MMRCDISCUSSION PAPER SERIES

No. 526

Triad perspective of global supply chain integration
Masayasu, NAGASHIMA
mnagashi@fc.ritsumei.ac.jp
Ritsumeikan University
Junjiro, SHINTAKUThe University of Tokyo
Takahiro, TOMINO
Meiji University
May 2020

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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http://merc.e.u-tokyo.ac.jp/mmrc/dp/index.html

Triad perspective of global supply chain integration
Masayasu, NAGASHIMA
mnagashi@fc.ritsumei.ac.jp
Ritsumeikan University
Junjiro, SHINTAKUThe University of Tokyo
Takahiro, TOMINO
Meiji University

Abstract
Purpose – This study examines the implementation of triad coordination among R&D,
production and marketing activities when they are separated globally. We explore key
factors driving global integration to promote triad integration.
Design/methodology/approach – Qualitative data were gathered from in-depth
interviews on the home appliance business at a Japanese firm, Company X. As a single
case-study triangulation effort, from 2008 to 2019, 24 interviews were conducted withthose responsible for R&D, production and marketing.
Findings – A third-party organisation promoted triad and global integration. Key
factors driving the global integration of new product development to overseas local
markets included the externalisation of local tacit knowledge into explicit knowledge.
Key factors driving triad integration included the front loading of problems conducted atearly stages of product development.
Originality/value – Previous studies focused on supply chain integration (SCI) of
directly linked activities, including R&D and production, production and marketing andmarketing and R&D, and attempted to solve their dyadic trade-offs. This study focuses
on a triad integration field among R&D, production and marketing in the supply-chain
research, because the triad perspective can help clarify the complex phenomenon of
global SCI.
Keywords: Global supply chain management, supply chain integration, tacit knowledge,
externalisation, front-loading
Papers: Research paper

Introduction
With economic globalisation, the degree to which business activities are dispersed invarious countries has increased, making supply chain integration (SCI) more difficult.
Parts and materials are commonly procured from several countries, final assembly takes
place in low-paying countries and final products are exported worldwide. It is difficult tomanage and coordinate these global activities effectively. Above all, coordination among1different companies requires advanced management, as pointed out in past supply chain
research (Lee et al., 2007; Sezen, 2008; Eltantawy et al., 2009; Lo and Power, 2010).
Global integration of the inter-enterprise supply chain is the issue.
With inter-organisational integration, global intra-organisational integration has
become a problem. Pursuant to the globalisation of companies, there are many cases
where functions, including research and development (R&D), production and marketing,are dispersed across many countries. For example, the Toyota Motor Corporation in Japanhas 28 production bases and 170 marketing bases across the world according to home
page of Toyota Motor Corporation (Toyota Company’s Global Overview, 2019).
Simultaneously, large production bases in the U.S. and Thailand also host R&D activities.
At first glance, it appears that the core functions are completed in the host country.
Although the R&D centre in Thailand employed 2,500 engineers in 2014, 300 among
them were Japanese. Nearly all platform development was done in Japan. Under thesecircumstances, it becomes possible to introduce competitive products to market not only
by integrating R&D, production and marketing to the host country but also by merely
coordinating with the home country.
In previous literature, industry players considered the supply chain as a critical featurethat helps create high value products and services for end consumers (Lee et al., 2007;
Sezen, 2008; Eltantawy et al., 2009; Lo and Power, 2010). Manufacturing firms arecommonly forced to compete profitably without establishing inter-organisational
collaborative relationships or mutually beneficial partnerships with suppliers anddistributors (Stock et al., 2010). Similarly, intra-organisational (cross-functional)
integration is a prerequisite for competition (Turkulainen and Ketokivi, 2012). Therefore,
from the perspective of supply chain management (SCM), there are inter- and intraorganisational integrations, and this paper focuses on the latter.
Effective and efficient supply chain coordination requires the integration of all
product-flow processes. In the current global economy, each multinational company(MNC) competes successfully with the help of cooperative partners around the world(Gulati et al., 2000). Thus, SCI remains a critical factor for global SCM.
Although the integration of all supply chain activities from upstream to downstream
is vital to realise high-performance outcomes, this integration is highly complicatedbecause of the diverse actors (Bowersox et al., 2000; Fawcett and Gregory, 2002;
Nagashima, 2017). Too often, different departments and organisations work
independently (Bowersox et al., 2000).
