MMRCDISCUSSION PAPER SERIES
No. 492

Architecture of Interfirm Collaboration and Global Competitive
Advantage: Findings from the Mobile Handset Industry
Hee Kyung Na
Adjunct Professor, Kyungpook National University
Young Won Park
Faculty of Economics, Graduate School of Humanities and Social Sciences,
Saitama University, Manufacturing Management Research Center
Graduate School of Economics, The University of Tokyo
November, 2016

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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Architecture of Interfirm Collaboration and Global
Competitive Advantage: Findings from the Mobile Handset Industry

Hee Kyung Na
Adjunct Professor, Kyungpook National University
E-mail: hkna@knu.ac.kr

Young Won Park
Faculty of Economics, Graduate School of Humanities and Social Sciences, Saitama University
Manufacturing Management Research Center
Graduate School of Economics, The University of Tokyo
E-mail: ywparkjp@gmail.com

Abstract: This paper explores the heterogeneity of interfirm relations and its influence on thedomestic and global performance. By magnifying the magnitude of relational ties between asupplier and a buyer, the study identifies multiple types of interfirm architecture (integral, quasiintegral, modular, quasi-modular) and the mechanisms of the connection between the domestic
and global competitive advantage. The findings show that, in the tightly coupled collaborativearchitecture, securing a certain degree of autonomy is helpful for the suppliers to influence thebuyers’ technological and product trajectories of the domestic market to be synchronized withthe global trend and thereby increasing chances to create and capture more value both in andout of the home country. And the loosely coupled architecture facilitates the firms to experimentto find a strategy to better fit both in the domestic and foreign markets. By simultaneously
considering the existing two major parameters (structure and tie strength) of the interfirm
relations and developing a combined framework of the collaborative architecture, this study
advances our understanding on under what conditions firms are more likely to better perform
within and beyond the domestic boundary.
Key Words: interfirm relations, collaborative architecture, multinational enterprise (MNE),
comparative value chain structure, domestic and global value creation and capture11. Introduction
Modern enterprises cannot complete a whole process of product development and distribution
in-house (Baldwin and Clark, 2000; Sturgeon, 2002; Jacobides, 2005; Chesbrough et al., 2006).
In a series of value chain, firms are linked to various entities and interact in diverse ways
(Pisano, 1991; Gawer and Cusumano, 2002; Iansiti and Levien, 2004; Teece, 2007). In
management literature, researchers from multiple lines of studies have tried to uncover themechanics of interfirm collaborations and its influence on the performance (Dyer and Singh,
1998; Gulati et al., 2000; Adner and Kapoor, 2010).
Regarding the features of collaborative relations, prior research has largely focused on two
aspects: structure and strength (magnitude) of the interfirm ties (Granovetter, 1973; Ahuja,
2000; Iansiti and Levien, 2004). So far, studies have analyzed the above mentioned parameters(structure and tie strength) respectively. Yet, in order to systematically understand the logics ofinterfirm collaboration, it is needed to incorporate the two factors in a more combined
framework.
In particular, for multinational enterprises (MNEs) that operate both domestically andglobally, it has been a critical challenge to organize effective interfirm ties to create and capture
value in and out of the home country. Jacobides and Kudina (2013) argue that firms in different
countries establish heterogeneous value chain structure and this comparative value chain
structure is related to the global performance of MNEs. Regarding this issue, Porter (1986;
1990) claims that although operations of MNEs are getting highly globalized, they compete in
the foreign market based upon the foundation of capabilities, which were formed in the homecountry.
As pointed out earlier, interfirm connections of these firms are extremely diverse. And theanswers/clues we can acquire on the question of how MNEs simultaneously obtain competitive
advantage in the domestic and foreign markets are still limited. Therefore, this study aims atfurther exploring the following two interrelated research questions on the basis of the priorstudies: (1) how the architectures of interfirm relations are heterogeneous in terms of structureand strength between collaborators, and (2) what type of relations are more effective for themto attain higher domestic and international competitive edge and why.
Drawing on a longitudinal case study on the mobile phone industry, this paper unveils thatthe tightness of interfirm relations should be separately measured along each stage of value
chain and the comparative degree is tightness should be considered. For instance, it wasobserved that a supplier and a buyer were tightly connected in one stage (e.g., the productplanning and development) and loosely-coupled in other stage (e.g., product sales) of the value
chain. Or, in other case, although two relations should be regarded as a tight relationship within
the conventional dichotomic framework (strong or weak tie), the degree of their collaboration
can be different (i.e., extremely tight and moderately tight).

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Thus, in this study, I magnify the detailed picture of interfirm collaborations by specifying
the two features of relations and combining them to better reflect the reality. By doing so, thisstudy contributes to offer more advanced framework on the interfirm relation and advance ourunderstanding on the firms’ domestic and global performance based upon the newly proposed
framework.
The remainder of this paper is organized as follows. In the subsequent section, I review
what we have learned and have yet to learn on the research questions of this study. In the section
3, comparative analysis on the mobile phone industry is provided. The paper demonstrates how
the architectural differences of interfirm relation affect the long-term performance of the firms
domestically and globally. Finally, I conclude by discussing and summarizing the findings andpresent the areas for future research.

