MMRCDISCUSSION PAPER SERIES
No. 389

Customer heterogeneity and overseas product development

Heejin Kim
Graduate School of Economics, the University of Tokyo
February 2012

東京大学ものづくり経営研究センター
Manufacturing Management Research Center (MMRC)
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Customer heterogeneity and overseas product development
Heejin Kim
Gradute School of Economics, the University of Tokyo, Japan

Keywords: global product development, capability building, local subsidiary, Denso,
customer heterogeneity

1. Introduction
Globalization of research and development by multinational corporations, which isconsidered as the last corporate function to be globalized, is being increased andaccelerated. The purpose of this paper is to discuss about the determinants ofproduct development capability building in local subsidiaries. What factors andconditions encourage the capability building? Does the bigger size of market, like
China, trigger speedy localization of product development capability? Or, initialheavy investment in facilities and equipment help it?

To answer those researchquestions, case studies of Denso’s subsidiaries in India, China, Thailand, Korea,
U.S., and Italy are conducted. The six subsidiaries, which are born out of the same
headquarter, are comparatively analyzed. Especially, the focus is set on the way
each of the subsidiaries have formed their own product development capability indifferent settings and context.
This paper is organized as follows. Section 2 provides a review of the theory of
global R&D activities of MNEs. After reviewing general flow of the research,
research about location choice for global R&D will be examined in detail. In section
3, we will firstly define each functions of local development capability and thecapability level of the six subsidiaries. And then, based on the research review,
existing explanations about location choice and Denso’s six foreign subsidiaries’
cases are comparatively analyzed. Some other explanatory variables will also be
explored. Section 4 sums up the case studies and draw conclusions out of them.
The findings suggest that existing researches about location choice of overseas
product development cannot fully explain the dimensions of capability building.
That is, economically reasonable location choice of overseas product development1

function cannot stimulate capability development afterward. From the case study of
Denso, it became obvious that in the case of an automobile supplier, the existence of
local customer encourages the capability building of local product development
organization. In other words, as far as original customers (eg. Toyota) do not extend
their product development function to overseas, suppliers subsequently cannot
build local development capability.

2. Literature Review
1) Researches about global R&D
There are various terminologies meaning MNC’s global knowledge sourcing, suchas international or global R&D, asset-seeking FDI (Wesson, 1999), capacity seeking(Anand and Delios, 2002), and offshoring R&D, etc. This school of research has beendeveloped since late 1980s, when conventional belief of international businessstudies started to move from ownership advantage (Hymer, 1960) or internalization
theory (Rugman, 1981) to transnational organizations (Bartlett and Ghoshal, 1989).
There are roughly four stages of research streams. Firstly, until 1980s, main
perspectives toward global R&D of firms are ‘home country centered’. That is, as
represented by Vernon(1976), Ronstadt(1977), Mansfield et al. (1979) andRugman(1981)’s researches, the primary purpose of firm’s global R&D is seen as
foreign market support and mere extension of home countries’ business.
Secondly, since 1990s, researchers started to turn their attention to a brand new
phenomenon. Many empirical investigations about increased global R&D by MNCs
appeared. For example, Wortmann(1990) showed that both of German firms’ foreign
R&D and foreign firms’ R&D in Germany have increased since 1980s. Also,
Hakanson and Nobel(1993) pointed out that, in case of Swedish firms, firms withhigher internationalization tend to globalize their R&D. Granstrand et al.(1993)
reviewed the trend of R&D globalization and the drives.
Thirdly, since mid-1990s, typologies of overseas R&D units and effective
management of them have been discussed.