The purpose of the present research is to examine how to implement triad coordination
among R&D, production and marketing dispersed across countries. This paper explores
key factors driving global integration to promote the triad integration.
The article draws on a case study of a Japanese electronics manufacturing company,
Company X. First, the paper presents an overview of the literature on new productdevelopment for overseas local markets and global SCI. Second, the case study ispresented. Finally, concluding remarks for researchers and practitioners are made.
Theoretical background and literature review
There are two problem areas addressed by this article. One is new product development
for overseas local markets. The other is global SCI.
New product development for overseas local markets
Taskforce team for developing products
Since the 1990s, as economic globalisation has advanced, the question of how MNCs
efficiently carry out R&D and produce and sell products for overseas markets has become2increasingly important to answer (Bartlett and Ghoshal, 1989; Birkinshaw and Hood,
1998; Kuemmerle, 1999; Subramaniam and Venkatraman, 2001; Govindarajan andTrimble, 2012). In international business studies, a central issue is the trade-offs between
the needs of global and local markets in the face of globalisation (Samiee and Roth, 1992;
Cavusgil et al., 1993). In particular, when the local market is a developing country, there
are often large differences among the needs for global products. Thus, trade-off problems
likely arise (London and Hart, 2004; von Zedtwitz et al., 2015). It becomes difficult toadapt the technologies and knowledge developed in the home country to the productstrategies in the local markets (Govindarajan and Trimble, 2012).
To address this issue, Govindarajan and Trimble (2012) argued that, to achieve
product innovation for emerging countries, it is effective to establish task force
organisations, called ‘local-growth teams’ (LGT) (e.g. venture companies) that are
independent from their home countries in the local markets. The LGT is a cross-functionalorganisation with various functions required for development. This research looks at how
MNCs can effectively organise themselves to develop, produce and market products for
local markets.
Difficulty of transferring tacit knowledge
A major challenge MNCs face when developing products for local markets is how tosuccessfully incorporate the needs of foreign customers that are not easily accessible into
product development. Subramaniam and Venkatraman (2001) argued that the success or
failure of product development for local markets abroad depended on how the company
could explore the implicit knowledge buried in the local market and share and transfer it
successfully within the company. Tacit overseas knowledge, on the other hand, is an
unspoken and often subtle understanding of the differences in cultures, tastes, habits orcustoms. Tacit knowledge is required to understand the unique needs of the country,
because it depends on the views and interpretations of individuals observing consumer
behaviours. It is difficult to objectively organise these cultural mannerisms as consistent,
explicit descriptions. Thus, various interpretations arise. How tacit knowledge isinterpreted changes the design and specification choices of the new product being
developed (Subramaniam and Venkatraman, 2001).
To realise this, it is effective to organise a cross-national team in which overseas
human resources with experience developing new products and local human resources
are mixed, so that tacit overseas needs rooted in local market cultures can be unearthed(Subramaniam and Venkatraman, 2001). In recent years, tacit intellectual know-how has
been regarded as particularly difficult to transport (Grant, 1996; Nonaka, 1994).
Intellectual resources depend on birthplace and have tacit intellectual elements that add
to the costs of transfer (Winter, 1987; Kogut and Zander, 1993; von Hippel, 1994;
Cavusgil et al., 2003). In particular, it is difficult to transfer and share tacit knowledge
embedded in local markets within MNCs (Szulanski, 1996; Gupta and Govindarajan,
2000; Adenfelt and Lagerström, 2006). Therefore, based on detailed case studies, thepresent research explores the ideal organisational form of international productdevelopment that takes advantage of tacit overseas knowledge.
Global SCI
The creation of new products is a multifaceted effort involving various functional
divisions, such as R&D, production and marketing. Previous research has shown that thedegree of integration among these functions significantly impacts a firm's
competitiveness index (Olson et al., 2001; Brettel et al., 2011; Turkulainen and Ketokivi,
2012; Turkulainen et al., 2017). This issue leverages the same logic as the SCM
3

discussion. Existing studies on SCM can be broadly divided into two types: those that
focus on intra-company organisational collaboration and those that focus on intercompany collaboration extending to consumers and suppliers (Flynn et al., 2010). The
focus of this research is on internal SCM.