2. Literature Review(Existing Literature on the Interfirm Collaboration and Performance)
In examining interfirm relations, architectural perspective is useful in that it helps us to grasp
the contours and framework within which firms interact (Jacobides et al., 2006; Takeishi andFujimoto, 2003; Fjeldstad et al., 2012). As explained earlier, the existing studies have paid
attention to the two aspects in analyzing the architecture of interfirm relations: structure and tie
strength. As for the structure of the interfirm relations, initial studies had examined networksof firms by dividing them into two types: centralized or decentralized networks (Langlois andRobertson, 1992; Saxenian, 1994).
And successive studies have specified each type of interfirm relations. For instance, Greveet al. (2013) further examined two heterogeneous types of centralized network and found how
they perform in terms of innovation and risk management (i.e., hub and spoke type network of
Samsung and integrated type of Sony). By zooming in structural dissimilarities of networks
and their influence on the collaborative outcome, studies have tried to understand diversity ofrelational structure and logics behind diverged competitive outcome (performance) (Powell etal., 1996; Greve et al., 2014).
Firms collaborate with a variety of entities: supplier, customer, competitor, researchorganization, and so forth (Tsai, 2009). With respect to the collaborating partner, scholars
started to consider who conducts which part of a value chain (e.g., distribution of tasks bycollaborators), what kind of role the firms play in the directly and indirectly linked environmentand how their relative power is distributed and exerted (e.g., hub or niche/ platform provider
or user) (Gawer and Cusumano, 2002; Iansiti and Levien, 2004; Teece, 2007; Boudreau, 2010).

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The structure of interfirm ties matters in understanding the rationale behind thesimultaneous high domestic-international performance. For instance, as Jacobides and Kudina(2013) argue that if a firm’s a value chain structure in the home country is similar to that of aforeign country, it is easier for the firm to expand to the foreign market. As Jacobides (2008)
and Jacobides and Kudina (2013) argue, it is necessary for us to examine heterogeneous
structure of value chain in different nations in order to grasp their performance out of the homecountry. However, our knowledge on the structural heterogeneity of interfirm relations indifferent countries is still far from sufficient.
Secondly, another significant factor is collaborative magnitude (coupling strength) between
firms. With respect to this aspect, multiple streams of studies including supply chain
management, network and business ecosystem studies offer us a theoretical foundation forfurther discussion. For example, in network theory, Granovetter (1973) uncovered the benefitsof weak ties such as collection of broader and more diverse information with less resource
redundancy. And, in business ecosystem studies, loosely connected collaboration wasconsidered to facilitate firms’ lightweight resource investment into a specific partner and help
them to minimize the risk of being overly dependent on a single partner (hub firm) (Iansiti andLevien, 2004; Eisenmann et al., 2009; Boudreau, 2010).
On the other hand, in a tightly-coupled interfirm relation, firms get to develop highly
specific internal assets for the collaborator because firms are required to optimize theirresources to the operation of a specific collaborator (Iansiti and Levien, 2004). Under thissetting, once a supplier is committed to a certain partner, the cost of switching to others
becomes very high. Also, the tight-relationship renders the firms more vulnerable to significant
changes in technology and business models by making them locked in a certain technologicalor strategic direction (Hendenson and Clark, 1990; Christensen, 1997).
Despite these demerits, tightly-connected structure is more likely to be efficient in
operations because firms closely arrange the activities of collaborators to a shared objective sothat they can implement a more efficient division of labour by avoiding duplication of efforts
among them. As Teece (1986) demonstrates in the argument of co-specialization, mutuallyadapted firms tend to yield superior value in combination.
With respect to the tightness of interfirm relations, Burt (2001) claims an intriguing viewthat the two tie strengths (i.e., weak and tight) are not necessarily conflicting. According to
Burt (2001), they are both necessary to attain higher performance: a network that possesses
strongly connected ties within it and weakly connected ties outside it was the most ideal
because by composing the network in that way firms could exploit the efficiency of tightcollaboration within the network and increase the possibility to leverage the benefits of
exploring diverse knowledge of loose collaboration outside the network.