There appeared various terminologies

indicating distinct roles of each overseas R&D unit ( Kuemmerle, 1997, 1999; Nobel
and Birkinshaw, 1998; Chiesa, 1996). Also, it is emphasized by many researches
that different kinds of units should be handled by different way of management.
(Reger, 1999; Odagiri and Yasuda, 1996; Pearce and Papanastassiou, 1996).
2

Fourthly, and recently, the discussions increased its width and richness. In 2000s,
many

researches

about

micro-organizational

dimensionofoverseas

R&D

units(Asakawa, 2001 a,b; Gassmann and Zedtwitz, 2003; Ambos and Schlgelmilch,
2004; Cantwell and Mudambi, 2005; Mudambi, Mudambi, and Navarra, 2007) andknowledge management(Subramaniam and Venkatraman, 2001; Almeida andPhene, 2004; Kurokawa, Iwata, and Roberts, 2007) appeared. For example,
Gassmann and Zedtwitz(2003) examined factors that influence to organize virtual
R&D teams. Similarly, Mudambi, Mudambi and Navarra (2007) investigated themost efficient organization structure for global innovation. At the same time,
researches about Japanese MNCs are increased in 2000s (Asakawa, 2001 a,b;
Belderbos, 2001; Cantwell and Zhang, 2006; Ito and Wakasugi, 2007; Shimizutani
and Todo, 2008) . This reflects that global R&D of Japanese MNCs are getting
obvious phenomenon.
2) Researches about capability buildings of global R&D units
Among various literatures about global R&D of firms, some are focused on
development or evolution of overseas R&D units’ role. Here introduces a few
representative researches, which is thought to be very close to the researchquestions of this paper.
Many researches about overseas R&D units’ role reach similar conclusions. That is,overseas R&D units have various roles and there seems to be some kinds ofdevelopment processes or steps of the roles. (Ronstadt, 1977; Hakanson and Nobel,
1993; Pearce and Papanastassiou, 1996; Nobel and Birkinshaw, 1998; Asakawa,
2001; Cantwell and Mudambi, 2005) These researches found out that overseas R&D
units, that firstly committed very limited ranges of works, develop their capabilities
and extend work range as time passed.
For example, Ronstadt (1977) explained overseas R&D units’ roles using fourtypologies, from surveys of the U.S. firms. Those are TTU (Transfer Technology
Unit), ITU (Indigenous Technology Unit), GTU (Global Technology Unit) and CTU(Corporate Technology Unit). He pointed out that overseas R&D units develop theirroles from TTU to ITU, to GTU, finally to CTU. Similarly, Nobel andBirkinshaw(1998) examined 15 Swedish firms and their 110 overseas R&D units
and divided them into three types such as local adaptor, international adopter,global creator. With main focus on different management of the three types of units,
they also agree on evolving nature of the roles. Pearce and Papanastassiou (1996)3

also pointed out ‘evolving trend’ of some overseas R&D units, from manufacturing
supporting units to product development units. Some other subsequent researches
such as Cantwell and Mudambi(2005) support this idea by emphasizing that someoverseas R&D units obtain creative roles.
However, not all overseas R&D units get developed as time passes. Some obtain
more creative role and extend the range of work, while the others stay same or get
worse. Using Ronstadt’s typologies, why some units move from TTU, to ITU, to GTU,
while some others stay on TTU? If there are differences only in speed ofdevelopment, why some are faster than others?
Existing researches do not give answers about the above questions. Most of
existing literatures made analysis based on huge datasets of hundreds or thousandsof units, using variables such as R&D spending, number of units, and number ofpatents. While this type of macro analysis provided overall map of the research field,
they left a lot to be researched in detail. This research is an attempt to develop
existing researches by focusing on when and why some overseas units build moreproduct development capabilities than others.
3) Researches about Location choice of overseas product development units
Thus, this research starts from some existing researches about location choice ofoverseas R&D units. One reason is that, a decision making about location choice is aprecedent of capability building. Also, not only necessity of an R&D unit in a foreign
site, but also capability building possibility of it afterward, is thought to beconsidered when making decision about the location. Many researches have been

conducted to clarify to where MNCs locate their overseas R&D units and why. It can besummarized as Table 1. Largely, three factors are considered to affect location choice ofoverseas R&D units such as host country factors, home country factors, and overseas
subsidiary factors.
Table 1

Location choice of overseas R&D units

Influencing factors
to location choice① Host country
factors

Independent variables
IPRs intensity
Size（market、GDP）

Examples of empirical studies
Kumar(2001), Ito and Wakasugi (2007)
Hakanson(1992), Kumar(1996, 2001),
Shimizutani and Todo (2008)