Although this intra-SCI becomes more vital as globalisation advances and asfunctions are distributed around the world, the integration is very complex and difficult,given the diversity of actors along the supply chain (Bowersox et al., 2000; Meixell andGargeya, 2005; Fawcett and Gregory, 2002; Nagashima, 2017). The difficulty faced isprimarily caused by the common trade-off relationship among the objectives of functionalorganisations (Skinner, 1969; Silveira and Slack, 2001). The conflicting and dyadic
relationships among each function of R&D, production and marketing are elucidated asfollows.
Integration of R&D and production
The integration of R&D and production has gained importance because of the increase inproduction outsourcing in recent years (Kotabe, 1998; Kotabe and Murray, 2004). In
particular, for digital consumer goods, horizontal integration has progressed well, andelectronics production service has expanded (Sturgeon, 2003).
Under these conditions, there is homogeneous product performance between firms,
and the focus of competition shifts from product differentiation to the speed of volume
increase and the expansion of the product line-up (Christensen, 2003). In parallel, theadvantages of carrying out both R&D and production in the same company are extolled.
Although U.S. firms historically have tended towards R&D innovation (Starr and Ullman,
1988), it is well known that they have been able to maintain competitive advantages evenin commodity products through production innovation (Wheelright and Clark, 1992).
Additionally, the question of coordinating R&D and production is related to the issues ofconcurrent engineering, which is considered vital to the competitiveness of Japanesemanufacturing companies (Takeuchi and Nonaka, 1986; Clark and Fujimoto, 1991; Fine,
1998).
Integration of production and marketing
Research on the conflict between production and marketing can be traced back to Shapiro(1977). See Parente (1998) for a review. The production perspective emphasises a needto manufacture standardised products in large volumes, whereas the marketing
perspective stresses the need to provide the maximum range of products with shortdelivery lead times with flexible quantities. This conflict between production andmarketing has been called the productivity dilemma (Abernathy, 1978). Studies about
concepts related to just-in-time production and lean production systems that have been
evolved by Japanese companies are included in this area (Schonberger, 1986; Womack
et al., 1990).
Integration of marketing and R&D
Much of the previous research on marketing and R&D interfaces has focused on the
results of marketing and R&D interactions in new product development projects (Maltz
et al., 2001). Research has been conducted mainly from the viewpoint of conveying
market information to the R&D division (Becker and Lillemark, 2006).
Although there are several incompatibilities between the functions of marketing andR&D, there remains a debate on the need for integrating these functions (Griffin andHauser, 1996; Lau et al., 2010). For example, marketing sections interact with customer
needs, which are oriented towards short-term responses, whereas R&D sections tend to4

be oriented towards product innovation through medium- to long-term efforts. The needfor systems to adjust to such conflicts in a company has been discussed (Lawrence andLorsch, 1967).
Need for comprehensive and triad perspectives
Most studies have focused on the SCI of directly linked activities, such as R&D andproduction, production and marketing and R&D and marketing. They explored methods
to solve dyadic trade-offs (Kahn, 1996; Silveira and Slack, 2001). However, this produces
limited insight and fails to capture SCI comprehensively as a single system firm-wide
perspective (Hammer, 1990; Naylor et al., 1999; Chen et al., 2007; Brettel et al., 2011).
Brettel et al. (2011) produced a comprehensive perspective study, finding that theeffectiveness of functional integration among the three functions for new productdevelopment varied depending on whether the project was in development or thecommercial phase and whether the product was incremental or innovative. They foundthat functional integration was more effective in developing innovative products. Olsonet al. (2001) came to a similar conclusion. Thus, when companies develop innovative
products, functional collaboration and integration among the three functions areindispensable.
Innovative product development carries higher risks and uncertainties thanincremental products (Danneels and Kleinschmidt, 2001). Related to the discussion oftransnational product development for MNCs, product development for local markets indeveloping countries is equivalent. Unlike global products that are developed for homeor multiple markets, products that target local countries often require new customer value
appropriate for that local market. The concept of new customer value reflects disruptive
innovation (Christensen, 1997).
Although existing research has shown that triad-functional collaboration andintegration are particularly vital when creating innovative products, it has not been clearlypresented how to do so. For example, according to Turkulainen et al. (2017), to achieve
functional integration, team structures (i.e. a group of individuals from different units
working together and sharing collective responses for outcomes), integrator roles (i.e. aformal role serving as a contact between and within organisational units) and relationshipbuilding (i.e. informational communication across organisational units through various
means) are key activities. However, Turkulainen et al. (2017) did not clarify the role ofeach activity in promoting functional integration in specific contexts, such as new productdevelopment.
