Eden Yin

Does Quality Win? Network Effects versus Quality in High-Tech Markets

Researchers disagree about the critical drivers of success in and efficiency of high-tech markets. On the one hand, some researchers assert that high-tech markets are efficient with best-quality brands being dominant. On the other hand, many scholars suspect that network effects lead to perverse markets in which the dominant brands do not have the best quality. The authors develop scenarios about the relative importance of these effects and the efficiency of markets. Empirical analysis of historical data on 19 categories shows that though both quality and network effects affect market share flows, in general markets are efficient. In particular, market share leadership changes often, switches in share leadership closely follow switches in quality leadership, and the best-quality brands, not the ones that are first to enter, dominate the market. Network effects enhance the positive effect of quality.

Persistence and Learning: Success Factors of Taiwanese Firms in International Markets

A relatively recent trend in international marketing is the rising number of firms from nontriad countries seeking growth and profits from foreign markets. Yet no study has examined the international performance of these firms. How successful have their efforts been? What factors drive their success? The authors examine these questions by building a theory-based conceptual framework that links firm international performance to its antecedents. They test the framework using a sample of 110 Taiwanese firms. The key findings are as follows: (1) The internationalization–performance relationship is characterized by a joint U + N shape, (2) learning capacity is positively associated with international performance, and (3) research and development intensity is not a key driver of performance. Though based on a sample of Taiwanese firms only, these results imply that nontriad firms embarking on internationalization must persist despite early setbacks, must develop their learning capacity, and should not develop extensive research and development capabilities while internationalizing. The authors conclude with a discussion of the reasons for these findings.

Racing with the Chinese Dragons

Chinese companies have begun to “go global.” High profile examples include Lenovo’s US

The Competitive Advantage of Emerging Market Multinationals: Innovation by Chinese EMNEs

1.75 billion takeover of IBM personal computer business in 2004; Huawei, which has implemented its telecommunications network equipment solutions in over 100 countries, maintains a network of 12 RD and appliance maker Haier, whose brand ranked 86th in the top 500 most influential global brands (World Brand Laboratory, 2006). Less widely recognized, however, is the fact that scores of other, little-known Chinese companies have begun to carve out significant (and sometimes even dominant) global market shares in numerous industries as diverse as port machinery, medical equipment, and pianos (Zeng & Williamson, 2007, p. 19). This evidence suggests Chinese companies have the potential to powerfully reshape global competition.

Commentaries and Rejoinder to "Does Quality Win? Network Effects Versus Quality in High-Tech Markets"

Introduction Traditionally, Chinese firms have often been considered as ‘low cost’ and ‘me-too’ players, lacking adequate innovative capability to create competitive advantage beyond their ability to produce low-cost products or low cost–low quality substitutes for those of their much more advanced Western peers. However, in recent years, contrary to this characterisation, more and more Chinese firms have begun to emerge as strong global contestants, and in some cases new leaders, in particular product lines and segments in the global market. One of the most publicised examples is Huawei Technologies, which specialises in designing and manufacturing telecoms equipment and routers. It has now surpassed all of the established telecoms equipment suppliers except Ericsson in global market share and profits, and in routers is now directly challenging the global market leadership of Cisco, long regarded as the flagship enterprise in the sector. In the personal computer (PC) business, meanwhile, Lenovo overtook Acer, Dell and HP in the third quarter of 2012 to become the world’s largest PC maker, as forecast by Lenovo group chairman Liu Chuanzhi. Although the achievements of these companies are perhaps the most widely known, they are hardly alone. In fact, today there are quite a significant number of Chinese firms that have successfully established themselves among the global market leaders in a variety of industries. Already by the late 2000s, Zeng and Williamson (2007) identified a list of strong global players from China including: Wanxiang Group in automotive components and systems; Galanz, a leading maker of microwave ovens; and Shanghai Zhenhua Port Machinery, a top crane manufacturer; among others. Four years on, more and more firms from China are emerging as formidable challengers of their once much more advanced Western rivals. But not only are Chinese firms gaining share in the global market, they are also becoming more and more innovative. Haier, Lenovo, China Mobile, BYD and others, for example, were ranked among the top fifty most innovative companies by Business Week magazine last year.