4

Distance（from Tokyo）
Technology level（R&D
intensity）
Quantity and cost of R&D
personnel

Shimizutani and Todo (2008)
Hakanson(1992)、Kumar(1996, 2001)、Almeida
and Phene(2004), Ito and Wakasugi (2007),
Shimizutani and Todo (2008)
Kumar(2001), Ito and Wakasugi (2007),
Shimizutani and Todo (2008)

Government regulation

Taggart(1991)

Trade barrier

Kumar(2001)

Size

Odagiri and Yasuda (1996),

Rene (2001)

Zejan (1990), Le Bas and Sierra (2002), Odagiri② Home country

R&D intensity

factors

Rene (2001)
Internationalization（production, sales）
Acquisition③ Overseas
subsidiary factors

and Yasuda (1996), Hakanson and Nobel(1993),

Hakanson and Nobel(1993)
Hakanson(1992), Hakanson and Nobel(1993),
Rene (2001)

Rate of export

Zejan (1990), Ito and Wakasugi (2007)

Rate of local sales

Odagiri and Yasuda (1996)

History（Oldness）
R&D intensity

Zejan (1990), Odagiri and Yasuda (1996),
Hakanson and Nobel(1993)
Odagiri and Yasuda (1996)

Among these independent variables, some are more inclined to explain location choiceof overseas research units (IPRs intensity, host country’s technology intensity), whilesome are more of overseas development units (host country’s market size, oldness of
subsidiaries). Because our research interest is location choice and capability building ofoverseas product development units, we focus on the latter studies.
According to previous studies that explain about location choice of overseas productdevelopment units, host market size(Hakanson, 1992; Shimizutani and Todo, 2008),
quantity and cost of R&D personnel(Kumar, 2001; Ito and Wakasugi, 2007), rate of
local sales(Odagiri and Yasuda, 1996), and history of a subsidiary are influencing
factors. That is, when there are big size market and enough R&D people in a foreigncountry, a firm tends to locate a product development unit there. Also, when local sales
rate is higher than export rate and a subsidiary has long history, establishment of a
product development unit is encouraged.
The above four factors may explain why a MNC locate its product development5

function to a specific area or nation, because the related decision making is mostly
based on economic rationality. However, can it also explain why some productdevelopment units keep building their capabilities while others do not? If not, what are
the factors influencing capability building of overseas product development units?
To answer these questions, in-depth case studies are conducted. Because degree of
R&D globalization heavily depends on industrial nature and corporate strategy,
industrial or firm level comparative studies cannot make reliable results. Thus, thisstudy investigates six overseas product development units born out of same parent
company. In other words, although the six units have one origin, they are located indifferent business contexts, which is a main interest of this study.

3. Case study: Denso’s six foreign subsidiaries.
1) Research Method
Denso, a representative Japanese automobile supplier, is a highly appropriate sampleof this case study, because the firm is actively carrying forward a plan for global productdevelopment since mid-2000. Among its 120 foreign subsidiaries, only less than ten
subsidiaries have product development functions, including six samples of this study.
The data of this case study has been collected from 2008 to 2012. The primary researchmethod is interview with a general manager or chief engineer of each overseas unit.
India, China, Thailand, and Korea are visited from two to three times each, whileinterviews about U.S. and Italy unit are conducted in Japan headquarter with former
sojourning engineers in those countries. Total number of interview is twelve times andeach interview takes two hours on average.
2) Overview of six subsidiaries
Table 2 briefly introduces outlines of the six subsidiaries. The cases of China, Thailandand U.S., there are separate organizations for product development, while the otherthree units are relatively small size organizations attached to manufacturing plant.
Even though the format of organization is not same, the intended purposes andfunctions of the units are almost similar. Namely, these units are established for local
applications of home country’s core technologies and basic products.
Many existing literatures that dealt with categorization of overseas R&D units made6

distinction between research units and development units, and labeled them. For
example, development units, the main focus of this research, are called home-base
exploiting units (Kuemmerle, 1997) or local adaptor (Hakanson and Nobel, 1993).
Through in-depth case study, it is found out that there are obvious differences in theirfunctional level in overseas product development units. In other words, although theunits have same label (as for example, HBE units by Kummerle,1997) and same
purpose(local application of home country’s core technologies and basic products), theyshow different levels of development in terms of their capability. The next section
describes about it in details.
Table 2 Overview of six subsidiaries

Establishment
Entry mode

India

China

Thailand

Korea

U.S.