Therefore, this research clarifies the organisational mechanisms for realising theinternal SCI required in new product development, especially in the development ofinnovative products (i.e. products for emerging local markets).
Research design
The literature review provided an understanding of the organisational presence needed topromote the integration among R&D, production and marketing. Subsequently, theaspects that should be taken under closer observation when attempting to fill the researchgaps are determined.
Theory building
The unit of analysis is SCI among R&D, production and marketing. The focal issue is the
exploration of the processes and organisational capabilities of SCI, aiming to improve
performance outcomes. Our approach is one of theory building from case-study analyses.
Eisenhardt (1989a) showed that theory building from case studies analysis was relevant
5when analysing a contemporary phenomenon in a real-life context or when the boundaries
between phenomena and their context were not clearly evident. There remains a lack of
empirical studies on SCI among R&D, production and marketing on new productdevelopment in overseas markets (Song et al., 1997). The boundaries between SCI andcontext are not clearly evident (McCarthy et al., 2002). Scholars have used case studies
to develop theories about topics as diverse as group processes (Edmondson et al., 2001),
internal organisations (Galunic and Eisenhardt, 2001; Gilbert, 2005) and strategy(Mintzberg and Waters, 1982). Building theory from case studies is a research strategy
that involves using one or more cases to create theoretical constructs, propositions and/or
midrange theories from case-based empirical evidence (Eisenhardt, 1989b). Case studies
are rich, empirical descriptions of particular instances of a phenomenon that are typically
based on a variety of data sources (Yin, 1994). Dyer and Wilkins (1991) explained that,
if executed well, case studies could be extremely powerful when the general phenomenon
is described so well that others have little difficulty identifying the same phenomenon in
their own experience and research. The central notion is to use cases as the basis fromwhich to develop theory inductively. Theory is emergent in the sense that it is situated inand developed by recognising patterns of relationships among constructs within andacross cases and their underlying logical arguments (Eisenhardt and Graebner, 2007).
Central to building theory from case studies is replication logic. That is, each case serves
as a distinct experiment that stands on its own as an analytical unit, emphasising the rich,real-world context in which the phenomena occur (Eisenhardt and Graebner, 2007).
We have chosen an exploratory case study and a research question directed at SCI
teams within their context.
Single case-study method
Case studies can involve single or multiple cases. In this paper, a single case-study
method is applied to clarify a complex phenomenon and to provide a context for real SCI
of R&D, production and marketing new product development in overseas markets, using
rich description and deep interpretation of related actors. Siggelkow (2007) identified thata single case study forces a writer to attain a deeper understanding of the subject to createa high-quality theory. Otherwise, single case studies force a writer to richly describe aphenomenon’s existence and to create better research than a multiple case study. The
writer also can question old theoretical relationships and explore new ones when a single
case study is used (Siggelkow, 2007). Moreover, the approach of the case in a single
detailed study can increase variety, enabling a truer sensing of complicated sets of events(Weick, 2007).
Data collection and analysis
The data for this study were collected from three overlapping sources: in-depth, semistructured interviews; documents and observation studies. These sources were
triangulated to maintain integrity (Miles and Huberman, 1994; Silverman, 2006).
Triangulation refers to the use of multiple methods or data sources in qualitative research
to develop a comprehensive understanding of phenomena (Patton, 1999). Triangulation
also has been viewed as a qualitative research strategy to test validity through theconvergence of information from different sources.
Regarding data-source triangulation, most qualitative researchers studying humanphenomena collect data through interviews with individuals or groups; their selection of
the type of interview depends on the purpose of the study and the resources available.
Fontana and Frey (2000) described the in-depth interview as one of the most powerfultools for gaining an understanding of human beings and exploring topics in depth. In6

depth interviews, ranging from structured and controlled to unstructured and fluid, canelicit rich information about personal experiences and perspectives (Russell et al., 2005).
Based on the notion of purposeful sampling, managers were interviewed about the
SCI of R&D, production and marketing on new product development in overseas markets
of Company X from 2008 to 2019. Further, the methods of working with each function
internally in China, with the parent company in Japan and retailers in China were
investigated as well as the nature of the evolution of the processes, organisations andperformances outcomes. In total, 24 interviews were conducted with Company X from2008 to 2019 (Table 1). The authors conducted four interviews with six managers of R&D
and planning, four interviews with two managers of the China Lifestyle Research Centre(CLR-Centre), nine interviews with 12 managers of manufacturing (production andpurchasing); six interviews with 11 managers of marketing and sales; and one interview
with one manager of SCM. They provided sufficient context to identify the background,motives, objectives, structures, processes, roles, responsibilities and performance
evaluation related to initial SCI. In particular, the same interviews were conducted withthese different main actors of integration to secure an accurate collection of information.