4As explained so far, although prior literature has sought to seek diverse aspects of interfirm
relations and its connection with the performance of firms, the theoretical clue we possess at
the moment is still blurred. In examining the research questions of this study, many puzzles
still remain. For instance, although prior studies divide the collaborative strength into tight orweak, the actual strength of collaborative relations exists at some point in between the two
extremes (high to low).
And thus it is in fact natural to consider the following aspects in detail such as how strong
or weak relations are, where (which stage) in the value chain is strongly or weakly connected,
how they are built, how value chain structure is dissimilar in different countries, and how
national heterogeneities affect the firms’ operation within and beyond the home country
boundary. Pursuing these questions, our theoretical framework and constructs are still
underdeveloped.
Therefore, in this study, I zoom in the fuzzy picture with the two combined tools (structureand strength of the interfirm relations), and try to answer the following questions: how interfirm
collaborations are architecturally different, specifically where are they different, where in thevalue chain do firms make it tight or loose and how it is related to their odds to capture morevalue in the domestic and global markets than competitors. In addressing these questions, themobile phone industry helps us to get useful insights.

3. Case Study
Methodology
This is an explorative case. Case-based exploratory methods are best suited for examining new
and poorly understood phenomena (Eisenhardt, 1989). As shown in Table 1, firms from Japandisappeared after the early 2000s and newcomers from Korea and China emerged in the topgroup. During the research process to explore various possible reasons that caused theperformance gap between those national groups of firms, it was identified that theheterogeneous architecture of interfirm collaboration was a major factor.
------------------------------------------Insert Table 1 about here-------------------------------------------In this industry, exploring fundamental reason to cause the divergent fate of these 3 groupsof firms has been a longtime inquiry. This study is part of such endeavor as well. The analysis
is based on primary and secondary data. First of all, in order to uncover underlying logic
between the comparative interfirm architecture and its influence on the domestic and global
performance, the semi-structured interviews were conducted at the network operators, handset
manufacturers, hardware/software suppliers, independent design houses, industry
associations, and research institutes in Japan, Korea, and China during the period of 2006 and52015.
Respondents were asked to describe the technical, commercial and managerial aspects indetail and the interviews lasted about two hours each time on average. Throughout the research
process, the primary and secondary data were supplemented with each other iteratively tovalidate the discovered logics. The main sources of secondary data were industry journals,
technological reports and corporate archives. Through a series of data analysis, I confirmed
validity of the framework and the key sub-constructs suggested in the framework of this study(e.g., (quasi-)integral/(quasi-)modular collaborative architecture).

Comparative Analysis of Three Interfirm Relations
Enabling Mechanism of the Competitive Advantage in the Domestic and Global Markets-----------------------------------------Insert Figure 1 about here-----------------------------------------Figure 1 presents the framework of how national competitive advantage is created andtransferred from home country to overseas in the mobile handset industry. In this industry, thesuperiority in the home country does not directly guarantee the global competitiveness ofrelated firms (Funk, 2002; Marukawa, 2009; Marukawa and Yasumoto, 2010). Therefore, theperformance of firms is divided into two phases: domestic and international markets.
In the research, it was identified that the characteristics of domestic firms is determined by
the interactive influence between the architecture of interfirm relations and national conditions.
National conditions include six factors pointed out in the Porter(1990)’s diamond model suchas factor conditions, demand conditions, related and supporting industries, and firm strategy
and rivalry, and the two indirect variables (i.e., government role and the chance of unexpectedoccurrences). Also, technological aspects (continuity) affect the formation of characteristics ofdomestic enterprises.
With the combined influence of these three factors, performance of firms in the domestic
market is drawn. Technological continuity (similarity) matters when domestic firms expand
overseas as well. For instance, if technologies are continuous between the domestic and foreigncountries, it will be easier for firms to conduct product development for the foreign market.
Also, if technologies are similar between generations, it will be easier for firms to exploit theirpreviously accumulated capabilities and knowledge. Finally, through competition with foreigncontenders born in other countries, the global performance is determined in the international
marketplace.

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By introducing the architectural concept into the interfirm relations as a major factor, theframework specifies how firms are inter-connected and co-evolve by shaping strategy, culture,and resource allocation pattern in and out of the home market collectively over time. In thefollowing section, I describe how heterogeneous architectures of the interfirm relations affectthe process of creating domestic and international competitive advantage in Japan, China andKorea.

Heterogeneous Architecture of Interfirm Collaboration------------------------------------------Insert Figure 2 about here--------------------------------------------In the mobile industry, similarity of firms to compose their interfirm connections was observed
among the firms headquartered in the same country. Most importantly, the way operators andhandset makers (two main players in the industry) collaborate was highly homogeneous amongfirms born in the same home country. In a process to deliver final product (mobile phone) to
end-users, these two collaborators (operators and handset manufacturers) engage in the two
major stages of the value chain: (a) product planning and development and (b) sales(distribution and marketing). In the tasks of (a) and (b), collaborative strength between themlocates in a certain level in between the two extremes from high to low as shown in Figure 2.
Based upon their degree of collaborative tightness in (a) and (b) in the value chain, it is possible
to classify the architecture of interfirm relations into four different types (See Figure 3).

------------------------------------------Insert Figure 3 about here-------------------------------------------(1) Integral: The firms tightly collaborate in the operation (a) and (b).
(2) Quasi-integral: The firms tightly collaborate in (a), but less tightly collaborate in (b).
(3) Modular: The firms loosely collaborate in the operation (a) and (b).
(4) Quasi-modular: The firms loosely collaborate in (a), but tightly collaborate in (b).

