firms are relatively new entrants to the American market, and they see intermediaries as the easiest way for access to the US market. The relationship between intermediaries and manufacturers in the US has been an adversarial one, and maybe that is the reason why US companies do not rely as heavily on intermediaries.

It is difficult to say which of these strategies result in success since US companies claim that their marketing strategies were quite successful, while at the same time the literature also show that German and Japanese companies in the US have also been quite successful. Maybe they are all successful based on their strategic objectives.

REFERENCES

Arora, Ashish and Alfonso Gambardella (1997), “Domestic Markets and International Competitiveness: Generic and Product-Specific

Competencies in the Engineering Sector”, Strategic Management Journal, 18 (Summer Special Issue), 53-74.

Bowles, Jerry (1993), “The Riddle of German Quality.” Across the Board, January-February, v 30, No. 1, pg. 54.

Computerworld, (1992), Quality Effort at Crossroads, June 29, Vol. 26, No. 26, 88-91. Deshpande, Rohit, John U. Farley, and Frederick E. Webster (1993), “Corporate Culture, Customer Orientation, and Innovativeness in Japanese Firms: A Quadrad Analysis,” Journal of Marketing, 57 (January), 23-37.

Doyle, P, J. Saunders, and V. Wong (1986), “Japanese Marketing Strategies in the UK: A Comparative Study,” Journal of International Business Studies, (Spring), 27-46.

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Hout, T., M. E. Porter, and E. Rudden (1982), “How Global Companies Win Out”, Harvard Business Review, (September-October), 98-108. Johansson, Johny K., and George S. Yip (1994), “Exploiting Globalization Potential: U.S. and Japanese Strategies,” Strategic Management Journal, 15, 579-601.

Johnson, S. B. (1984), “Comparing R&D Strategies of Japanese and U.S. Firms,” Sloan Management Review, Spring, 25-34.

Kotabe, Masaaki (1990), “Corporate Product Policy and Innovative Behavior of European and Japanese Multinationals: An Empirical Investigation”, Journal of Marketing, 54 (April), 19-33.

Mussey, Dagmar (1992), “German Goods Get High Marks.” Advertising Age, February, Vol. 93, No. 8, pp. 40.

Porter, Michael E.(]1985), Competitive Advantage: Creating and Sustaining Superior Performance, The Free Press, New York.

Quality Progress, (1993), Developing a Quality Culture, September, Vol. 26, NO. 9, 73-76.

Abhay Shah, Charles Zeis, Ahmad Ahmadian & Hailu Regassa University of Southern Colorado

Copyright College of Business Administration. University of Detroit Mercy Spring 2000

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