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Distributed Development and Product Line Decisions
Author(s) -
Bala Ram,
Krishnan V.,
Zhu Wenge
Publication year - 2014
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/poms.12185
Subject(s) - new product development , product line , linkage (software) , profit (economics) , business , industrial organization , product (mathematics) , computer science , quality (philosophy) , arbitrage , customer base , product design , risk analysis (engineering) , marketing , microeconomics , economics , manufacturing engineering , biochemistry , chemistry , philosophy , geometry , mathematics , epistemology , finance , engineering , gene
Distributed product development is becoming increasingly prevalent in a number of industries. We study how the global distribution of product development impacts the profit‐maximizing product line that a firm offers. Specifically, we formulate a model to understand the linkage between cost arbitrage as a driver of distributed development and consequent market implications such as customer perceived quality loss to remotely developed products. Analysis of the model reveals that a firm should expand the product line for a development‐intensive good only at intermediate values of cost advantage and quality loss. We modify the base model to include development capacity constraints as a driver of distributed development and find that the results are robust to this change. Our analysis affirms the need for product managers to incorporate the implications of distributed development in making their product line design decision.