[Table 1 about here]
All interviews began with open questions about Company X’s SCI and the
management of building those processes and organisations. As the interviews progressed,
the questions gradually became more structured, delving into procedures and mechanisms
for knowledge sharing within Company X and the specific challenges they faced whenentering new markets. All interviews lasted 90–300 min. In addition, non-participant
observations were made in retail stores in China six times from 2008 to 2019 to develop
an understanding of how product values were assessed in the markets. Finally, Company
X’s internet home page, which provided access to company’s activities, wassystematically examined. The documents not only supplied interesting information, theyalso allowed us to control for memory bias by comparing interview statements with thecollected document data (Miller et al., 1997).
The study included analytic generalisation relying on the following measures. First, aconvergence of multiple data sources was created. The research used interviews, fieldnotes, company documents and records to develop interpretations. Second, interviews
were conducted with the main actors of integration to secure an accurate collection of
information. Third, all data was documented and tracked to maintain a verifiable chain ofevidence. All informants involved in this research conducted member checks, reviewing
and approving notes as well as reports pertaining to Company X. Fourth, reliability wasestablished by using a protocol and a database at a common location for data collection
and analysis. The research team followed this protocol for interviews and documented alldata stored. Fifth, multiple investigators on the research team enhanced the confidence inthe findings via a triangulation of evidence and fostered divergent perspectives. Sixth,
entering the field was done with the frequent overlap of data analysis with data collection,
including field notes to speed analysis and reveal helpful adjustments to data collection.
This study provides the framework for empirical support from a triad perspective to
explore how to implement triad coordination among R&D, production and marketing
dispersed across various countries (Fig. 1). This approach should shed light on findingsthat may have been overlooked from the dyadic perspective, but are vital to obtain highperformance outcomes.
[Figure 1 about here]
7Case of Company X in China
Company X is Japan’s leading electronics company with consolidated sales of 8-trillion
yen and 280,000 employees (April 2019). Its business areas include B-to-C activities,
such as home appliances, beauty, health care etc., B-to-B activities, such as cooling andheating appliances for commercial use, automotive parts, and industrial components.
Company X was organised around considerably independent business units (BU)
segmented by product categories, such as washing machines, air conditioners, andtelevision sets.
Company X's entry into China began in 1987 with the establishment of a joint venture
to produce cathode ray tubes. Then, Company X planned each business individually toenter China and created a joint venture using Chinese capital to establish a production
base in China. By April 2001, 44 local companies had been established by BUs in China.
Company X had positioned China as its global production base, and its BUs transferredresources to their subsidiaries in China. For example, production process know-how,quality management techniques and SCM were transferred. In the early 2000s, China
accounted for a large portion of its global productions (often over 30%) in the area ofhome appliances.
Furthermore, Company X has an organisational structure combining two types:
manufacturing (R&D, production and marketing) in Japanese BUs of the home country
and sales overseas of the host country. This organisation was established to balance bothmanufacturing and sales. However, having all manufacturing functions and skills built in
BU organisation makes it complex for a sales organisation to work closely with the
manufacturing organisation because of differences in values, processes andmethodologies.
Development of business in China
Organisation for production and development
This research focuses on home appliances in China. BUs producing microwave ovens,refrigerators and washing machines set up a business base in China aiming to export them.
However, these projects were decentralised by BUs, and coordination and cooperation
among the BUs were extremely limited. Such decentralised management occurredsimilarly in Japan, but it was particularly remarkable in China, where local partners of
joint-venture differed by BUs.
From 2000 to 2006, Company X underwent a radical transformation under theleadership of a new chief executive. In 2003, as part of this transformation, Company X
aggregated BUs under higher-level units called ‘business domain companies’ to minimise
the duplication of businesses and more effectively share resources, such as R&D, productdevelopment, production and marketing, across related businesses.
Through this reorganisation, Company X created 14 domain companies. One was theHome Appliances Company that was headquartered in Japan. Given that the domaincompanies were assigned the mission of creating synergy among BUs, there was a parallel
effort in China to aggregate subsidiaries of related BUs. Then, the Company X Home
Appliances China was established in 2003.