Network Effects, Path Dependence or Quality

A substantial body of theoretical literature indicates that network effects may hinder the entry of higher-quality products into markets in which network effects are impor tant. However, Tellis, Yin, and Niraj (2009) provide com pelling evidence that, in general, higher-quality offerings win out in software markets after a short time lag. Because software markets are commonly believed to be susceptible to network effects, this finding provides important empiri cal evidence against the hypothesis that network effects impede entry. Because Tellis, Yin, and Niraj obtain their results across a large number of product categories and because their analysis holds up across various methods, their evidence that high quality trumps network effects is impressive. However, in the final section of the article, Tellis, Yin, and Niraj are careful to provide a set of limitations for their research. Because I believe that their results must be quali fied in the light of these limitations, I elaborate on some of these in my comment. Because the authors have gone about as far as possible with the data at their disposal, this com ment is intended to stimulate further research on the topic of network effects and quality. Consistent with Tellis, Yin, and Nirajs research objec tives, their conceptual model focuses on the demand side and factors that might affect consumer response, but the supply side is also important. In particular, it is not known whether the firms refrained from developing or marketing products because they judged that network effects were too difficult to overcome. Thus, the results are subject to a sam ple selection problem, in which only products that suppliers believed to be worthy of introduction on the market were selected. Because the sample is limited to cases in which suppliers believed that introducing the product on the mar ket was justified in the face of any network effects, this cre ates an unknown bias toward showing that quality can over come network effects. A related consideration is that suppliers have ways of dealing with network effects or even using them to their advantage. One is to make the higher-quality product com patible with its predecessor, such as making Excel compati ble with Lotus. Another is to arrange to have software bun dled with the sale of new computers, thus forcing its acceptance in the market. For example, a current buyer of a Windows computer must either accept Vista or have some one uninstall this software in favor of an older version, a time-consuming and expensive process. This bundling may have facilitated the adoption of Windows, Word, Excel, Internet Explorer, PowerPoint, AOL, and possibly other software types. Supplier actions to mitigate network effects, such as compatibility and bundling, do not invalidate the general findings in Tellis, Yin, and Nirajs article. Rather, they may help explain how and why network effects can be overcome.

Does Quality Win? Competing Against an Entrenched Market-Leader in High-Tech Markets

This study examines the key drivers of the success of new high-tech products. High-tech products refer to products that 1) involve extensive know-how to produce and substantial know-how to use; 2) experience rapid and fundamental technological changes. The conventional wisdom is that network effects and path dependence are the primary factors that determine the success of a new high-tech product. I argue, however, that the critical force driving its success is the product’s intrinsic quality. Success is defined as the initial mass adoption of a new high-tech product, namely, its “takeoff” and the switch in market leadership from the existing product to the new product.

Establishing the Moral Basis of Global Capitalism: Implications for MNEs in Emerging Markets

Abstract In recent years, with some early entrants to a market commanding huge market shares, critics have wondered whether the best quality products win in the market place. Early entrants can gain a position of wide-spread acceptance among users. The fact that a critical mass already uses the product might prompt new consumers to snowball onto this early choice leading to consumer lock-in. Many economists fear that such “network effects” may enable inferior products to defend their entrenched positions even against higher quality alternatives. This article tests the validity of this premise in 19 high-tech markets including hardware, software, and services. Results indicate that contrary to the above fear, healthy market evolution occurs in most cases without regulatory intervention. Better quality entrants gain market dominance within three to five years of entry. The findings also show that it makes sense to invest in developing high quality products even if the market seems dominated by an entrenched industry leader and that network effects even increase market efficiency in some cases

The International Takeoff of New Products: The Role of Economics, Culture, and Country Innovativeness

Morality is concerned with rules determining right action, identifying actions that are wrong, morally unjust, unfair, or improper (Hosmer, 1994) and is considered an important part of the institutional infrastructure of a society (Lal, 2003). It is essential to control man’s self-aggrandizing instincts to garner the gains from cooperation, because “a sympathy with public interest is the source of moral approbation, which attends that virtue ‘justice’” (Hume, 1740/1985: 551). Adam Smith’s “Laws of Justice” further proclaims that a market economy has to depend upon the scarce virtues, like benevolence, for its efficient functioning (Smith, 1776/1991).