Italy

(DNIN)

(T/C)

(T/C)

(DNPE)

(T/C)

(DTS)

1993

2003

2008

1976

1985

1999

(Delhi)(Shanghai)(Bangkok)(Changwon)(Detroit)(Torino)Greenfield

Greenfield

Greenfield

Acquisition

Greenfield

AcquisitionMain

M/Suzuki,

Toyota,Customers

Toyota,Suzuki,Daewoo,Chrysler,

Honda,

Honda,

Ssangyong,

ToyotaTata,

HMC, ?

Renault

Toyota

M&M,

HMC,

GM

GM, Ford,

Fiat

Samsung

HMC
Main Products

ThermalThermalThermalMeter, Fuel

ThermalThermalproducts,

products,

products,

Sender,products,

products、Meter,EngineEngine-coWiper ECU

Meter

EngineSensor,control,

ntrol

EngineMeter,

control

Navigation

Engineers

20

180

61

100

500

60

(Approx.No.)(2010)(2011)(2009)(2010)(2008)(2008)Engine、control

control

3) Product development capability building of each subsidiary
To distinguish different capability level of each unit, this research divides overseas
product development function into 10 capabilities. (Table 3) Basically, the details are7collected through interviews. The table is checked by four interviewees after finishedthe first draft and consequent corrections are made by their comments.
One thing to be careful is, these capabilities are not necessarily accumulated in series,
although no.1 is the most basic and no.10 is the final destination. The order of capability
building is affected by various factors such as history, entry mode, managerial decision
to invest, target market of the manufacturing site, etc. Thus, we do not call it ‘steps’.
Table 3Functions
1

Details

Manufacturing

Having industrial machinery(designing and manufacturing

Supportof press/equipment) and TIE(Total industrial engineering)
functions for enhancing manufacturing efficiency

2
3

EngineeringforHaving basic designing and quality check functions for

local procurement

extending local parts procurement

Market/Customer

Having market/customer survey function

survey45Concept

Generating general concepts for new products and making

generation/proposal

proposals to customers

Test Manufacturing

For saving total lead time of product development, local
subsidiary have test manufacturing function. (Ex. Clay
Modeling)

6

Engineering

for

Minor

engineeringchangeforloading

products

oninstallation

customer’s vehicle in local condition. (This is often called(passive‘application engineering’)

engineering)This kind of engineering range from a very simple job suchas changing km printing to mile in meter’s case, toalternating the location of small bolt when rearrangement ofparts are necessary.

7

EngineeringforEngineering for creative response to local market context,

creative response

manufacturing condition, usage and customer taste, etc. in(active engineering)

order

to

enhanceproduct

attractivenessandcompetitiveness in the market.
Efforts are devoted to detect tacit knowledge about local
customers (Subramaniam and Venkatraman, 2001), and torealize it into products.
8

Platform

Having designing and engineering capability equivalent to8

Development (Total

the headquarters or home country engineering departments,

local development)

which

means

local

development

units

have

full

responsibility for safety and functionality of the products.
910

Evaluationfor

Having equipment, engineers, and skills for testing andmaterials/parts

evaluating local materials/parts.

Evaluation for final

Having equipment, engineers, and skills for testing andproducts

evaluating final products.

Based on Table 3, Table 4 shows the functions of each unit. Because it was not possible
to measure the degree of each function in this study, a circle is marked when a unit has
experience in a function if it is only once, and a triangle is marked when a preparation
for a function is under progress.
Table 4
Functions
1

Manufacturing

India

China

Thailand

Korea

U.S.