Company X has established several of its home appliances production companies in
Hangzhou, located southwest of Shanghai. Company X considers Hangzhou as a key
location for its home appliances operations in China. However, owing to the historicaldevelopment of production plants by strongly independent BUs, some of its home
appliance subsidiaries are located away from Hangzhou.
8Organisation for sales
X China was established in 1994 to oversee business activities in the Chinese market.
When it was founded, it had sales of 4 million RMB. Then, sales increased steadily,
reaching 1 billion RMB in 1997, 5 billion RMB in 2003, and 14.4 billion RMB in 2007.
The number of employees increased from 186 in 1994 to 1,848 in 2007.
X China was originally established to support each BU's sales activity in the Chinese
market. However, X China took direct charge of sales in the Chinese market. X Marketing
Sales China was established under X China in April 2007. Until then, each BU sold its
own products in the Chinese market. Since then, however, X Marketing Sales China haspurchased products from BUs and sold them. Company X’s press release at the time
explained the reorganisation as follows:
We are working to strengthen our product line-up and market response capabilities
by strengthening our manufacturing and sales collaboration with BUs, and we haveestablished a system that enables us to share information, such as customers, subject
lines and channels, thereby demonstrating our comprehensive capabilities. Under
one management system at the top, we will establish sales BUs for each of nine
products. BU sales by product are the source of the growth and profitability of sales
companies. As a result of this structural reform, we have established a system tothoroughly strengthen our marketing and sales capabilities.
After this change, the sales activities of refrigerators, washing machines, airconditioners etc., was carried out under the same strategy and management as in the fieldof home appliances. In 2008, out of 1,268 employees of X Marketing Sales China,
251worked at the home appliances division.
Then, development, production and sales became separate organisations, as shown in
Fig. 2, making it difficult for the two organisations to work together. Traditional BUs
controlled global development, production and sales, whereas China’s BUs controlled
development, production and exports. Only sales in China fell out of the BU’s directcontrol.
Product development for the local market
As described, Company X's business in China started with production activities andgradually increased its sales in the Chinese market. Under these circumstances, thedevelopment of localised products for the Chinese market became an important issue.
Limitations of concentrated development in Japan
In terms of local adaptation, the development of production subsidiaries required thecreation of local competitive value in the form of production facilities operational under
the local conditions and constraints with local human-resource development. In particular,
key people on the shop floor were trained extensively at their respective BUs in Japan.
Thus, during the early phase, many production companies in China were integrated into
the global network. During integration, competitive value was created mainly in the
production arena.
During this phase, local development teams were built in China. Resource transfer for
development was achieved through extensive training of key local staff at the training siteat the headquarters in Japan, and via on-site coaching by engineering expatriates sentfrom Japan. Local competitive value in the manufacturing function was largely createdthrough the training of local personnel, who were presumably more familiar with the local
conditions and constraints. Product localisation during this phase, however, was rather
9limited and did not extend beyond simple modifications of products developed in Japan.
There were attempts to introduce locally assembled products, and product planning staff
members from Japan were briefly stationed locally, but those efforts did not result insignificant success in the local market.
On the other hand, some Chinese staff at the sales company in China understood the
local market. They sometimes suggested local product planning, but the proposals were
never taken up. One reason is that they were not professional planners. The second wasthat, because sales, development and production in China were separate organisations,the proposal for development was on the BU side, another organisation. It was thus very
difficult for Chinese sales representatives to convince the Japanese engineers in Japan.
Establishment of China Lifestyle Research Centre
In its home country, Company X was strongly concerned with extensive studies on how
individual households and people use home electronics products and their general
lifestyles related to the use of such products. The Home Appliances Company, forinstance, has a Lifestyle Research Centre that offers study services for all its BUs. In
particular, each BU has its own product planning team, and the Research Centre works
closely with product planning teams.
However, Company X did not have similarly extensive lifestyle research activities
overseas, and their products in the markets outside Japan were largely modifications ofbase models developed for domestic markets. Although their overseas sales were growing
continuously, there was a clear awareness among the top management at Company X in
the early 2000s that, without an in-depth understanding of local markets, theircompetitiveness in overseas markets, particularly in emerging markets, would never reacha critical position for Company X’s globalisation agenda. This concern was particularly
acute for China, owing to its mega-size and rapid economic growth.