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Integral collaborative architecture (Japan)
The leadership of network operators is extremely strong in the whole process of value chain(a) and (b). The handset makers develop mobile phones as OEM subcontractors by following
orders from the operators. Each operator is tightly connected to a certain group of handset
manufacturers. The operators not only purchase the terminals from the handset vendors but also
distribute the handsets through their own stores. In the operators’ store, the handsets are soldby being bundled with the operators’ service and end-users are required to subscribe to network
service of a specific operator in order to purchase the mobile phone. In Japan, the handset
vendors tend to build an exclusive long-term relationship with a particular operator.

Quasi-Integral collaborative architecture (Korea)
The relationship between operators and handset manufacturers are similar to that of Japan in(a) yet distinct in (b). The Korean operators also purvey the handsets from the manufacturers,
and sell a part of handsets to end-users by bundling with their network service. Similarly, theoperators wield a relatively strong power and reflect their opinions on the product planning anddevelopment process. Yet, in Korea, the handset makers distribute a part of terminals throughtheir own channels along with the operators’ own stores. The portion of sales between theoperator and handset vendor’s channels has been approximately 80%:20%. However, incomparison with the exclusive relationship between the operators and handset makers, theKorean phone makers build rather loose relationship by offering their handsets to all operators.

Modular collaborative architecture (China)
Network service and handset are being sold separately. The handset makers are highly
independent from the influence of the network operators in the all stages of value chain (a) and(b). Generally, the handset manufacturers develop their cell phones without a specified
guidance of the operators. Only 10 to 20% of the terminals are jointly developed in cooperation
with the operators. Regarding the sales of handsets, the amount of terminals distributed by theoperators was about 30% in 2G. The remaining handsets were sold by independent retailers. At
present, the portion of handsets distributed by the operators is still relatively low. Thus, therelationship of firms is loosely connected in China.
Collaborative Architecture and Global performance------------------------------------------Insert Figure 4 about here--------------------------------------------