Italy

(DNIN)

(T/C)

(T/C)

(DNPE)

(T/C)

(DTS)

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

Support2

Engineering for local
procurement

3

Market/Customer
survey4Concept
generation/proposal

5

Test Manufacturing

〇

〇

〇

〇

〇

〇

6

Engineering

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

〇

for

installation(passive engineering)
7

Engineeringfor〇creative response(active engineering)8

Platform
Development(Totallocal development)
9

Evaluation

for

△

〇

materials/parts9

10

Evaluation for final

△

〇

〇

〇

products
The result is that each product development unit has different functions, which means
different level of capability. Korea, the U.S., Italy have highest capability of local
product development, while China and Thailand have relatively low. India is speeding
up. What factors affect the capability building of each unit? As mentioned earlier,existing literatures point out some important factors for location choice, such as hostmarket size, quantity and cost of R&D personnel, rate of local sales, and history of a
subsidiary. We firstly examine the relationship between the four location choice factors
and the six unit’s capability level.
Table 5 Location factors of overseas development subsidiaries and capability level
India

China

Thailand

Korea

U.S.

Italy

Explan(DNIN)

(T/C)

(T/C)

(DNPE)

(T/C)

(DTS)

-atory

8

6

7

10

10

10

power

3,536,78

18,264,

1,644,513

4,271,94

7,761,4

857,359

✕

3

667

1

43

an

681

609

588

1,658

6147

n.a.

✕

a

1993

2003

2008

1976

1985

1999

△

domestic

domestGlobalGlobaldomestdomestic✕

Capability level
Market size of hostcountry(automobile

production）
Cost

of

hiringengineer（月・＄）Historyofsubsidiary
Sales destination

ic

ic

As shown in Table 5, location factors of existing studies cannot explain capability level
differences among subsidiaries. Only history of a subsidiary partly explain capability
level difference, which is so called vintage effects. Then, what factors influences
capability building of each subsidiary? To answer this question, we conducted casestudies of the six subsidiaries, especially focusing on market/customer characteristics
and capability building process/stage of each unit. Roughly speaking, the business
context of each unit can be described as Figure 1.
Figure 1 Differences in target customer and market competition

10

l
a
n
i
g
i
r
O

④ Koreaw
eN

Characteristics of target

customer② China③ Thai⑤ America① India⑥ Italia

Unstable

StableCharacteristics of market competition

The details of business contexts and product development capability building of thesix subsidiaries are summarized as table 7 due to the length of full case descriptions.
Table 7 Summaries of 6 subsidiaries’ cases
Business contexts

Product development
capability building①-Production volume:1.2million (2009)-In 1990s, manufacturing support

India

and keep increasing.

engineering-Since India’s economy liberalization

enforced.

in 1991, many global automobile-In the process, local engineers’

suppliers and assemblers started

training has started.

business in India. Competition is-In 2006, Denso India entered

getting intense.

business with Tata Motors, by-Maincustomer:Approximately,

developing

functions

one-armed

were

wiper

Maruti Suzuki (70%), Toyota(15%),

system for Tata Nano.

Two wheelers, Tata, Hyundai(2008)-This was a epoch-making event,-After Toyota retreated from Indianby which DNIN and Tata built

market in 1992, Denso India havetrustworthy

tried to extend their business to local

extended their local business.

relationships

andand global assemblers.
②-The world’s biggest and fastest-Until recently, T/C in China has

China

growing market ever, that recorded

been

busy

supporting

23

more than 13million sales volume inmanufacturingsubsidiariesin11

2009. Also, the volume is expected toChina, which has been rapidly

reach 30million in 2015.

growing.

-The market competition is very

-Thus, T/C’s main mission was

intense

local

among

local

and

globalprocurement

andplayers. The market is taken by: 17%

manufacturing support.

Japanese,

11%-Since 2009, T/C strengthened its

American, 8% Korean, 46% Chines

market research and local parts

local assemblers.

procurement functions, as local-As the whole pie is getting bigger,competition gets intense.

almost all the players are increasing-However,their volume year by year.

development works for Chinese-Denso started Chines business inmarket are conducted engineers in1987 and has 26 subsidiaries inJapan.