Addressing this concern, Company X created the China Lifestyle Research Centre(CLR-Centre) in Shanghai in 2005 as a subsidiary of X China (Fig. 2). The CLR-Centre
represented Company X’s first serious attempt overseas for an in-depth understanding of
local lifestyles. The objectives of the CLR-Centre included product planning rooted in
Chinese consumer research and creating a database of consumer information in China
and disseminating it throughout the company. The CLR-Centre focused on washingmachines, refrigerators and air conditioners under the jurisdiction of the Home Appliance
Company. Their mission was to propose specific product concepts reflecting the needs ofChinese consumers to the development departments in Japan, the production departments
in China, and the sales departments in China based on the results of thorough surveys.
[Figure 2 about here]
The CLR-Centre started with three staff, increasing to seven in 2008 and nine in 2017.
There was only one Japanese, Director A at the CLR-Centre at the time of its
establishment, and the rest of the staff was local Chinese. The Chinese were nearly all
women, because users of home appliances were often women.
Director A had broad experience as a product planner at a home appliance BU and
had worked closely with the Lifestyle Research Centre in Japan. He carefully hired local
staff and personally trained them. He was a powerful source of resource transfer. Throughthe CLR-Centre in Shanghai, the R&D team in Hangzhou was beginning to be integrated
into the home appliances’ product planning and development network, which represented
the second wave of integration in addition to the company’s production network.
10Director A developed and implemented unique recruitment practices to select people
who fit the centre’s mission. Nearly 20 people were selected from many applicants foreach position and called for detailed interviews. One of the interview questions asked
applicants to interpret raw data. Some provided only superficial interpretations, whereas
others provided interesting interpretations that led to product ideas that appealed to themarket. When applicants were hired, they were trained to acquire technical and costknowledge needed to create product concepts. Director A emphasised data interpretation
rather than data collection. He told us the following:
We employ insightful people. The recruitment process involves a review of
documentation and several interviews. During the interview, you show the raw data
and ask what you can read from it. Some people follow what's on the surface andothers can read deep down, but those with a ‘sense’ can easily see through thisinterview. We are focusing on how to hire insightful people. The overall tendency ofthe employed is that there are many women. The reason is that the concept proposal
is made directly to the BU by them, so it is a condition that they can speak Japanese,and there are many women who meet this condition. In the case of men, they are quick
to understand the mechanism and technology, so they tend to think that the feasibility
is difficult. The point is that women can make proposals purely from a consumer
perspective. (Sep. 20, 2010)
Activities of the CLR-Centre
Although working cooperatively in a combination with two different organisational
structures can be laborious and challenging, the CLR-Centre, as a third-party organisation,
proved to be the pillar in China for deeper localisation. The trained staff at the CLRCentre began collecting critical knowledge and insights on the local lifestyles related tothe use of home appliances.
They first create hypotheses about consumer needs. Then, they test the hypotheses
using actual data. They revise and retest the hypotheses, propose focused product plans
to BUs and follow up on commercialisation. The CLR-Centre proposes a concept for
product planning 2–3 years in the future. In response to this proposal, BU's productplanning activities take place while considering cost and productivity.
The basis of their activities is thorough field work. Specifically, group interviews,
home visits and street surveys are conducted. Group interviews are conducted 20 times
per year covering a total of 140 people. The information is used to evaluate and discoverpotential market needs. About 400 home visits are conducted annually to check the use
and dissatisfaction of products. A total of about 800 people conduct street surveys fivetimes per year, which are used to evaluate hypotheses and designs.
About 10 proposals are made for one product category per year. It takes about 10
months to review several plans. Not all of the proposals will be adopted, and thecommercialisation potential is about 10%. Additional proposals may be made while thecontent of the proposal is being considered. By sharing the information with the sales
staff, it is possible to make a better plan.
In addition to group interviews and other conventional marketing research tactics, thestaff members visit individual homes. They examine, for example, the size and height of
the kitchen counter, the location and space size of their refrigerator and the width of their
kitchen entrance. Although the global standard width of refrigerators is 60 cm, they foundthat the width of kitchen entrances in China is mostly 55 cm wide. Based on this finding,Company X developed and introduced slimmer 55-cm-wide refrigerators into the Chinese11

market. The market responded enthusiastically to this localisation, and the sales increased
ten-fold.
