The study examines the effects of environmental context (technological turbulence), industrial context (production technology routineness and product complexity), and organizational structure (formalization and decentralization) on customer involvement in product development and compares US and Chinese State-owned enterprise (SOE) manufacturers. The results show that customer involvement in product development is positively predicted by product complexity and formalization, and inversely predicted by decentralization. The results also show that the effect of formalization is stronger in China. These findings have implications for implementing customer orientation in manufacturing firms and for Chinese SOEs in transition toward market-driven economic entities.
As a philosophical or cultural foundation of modern Western management practice, a market orientation directs the firm toward the marketplace in formulating and implementing strategies (Webster, 1988 and Deshpande and Farley, 1998). Although additional market forces such as competition belong to the domain of a market-driven business philosophy, a customer focus has been consistently recognized as the cornerstone of a market orientation (Ruekert, 1992 and Sheth et al., 2000). A customer orientation enables a firm to deliver superior value to customers and facilitates continuous superior marketplace performance (Webster, 1988 and Narver and Slater, 1990). Although the notion of customer orientation has a long history, prior literature has been criticized for inattention to: (1) activities or behaviors representing a customer orientation; and (2) antecedent contextual factors (Narver and Slater, 1990 and Kohli and Jaworski, 1990). The current study contributes to this literature by examining customer involvement in product development, a construct that captures one specific aspect of customer-oriented behaviors, and by examining crucial contextual conditions that facilitate customer orientation in terms of customer involvement.
To accomplish the above objective, the study takes a comparative approach by contrasting US firms against ones from China, an emerging market experiencing dramatic transition. Customer orientation has been advocated as a vital stepping-stone for transforming firms in transition economies and its adoption also has practical implications for Western businesses entering transitional economies (Golden et al., 1995, Hooley et al., 2000, Akimova, 2000, Sin et al., 2000, Deshpande and Farley, 2000 and Pyke et al., 2000). Theoretically, this comparative approach offers a unique venue for advancing theory by scrutinizing some of the conceptualizations that are being established in more developed Western economies. In their ‘Universal Market-Focused Model,’ Deshpande et al. (1997) propose that successful firms share similar management practices including a market orientation. Since then, a number of studies on emerging markets have shown the positive performance effect of a market orientation including a customer orientation (Deshpande and Farley, 2000). In our study, we believe that a promising aspect of researching firms in emerging markets may be the association between a firm’s context (environmental, industrial, and organizational) and level of customer orientation. Existing comparative studies have been largely limited to firms in developed countries, suggesting a need for contextual comparability (Selnes et al., 1996). However, comparing firms facing vastly different contexts offers another, complementary perspective to ascertain and verify the context – customer orientation links. Thus far, such links have not been conclusively established in the literature that largely builds upon experiences with Western firms.
As shown in our framework (see Figure 1), we examine the effects of the firm’s environmental and industrial context and of organizational structure on customer involvement in product development. In comparing China with the US, we propose a development stage effect that concerns a country’s existing level of customer orientation and associated environmental and organizational dynamism. In the US, some level of customer inclusion has been a basic element of business training and practice and frequent change in technological and organizational contexts has long been dealt with by managers. As a result, contexts, although they may have some effect, are less likely to create large shifts in customer involvement. In contrast, stagnation in the technological environment and in organizational structure and ignorance of customer needs characterized pre-reform Chinese State-owned enterprises (SOEs). Consequently, emerging technological and organizational dynamics should bring about more dramatic responses in Chinese SOEs as they are forced into the market-oriented transformation. On the other hand, there is no such development effect in terms of industrial context when comparing Chinese SOEs and US firms. Like their US counterparts in the manufacturing sectors, Chinese SOEs have long been able to adjust business practice to production and product mandates.
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Fig. 1.
Research Framework and Hypotheses
Note: Figure implies both main and moderation effects.
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The rest of the paper is organized as follows: based on a review of Western literature and China’s unique situation, the first section develops hypotheses for US firms and Chinese SOEs; then, research methods are presented, followed by results, theoretical and managerial implications, and limitations.
This study demonstrates that product complexity increases customers’ involvement in product development in both US and Chinese manufacturing firms. Also, customer involvement intensifies with greater formalization and lesser decentralization. However, the effect of formalization is stronger in Chinese firms. While the study’s findings have to be read with caution, they do show the potential benefits to be delivered from a comparative research strategy in advancing our knowledge about conditions conducive to a customer orientation.
