Standardization, localization, and multinationals

Kwon, Chul-Woo
Major Professor
Harvey E. Lapan
Committee Member
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This dissertation studies firms' strategy choices of technology and location for their production facilities when they face different culture in the foreign country;The second chapter develops a monopoly model to study whether a monopolist decides to be a multinational or an exporter when facing cultural difference in the foreign market and has various types of production methods. These production market methods are to develop a standard platform and adjust it (standardization) or to create two localized varieties (localization). The firm has more incentive to become a multinational if the foreign country has considerably different preferences from the home country. More similar (dissimilar) preferences in the home and the foreign countries make the firm adopt the standardization (localization) strategy. If the firm adopts standardization strategy, then either the home or host country could be worse-off due to these cultural differences;The third and fourth chapters consider competition between two multinationals (U, J) who compete in a third market ( K), assuming that J comes from a country more culturally similar to country K. The standardization (localization) strategy is the better choice for firms when the two home countries have considerably different (similar) cultures from the host country. If the two firms have more asymmetric cultural backgrounds, firm J is more likely to adopt the standardization strategy while the localization strategy is the more favorable strategy of firm U. When two home countries (or all three countries) have similar cultures, there is a higher likelihood that there are multiple equilibria. More interestingly, the strategic competition between the two firms could make the cultural similarity of one firm a strategic disadvantage;The fifth chapter expands this model to allow asymmetric competition in two home countries. The multinational that has a more competitive home market may adopt the standardization and may use the host-preferred variety as its standard platform. Further, the entry of a new local firm in a home country can raise the profit of the multinational from that country and can increase consumer welfare in the other home market by making the two multinationals change their platforms.