18%

European,

most

of

product

China now. (one T/C in Shanghai)③-Export is bigger than local sales-When its establishment in 2008,

Thailand-Japanese automakers take moreThaithan 90% of Thai automobile market

evaluation and test equipment.

-Thai

is

-Thus, test for local materials or

established in 1972, as the firstparts became available without

subsidiary in Asia. Now, there are 8

sending it to Japan.

subsidiaries.

-Also,-T/C was set up in 2008, mainlycompetitors’

targeted

market/customer

subsidiary

to

of

Denso

becomeToyota’s

T/C

introduced

manybenchmarkingofproducts

andsurveysaredevelopment partner in local market.

actively conducted recently.

④-Export is much bigger than local-LocalKorea

sales, and local market is almost

capability is highly necessary. One

saturated.

reason is customer; most of the-Hyundai-Kia group takes more thanbusiness is for local customers. The

80% of the market, followed by other

other reason is that meter is an

Koreaninterior part which needs lots ofautomakers

and

joint

product

development

venturescustomization when designing and-Denso set up a joint-venture inengineering.

1976(DNPE),

which

product-DNPE takes full responsibilities

development

capability

meter

for Korean customers, while helps

hasinbusiness.

application engineering jobs for-Main customers are Hyundai, Kia,

Japanese12

customers,

under

GM

Daewoo,Renault

Samsung,

cooperation

withcounterpart

Ssangyong.

engineers in Japan.

⑤-Production volume has decreased-DIAM is evaluated as the mostAmericafrom 8.6 million in 2008 to 5.6

advanced

million in 2009.

unit-Local big 3 (GM, Ford, Chrysler)

subsidiaries.

take about half of the market,-Because subsidiary in America isfollowed by Toyota, Honda, Nissanestablished for the business withand Hyundai, etc.

big

-Denso established its first foreignfunctions on site was necessary

subsidiary in America, in 1971.

from the beginning.

-In America, Denso’s business with

-Exactly speaking, there are two

big 3 is bigger than with Japanesecategories of products. Engineering

automakers.

of customizing products are totally-America T/C(DIAM) has about 500

done

engineers.

standardizing products are partly

productindevelopment

Denso’s3,

foreignengineering/technical

in

DIAM,

while

of

done in DIAM.
⑥-Small market with product volume-Although

Italiaaroundlocal

development capability building byautomaker Fiat takes about 60%

Denso itself, the two acquired

share.

subsidiaries have relatively high-Denso acquired Magneti Marelli’s

development functions as a result.

car-In business with Fiat, all the1

million,electronics

starters)

and

where

(alternatorsthermalandbusiness

product

it

was

not

product

development/engineering(air-conditioner) in 1998 and 2001.

works are done on site by Italian-The two acquired subsidiaries, DMI

engineers, regardless of productandnature (customize/standardize).

DTS,

have

had

product

development functions since they
were a part of Marelli.
4) Discussions
As shortly described above, the six subsidiaries have different business context andproduct development capability building process/stage. The major differences amongsubsidiaries are summarized into four variables, which are compared with capability
building stages of each subsidiary in Table8.
13

Table 8

Four variables from case study and capability level of each subsidiary
India

China

Thailand

Korea

U.S.

Italy

Explana(DNIN)

(T/C)

(T/C)

(DNPE)

(T/C)

(DTS)