8In the integral architecture of collaborative relations, the Japanese operators took a strong
leadership in the all stages of value chain. The product planning is based on suggestions by theoperators. They plan the roadmap of their services and decide what kinds of functions should
be included in each model. The handset makers take the responsibility until they hand over theordered handsets to the operator. After the operator purchases the handsets from the makers,
they sell the mobile phones to end-users in their directly owned stores.
The operators gain profits from new services. Therefore, the Japanese operators required
the phone makers to focus on continuously developing technologically advanced functions suchas internet browser, email (1999), camera (2000), music download (2002), electronic payment(2004), digital TV broadcasting (2005) incessantly. By following technological/productroadmap of the operators, the makers have mainly released state of the art high-end models andbuilt a strong technology-oriented R&D routine and organizational culture in the domestic
market. In Japan, the focus of makers was laid on addressing the operators’ technologicalrequirements.
The tight relationship with the domestic operator had multi-faceted impacts on theperformance of makers in and outside of Japan. In terms of technological aspects, the Japanese
handset manufacturers were apparently years ahead in a series of innovations. This was possible
because the operators orchestrated the vectors of handset makers and component/platform
providers in a direction that their capabilities could be effectively integrated as a whole. Also,
since the operators guaranteed its handset manufacturers a certain level of sales, the handset
makers were able to focus on carrying out the orders/guidance given by the operator in thedomestic market.
On the other hand, there were downside effects as well. Although the tight relations at homewere advantageous in creating innovation, it made the handset manufacturers locked in a
specific pathway of technological and product evolution determined by the operator.
Historically, the Japanese handset makers have customized many of their components andsoftware to optimize the system and satisfied the detailed needs of operators. As developers
described the Japanese mobile phone as handmade, the makers used many proprietarycomponents only for the domestic market.
Under this circumstance, the Japanese makers had to re-develop hardware and software
almost from scratch for the global market. The problem was that many of manufacturers did
not possess much resources left to conduct the additional R&D for the overseas market
separately because they had already consumed much of their assets in addressing the needs ofthe domestic operator. As managers recalled in the interviews, they did not possess muchfinancial resources left for the additional large-scale R&D and capability building after they
deducted the domestic R&D cost from the compensation they received from the operators.
In the mid-1990s, the Japanese makers tried to expand to foreign market. The major makers
such as Panasonic (Matsushita at present), NEC, Mitsubishi, and Toshiba started to establish
9manufacturing facilities in Europe and China, and purvey GSM handsets overseas. However,despite the efforts to adapt to the foreign environment, most of them ended up withdrawing
from those Europe and China: Toshiba and Panasonic in 2005, Mitsubishi and NEC in 2006.
Why did this happen? The reason of failure outside was fundamentally related to their way ofcollaborating at home.
Let’s take a look at their experience in China as an example. When the Japanese makers
entered China market, they confronted greatly heterogeneous environment. For instance, inJapan, each maker released a few models every six months. As an OEM subcontractor, themakers did not have to figure out user needs proactively, distribute their products, and dispose
unsold inventory by themselves. However, in China, the abilities in these multiple stages ofvalue chain were required.
Different from the relatively stable Japanese market, China market was highly diverse,
trendy, and competitive. The handset vendors in China fiercely competed with their own brands
and released several dozens of models every year at an extremely fast speed. As a separate
entity from the operators, the makers needed abilities in product planning, sales, brandestablishment and promotion in China. It was by no means easy for the Japanese handset makers
because they were not given enough opportunities to accumulate experiences in those activities
in the home country. Even NEC, who most aggressively and ambitiously poured financial
resources into China, gave up operation and withdrew from the market after all.
In developing mobile phones for the foreign consumers, the Japanese makers focused ontechnological aspects as they have done in Japan. As had been in Japan, the firms have thoughtthat their technologically advanced products will naturally open up the market. Therefore, themakers developed the mobile phones based on the existing R&D routine and business model
built in the domestic market without enough major adjustment to customize their products forthe taste of foreign consumers.
Regarding their foreign operation, the Japanese executives emphasized that theyoverinvested in technology and underinvested in sales and brand building as they did in thedomestic market. This example of the Japanese case ineptly shows that the architecture ofcollaborative (interfirm) relations significantly affects the R&D routine, resource allocation
pattern, strategic formation and implementation of firms. In fact, it is ironic to observe the low
capabilities in marketing and distribution of the Japanese makers because most of them were
all major consumer electronics companies that are superior of those activities (i.e., sales anddistribution) in the product value chain.
Next, the Korean example shows that maintaining appropriate level of autonomy forsuppliers in forming collaborative structure is beneficial. In Korea, the handset makers
distributed and marketed their cell phones to the end-users directly. By selling a part of products
through their own channels, the makers (e.g., Samsung and LG) were motivated to build astrong brand and appeal it to the end-customers in order to sell more products by themselves.
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From the mid-1990s, the Korean phone manufacturers fiercely competed to differentiate theirmobile phone brands at home. Since they were allowed to market and circulate their productsin the downstream stages of the value chain under the less tight collaborative relations with theoperators, the Korean handset makers became more and more sensitive to the voice of end-users
and focused on excavating hidden end-user needs very actively.
Technologically, Korea has first commercialized cdma standard. Since the technology was
immature at the beginning, the domestic market played a role as a test bed for this novel
technology. At the very beginning, Samsung and LG developed terminals for the global market
based upon the end-user demands and information acquired in Korea. They exploited theexperiences accumulated through trial and error with the Korean end-users for the foreignmodels. In the late 1990s, the makers started to go overseas. During the early stage of cdma
introduction, Korea was approximately six months to one year ahead of the global trend, and it
helped them to export pre-tested technologies and products at home to overseas. By doing so,
cdma technology was being diffused gradually in the foreign countries.
After the mid-2000s, the necessity to address heterogeneous needs of foreign consumers
significantly increased. Through the longtime interactions with both the operators and endusers, the Korean manufacturers have accumulated capabilities in product planning, developing,marketing, and distributing with technology- and end-user oriented operational routine andcorporate culture. When they tried to search for user needs and customize the handsets to satisfy
the taste of foreign end-users, the experiences under the less-tightly coupled collaborativearchitectural conditions in Korea was helpful to adapt to the foreign countries.
In the upstream of the value chain, the Korean firms have a similar process to that of Japan.
The operators determine the roadmap of their services and the makers develop the handsets
which enables their services effectively. However, the difference between them is that, in Korea,
the handset makers are more actively engaged in building their own product/technologicalstrategy. And as they accumulated experiences across borders, the influence of the handset
makers’ product strategy became stronger. In the collaboration process, the manufacturers tried
to adjust the strategic choice of the domestic operators and suggest the product andtechnological directions to the operators so that the domestic evolutionary path can besynchronized with the major global trend.
The Korean makers brought products succeeded outside back to Korea as well. Over time,
this interplay of products and technologies between the domestic and foreign markets became
more frequent and prevalent when they released products. In the Korean firms, resources were
deployed by keeping pace with the international technical and market trends. This can beobserved in their product release. So far, Samsung and LG have released many globalized
models that were sold more than ten million units in Korea and/or foreign countries
simultaneously (e.g., a part of example of the successful models sold both domestically andglobally are SGH-T100, E700, D500, D900, E250 for Samsung, KV5900, KE970, KG270,
KP100, SU910 for LG).
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Of course, the Korean makers added minor adjustment to better address the demands ofeach foreign region but the same models released in multiple foreign countries shared almost
identical functionalities and basic concepts. By simultaneously reflecting the needs of domestic
and foreign end-customers and mixing them in a balanced manner, the Korean makers wereable to reduce the gap between the domestic and foreign boundaries in terms of the evolutionary
process of technologies and products. Since the relative size of the Korean firms are small
compared to the rivals, it was helpful for them to run the business more efficiently.
What is worth contemplating is that this was originated from the less-tightly coupled quasiintegral architecture of Korean firms. If they did not have the chance to access to the sales(downstream) stage of the value chain in the first place, they would not have the motivationand negotiating power to influence the direction of the domestic operator in a way that they
could synchronize their product/technological strategies with the global evolution. This implies
that the collaborators’ adequate level of autonomy facilitates them to transfer the competitive
advantage created at home to abroad more effectively. And regarding the method to secure theautonomy between the firms, the Korean case offers a meaningful hint.
The collaborative architecture in the Chinese context helps us to enlarge a picture ofmodularized interfirm relations. In the modular architecture, firms conduct their activities in amore independent level (See Figure 4). Since handset makers do not develop most of productsby the close guidance and support of the operators, overall innovation performance becomes
lower than that of the integral/quasi-integral architecture. In practice, the Chinese handset
manufacturers have produced low/mid-end mobile phones compared to the Japanese andKorean makers.
On the other hand, modular architecture is advantageous in facilitating diversity. From 1999,
China has had the largest number of cell phone makers with various backgrounds: for instance,
in 2003, the major makers were from electronics (e.g., TCL, Konka, Haier, Panda, Amoisonic,
Daxian, Soutec, Hisense), telecommunications equipment (e.g., ZTE, Huawei, Datang, Capitel,
Jinpeng, Putian), and pager (e.g., Bird, Eastcom) industries. Until now, many handset makers
have emerged and disappeared in the market. In 2013, there were still over 50 local handset
manufacturers in China.
In this loosely-coupled interfirm architecture, mobile phone makers are relatively flexible
in choosing their own product and technological pathways. For this reason, the Chinese local
handset vendors released quite a number of terminals in the domestic market. Surprisingly
enough, the number of mobile phones being sold in China was almost 1500 models in 2006
(Marukawa, 2009). If we consider that the total number of mobile phones released in Japan and
Korea yearly was approximately 80 models in each country, it is obvious that the modular
interfirm architecture facilitates the firms’ flexibility to create high product diversity at home.
In term of the operation in the foreign country, modular architecture create an environment
for the participating firms to experiment their product and technological strategies more freely
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in and outside the home country as a country level. From the early 2000s, multiple Chinese
handset makers started exporting their mobile phones abroad. Through a series of market
competition with the diverse rivals within and beyond the home country –although not large
number of makers- several Chinese high-performers (e.g., ZTE and Huawei) turned out to beable to build a value network that better serves both the domestic and global markets by
purveying low/mid-end acceptable quality handsets with competitive price overseas.
At a country level, this architecture let diverse handset vendors more freely try their own
strategies without a huge constraint of the operators’ technological and product trajectories.
This explorative process to find a global high-performer among diverse manufacturers cannot
easily take place in the integral/quasi-integral architectures because, in those environments,
handset providers are required to get an approval of the operator, and thus the number of firms
is naturally limited in the more tightly-connected structure of interfirm architecture. If a country
has a small population of firms, the probability to nurture high-performers decreases as well.
The analysis of these three heterogeneous interfirm architecture shows that the mechanismsof superior performance within and beyond the home country vary depending on both strengthand structure of the interfirm relations.