-tory

8

6

7

10

10

10

power

Product

CustomiCustomiCustomize

CustomiCustomiCustomi✕natureze/Standze/Stand/Standardi

ze

ze/Standze/Standardizeardizeze

ardizeardizeGrowing

Growing

Saturated

Saturate

Saturate

SaturatedddCapability level①

Market②

growthMarket③✕

Unstable

Unstable

StableStableStableStable✕

Old/New

Old

Old

New

New/Old

New○

competition④

Customer① Product nature(Customize/Standardize)Denso, as the top car electronics maker of Japan, has a wide range of products. In
terms of necessity of local product development, it is possible to divide products into
two groups. One is Standardized products that is planned and engineered for world
market business. The other is customized products that are very difficult to be
standardized and need to be altered for each customer’s products. Of course, there
seems much higher necessity of local development when it comes to customized
products, such as meter, air-conditioner, wiper, etc.
It can be said that product nature influences product development capability
building of local subsidiaries, when a subsidiary of customized products shows highlevel of capability while a subsidiary of standardized products, low. However, the six
subsidiaries of this research, all of them have customizing products such as
air-conditioner and meter, show different capability of local product development.
From this fact, it is difficult to conclude that product nature influences productdevelopment capability building.
② Market growth(Growing/ Saturated)
The most obvious difference of the six subsidiaries in terms of market is whether it
is growing or saturated. It can be expected that subsidiaries in growing market needmore product development capability in order to make quick response to the market
change. However, as we described in the case of China, it was busy building andsupporting manufacturing plants in fast growing market. Thus, not much time and14man power is spent on product development capability building in the early stage of
local business in fast growing market. As shown in Table 8, there are no consistent
results to support the relationship between market growth and productdevelopment capability building.
③ Market competition(Stable/ Unstable)
Competition characteristic of each market is divided into the stable/unstable,
decided by whether there are frequent market share changes among players or not.
India and China, the two big scale and fast growing markets, are labeled as
unstable competition, because many global players are trying to taking each other’smarket share and competition structure among the players are not fixed yet. While,
the other four countries’ competitions are thought relatively stable one, because it isvery difficult to expect sudden or frequent changes of competition structure or
market share among players in those markets.
It can be expected that, in markets of unstable competition as China and India
where many global assemblers and suppliers are competing with each other, there
might be more urgent needs of speedy product development and cost reduction to bea winner. However, from the table 8, it seems difficult to conclude that subsidiaries
in markets of unstable competition build more product development capability.
④ Customer characteristics(Old/New)
Denso was originally a part of Toyota, and Toyota takes almost half of Denso’s
business even now. Thus, we divide customer characteristics into two groups; oldcustomers such as Toyota and other Japanese assemblers, and new customers
including local assemblers and global players in a local market. Denso has been
trying to extend its business with non-Japanese assemblers, while keeping its
business priority with Toyota. Thus, although non-Japanese assemblers takerelatively small part of Denso’s total business, it is thought to be an importantvariable in terms of local product development.
While Denso’s customers in China and Thailand are Japanese assemblers, there
are more diverse customers in India, and local customers take bigger share thanJapanese assemblers in Korea, America, and Italia. As we can observe in table 8,
subsidiaries having business with new customers show higher product development
capabilities. That is, customer characteristics can be an efficient variable inexplaining differences among local subsidiaries’ product development capabilities.

15

We examined four variables that might influence product development capability of six
subsidiaries. As a result, it is found out that only the relationship between customer
characteristics and product development capability building is clear. Two things can bepointed out from the result. Firstly, the business with new customers including local
assemblers is the most important factor encouraging product development capability of
local subsidiaries. Secondly, without globalization of assemblers’ product development,
suppliers’ globalization of product development is not progressed.

4. Conclusions
This paper explored determinants of product development capability of local
subsidiaries. This study has largely two theoretical implications. Firstly, while existing
literatures point out the possibility or tendency of evolving nature of local subsidiaries’
product development capability, this study steps further to explain when the capability
building is encouraged. Secondly, this study compares between the location choice logics
of existing studies and development factors (determinants of capability building) fromcase studies. Through that, it became obvious that location choice factors cannot explain
capability building of subsidiaries afterward. Although this study provides only roughtendency from case studies, it is thought to point out an important topic to be studied;the logic of location choice and capability building of overseas product development.
From its exploratory nature, further studies should be made for more robust results.
Firstly, cases more in depth and in width are necessary, including firms in otherindustries. Secondly, not only qualitative analysis, but also quantitative one based onquestionnaire is necessary. Thirdly, four variables from the case studies should be dealt
with more concrete data and definitions.

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