4. Discussions and Conclusion
This study explores how the heterogeneous architecture of interfirm relations affects theperformance of firms in and out of the home country. The comparative case study of the mobile
handset industry unveils that by combining the two conventional aspects (collaborative strengthand structure) in examining interfirm relations, we can identify four different types ofarchitecture (integral, quasi-integral, modular and quasi-modular). Also, this study further
considered relative strength of collaborative relations in multiple stages of value chain such as(a) product planning and development and (b) sales.

------------------------------------------Insert Table 2 about here--------------------------------------------

The findings can be summarized as follows (See Table 2). As demonstrated in the case, thehandset makers in each country showed highly similar strategic pathway in R&D routine andcorporate culture in the domestic and global markets. And with respect to the successful
performance of firms, multiple patterns were observed in different architectural types. Whenthe suppliers (handset makers) had a tight relationship with the buyers (operators), relatively
loose relationship between them (quasi-integral architecture) is more likely to be beneficial.
13The Korean case described the characteristics of this architectural type. In Korea, suppliers(handset makers) were allowed to engage in marketing and distribution. Being allowed toestablish end-customer interface as a supplier in the downstream of the value chain can help
suppliers to cultivate end-user centric operations and management routine. This is particularly
essential when firms expand to foreign country because they need this ability in a circumstancethat they need more proactive engagement in the product development process outside.
Also, if suppliers are able to build their own distribution channel, they are more likely tobuild a relatively stronger bargaining power toward the collaborators (buyers). In Korea, as thehandset manufacturers accumulated experiences with the end-users in and out of the homecountry, the influence of the handset makers’ product strategy became more important to bothof the collaborators. Thus, in the collaboration process, the manufacturers were able to adjust
the technological directions of the operators so that the domestic evolutionary path can besynchronized with the major global trend. Reducing the gap between the home and foreign
markets is critical for firms to effectively perform across borders.
As described in the Korean case, the product and technological strategy for the domestic
and foreign markets co-evolved over time and, under this circumstance, the Korean handset
makers have released many models that are being sold in the domestic and foreign market
simultaneously. Under this environment, firms can more effectively exploit their limited
resource within and across borders. Although it may look like a small difference, thecompetitive result of firms in this industry clearly showed that it causes a huge difference in thecourse of fierce global expansion in the long run.
In case of loosely-connected modular architecture, the mechanism of creating global
competitive advantage shows other logic. Since firms are less interdependent in thisarchitectural setting, diverse firms are more likely to emerge in the market because of the lowlevel of interdependency. In China, firms can experiment their own products and technologicalstrategies that fit in both domestic and foreign settings more flexibly. As described in the
Chinese case, the modular architecture played a role to nurture a growing number of effectively
performing handset makers (e.g., Huawei, ZTE, and more recently Lenovo) in and outside
China among many makers born in China.
Concerning the divergent performance of firms, others might consider different factors suchas government policy and technological standard. In the global competitive process, thosefactors also affected to the competitive landscape of the industry to a certain degree. However,each factor alone cannot fully explain competitive consequences of this industry. For example,
in terms of the government support, the telecommunications industry has been a strategicallyimportant sector for all three countries and they all have aggressively tried to boost thecompetitiveness of associated firms domestically and globally. In terms of the national support
and technical capability, Japan was by no means in inferior conditions when rivals from Korea
and China joined the industry.

14

As for standard battle, it is a fact that Japan was isolated in 2G with their endemic PDC
standard. Regarding this issue, some might think that it was the standard that caused the failureof Japanese firms. However, if it was the technological standard that triggered their market
failure, the Japanese firms would have recovered the low international performance from 3G
because after they failed in diffusing the 2G standard (PDC) globally, Japan chose more broadly
adopted 3G standard (e.g., W-CDMA and cdma2000) in the global market earlier than most ofcompeting countries: W-CDMA from 2001 by NTTdocomo and cdma2000 from 2002 by
KDDIau. However, even after they launched the 3G earlier than others, their performance outof Japan continued to get worse.
Similarly, when Korea chose cdma technology, there was no guarantee that the cdma willsmoothly spread as a standard in the global market. This means that successful standard
establishment requires successful domestic and global supply of handsets and services. Not all
standards spread without effective handset development and sales in the global market. Thus,
technological factor alone does not explain the longitudinal performance gap of firms born inthe three countries comprehensively and fundamentally.
This study contributes to advance our knowledge on interfirm division of labour. Above all,the study classifies architecture of interfirm relations into diverse forms by disentangling thestages of value chain and considering relative tightness of collaborative relations. As
demonstrated in the case, the question of who undertakes which stage of the operations underwhat level of collaborative tightness should be considered in a more systematic framework.
Although prior studies have discussed this issue, research did not specify heterogeneous effects
depending on the more detailed typology as suggested in the theoretical framework of this study.
Second, prior research considers the coupling strength in a dichotomic manner (tight orloose) or did not consider the heterogeneous impact of each stage of the value chain. In thissense, this study complements prior arguments by further exploring and enlarging the relative
tightness of collaborative strength and structure. This is imperative because it helps us better
understand how the performance is affected by it.
For managers and policy makers, this study offers insightful messages. By magnifying
collaborative strength between firms and tracing the interplay among them in terms oftechnological and product evolution, we can grasp how resources are accumulated andallocated across borders. In particular, this study shows that firms embedded in a certain
national architecture create specific capabilities. For decades, within the given architectural
structure, firms develop value network and inter/intra-organizational routine. In a favorable
condition, it can be a source of inimitability for the firms. However, if the circumstance changes,
it can become a threat as well.
As Hannan and Freeman (1984) argue, firms within a certain environment get to selfreinforce their routine and create rigidity over time. As described in the Japanese case, if thedirection of firms’ technological and product pathway does not coincide with the global trend,15

it becomes too risky for the associated firms operating under the tight relationship. In that case,allowing firms a little more flexibility in the value chain might be beneficial. In practice, Japan
realized the constraints of their integral architecture and tried to alter the industrial structure andpractices by introducing policies but it seems quite difficult for them to reframe it. Indeed, it isa very challenging process.
This study has many limitations. To begin with, the paper delineated limited examples froma single industry. In order to generalize the insights of this study, the research has to be extended
and compared in a broader industrial context by incorporating cases from other industries andexamples of more incumbent leaders (e.g., Nokia, Motorola) and a new challenger (e.g., Apple).
Next, although this study tried to consider the relative magnitude of relations, it could notmeasure it as continuous figures. I would like to leave those works for my future research.
In our intellectual journey to map out the competitive advantage of firms, the concept ofinterfirm collaborative architecture is surely an indispensable clue. Since we are currently inthe midst of theory building and accumulation through the lens of architectural perspective,
there is still a considerable gap between the literature and reality. This paper is a part of suchendeavor to approach one step closer to the reality.

16

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19

Table 1 Global market share of handset manufacturers by ranking
1985

1990

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

1 Moto

Moto

Moto

Nokia

Nokia

Nokia

Nokia

Nokia

Nokia

Nokia

Nokia

Nokia

Nokia

Nokia

Nokia

Nokia

Nokia

Sam

Sam

2 NEC

Pana

Nokia

Moto

Moto

Moto

Moto

Moto

Moto

Moto

Moto

Sam

Sam

Sam

Sam

Sam

Nokia

Nokia

3 Oki

Nokia

Eric

Eric

Eric

Eric

Moto
Sieme
ns

Sam

Sam

Sam

Sam

Sam

Moto

LG

LG

LG

Apple

Apple

Apple

4 Nokia

Mitsu

Pana

Pana

Sieme
ns

Sieme
ns

Sam

LG

Sony
Eri

Sony
Eri

Moto

Sony
Eri

ZTE

LG

ZTE

ZTE

Toshi

NEC

Alcat
el

Pana

Pana

Eric

Sieme
ns
Sony
Eri

Sieme
ns

5 Pana

Sieme
ns
Sony
Eri

LG

Sony
Eri

LG

LG

Sony
Eri

Moto

Apple

ZTE

LG

LG

Source: Gartner, Strategy analytics, IDC Worldwide Quarterly.
Note: Moto (Motorola), Eric (Ericsson), Pana (Panasonic), Mitsu (Mitsubishi), Toshi (Toshiba) Sam (Samsung), SonyEricsson (SonyEri)

Table 2 Heterogeneous architecture of interfirm relation in the mobile phone industry
Interfirm
Architecture
NationCharacteristic ofarchitecture

Collaborative(coupling) strength
Focus of management

Organizational cultureof suppliers (handset
makers)Benefit of the interfirm
architecture

IntegralJapan
tightly-coupled in (a)productplanning and development, and(b)sales(whole stages of value chain)
Collaborator(buyer)-dependent
technological requirements bycollaborator
technologycentered, B2Boriented
efficient in orchestrated innovation

Challenges of Suppliers overly buyer-dependent (risky if(handset makers)
buyer’s technological path does notlead or co-evolve with the global
trend), relation-specific assets,difficult to adapt to foreign buyers
and end-users

Quasi-integral

Modular

Korea
tightly-coupled in (a)productplanning and development, and lesstightly coupled (b)sales(more autonomy in the downstream)
less collaborator-dependent,
more autonomy
technological requirements bycollaborators and customer needs by
end-usertechnology- and user-centered,
B2B and B2C-oriented

Chinaloosely coupled in (a)productplanning and development, and(b)sales(autonomous in the whole stahe)
independent from collaborator,
large autonomy
flexible choice of technologicaloptions and search for customer
needs
user-oriented,
B2C-oriented

efficient in orchestrated innovation,
excavation of end-user demandhigh niche creation(emergence of diverse firms)
Flexibility
differentiate from other makers(natural selection),
overcome low efficiency ininnovation

an ability requited to manage(balance) bargaining power toward
buyer, balance the domestic andforeign customer demandFigure 1 Mechanism of the competitive advantage in the domestic and international marketplace

Collaborative
Architecture

Strategies ofother Countries’
Domestic Firms

Continuity

Characteristics ofDomestic Firms

Performance in theDomestic Market

National
Conditions

Note: The national conditions incorporate factors in Porter (1990)’s diamond model.

Odds of success in theinternational market

Performance in theInternational Market

Figure 2 Heterogeneous collaborative (coupling) strength in the two stages of mobile phonevalue chain

Japan
Degree ofcollaborative strengthin sales:(b) in the value chain

Korea

China

Degree of collaborative
strength in handset planningand development:(a) in the value chain

Figure 3 Taxonomy of collaborative architecture(b) Degree of collaborative tightness in product sales(a)Degree ofcollaborative tightness
in product planningand development

Low

High

Quasi-Integral

Integral

ModularQuasi-Modular

High

Low

Note: Precisely the degree of collaborative strength between supplier and buyer in (a) and (b)can be regarded as a continuum. However simplifying the model is helpful for offering analytic
convenience and stimulating further discussion.

Figure 4 Heterogeneous collaborative architectures of the mobile handset business ecosystems in Japan, Korea, and China

Note: the thickness of the arrows indicates the degree of coupling strength between the entities. And the dotted line shows the loosely coupled
relationship.