Sales staff members have reported this type of information for some time. However,they have been unable to persuade their BUs, because they did not have data as detailed
as the CLR-Centre. BU hesitated to change the width of refrigerators because it requireda large investment in moulding.
Another key contribution of the CLR-Centre is the creation of a local lifestyle
database. The database is quite extensive, covering many product categories for customer
preferences specific to different income groups and regional characteristics. For instance,
rice cookers must consider regional preferences, such as short-grain rice in northern China,
medium-grain rice in central China and long-grain rice in southern China. Similarly, rice
porridge is popularly served for breakfast in China and many use rice cookers to prepareit. However, in the north, thin porridge is preferred. In the south, the porridge is servedmuch thicker. Such detailed lifestyle information was systematically collected into the
database and made available to BUs and their subsidiaries in China. The CLR-Centre
found that the assembled information represented a value for local adaptation and its
ready availability for BUs and their subsidiaries promoted resource sharing that could, inturn, lead to strengthened cross-border integration.
International communication
The CLR-Centre aims to propose new product concepts based on systematically collectedmarket data, knowledge on technological enablers and cost considerations. A member ofthe staff is usually assigned to a particular product category, such as washing machines
and refrigerators. Staff members have regular meetings with the engineers of thecorresponding BUs and their local subsidiaries, as well as the Home Appliances’Technology Centre in Japan. There are about three debriefing sessions per year for eachproduct, and all departments related to the product participate. The session comprises
about 10 people.
Through repeated meetings, staff members were introduced to their engineeringcounterparts in Japan and local subsidiaries; they established informal networks withthem. The staff members then began to interact with the engineers more informallythrough telephone calls and email exchanges.
Generally, production sections, such as BUs, tended to standardise the products asmuch as possible, and R&D sections tended to be oriented towards product innovation
rather than customer needs, whereas marketing sections come face-to-face with customer
needs. However, the CLR-Centre has developed effective cooperative relationships with
BUs in Japan and their local subsidiaries, extending beyond conflicting relationships,
through formal and informal networks. The CLR-Centre’s staff gained technologicalknowledge, and the engineers at home appliance based in China and Japan developed adeeper understanding of the local market conditions in China. This was possible becauseof the CLR-Centre’s ability to create deeper local knowledge. In other words, deeper local
adaptation led to profound global integration.
Director A described the difficulty of communication between the CLR-Centre’s
Chinese staff and Japanese BU's as follows:
Local needs can be identified based on extensive factual evidence. However, theproblem is how to persuade the Japanese side. Product planning audits are conductedby business domain. Most products go through the process of obtaining approval fromJapan. At that time, people with different sensitivities make judgements, so it isdifficult to pass the plan, and even if it passes, the product will be different from what12you want. Because China is an Asian country like Japan, although sensitivities aredifferent from the beginning, efforts to understand them have an adverse effect as aresult (Sep. 20, 2010).
However, even if commercialisation is realised by the CLR-Centre's proposal, there
are cases where recognition is not always consistent among divisions. This leads tomarket failure. In fact, the 55-cm-wide refrigerators did not sell as well as expected. As a
product concept, it was proposed as one with high value, even though it was slim. The
BUs, however, did not fully understand the concept and made the design and materials of
the product cheaply. It was not easy to maintain the original concept through development,
production and sales.
A host of successful product introductions in the local markets via cooperative
relationships resulted in solid trustworthy relationships and interdependence between the
CLR-Centre in Shanghai and the engineers in Hangzhou, and between the BUs and theHome Appliances Company in Japan. This has, in turn, altered the authority distribution
towards greater autonomy of local operations.
Generally, at this stage, there is a trade-off in meeting local customer’s needs appealedby overseas subsidiaries while seeking advantages through integrated global operations
tended by the parent company. In this case, through the local R&D capabilities that are
built, the decision on new product introduction for the local markets has, in effect, comeunder the local authority since 2008. The final formal decision still belongs to therespective BUs in Japan, but this is to ensure global coherence for basic design elements,
such as chassis for washing machines.
In the next section, one of the successful examples of the product planning proposedby the CLR-Centre is described.
Case: Bacteria-sterilising washing machines
1.

Survey and fact findings
The CLR-Centre surveyed more than 300 Chinese households in detail on how they
did their laundry. First, they looked at how they washed (e.g. washing machine, handwashing, professional laundry services) and each item used (e.g. sheets, towels, shirts,
underwear). They also investigated the location, size, and installation path of the washingmachines. They found that most Chinese washed sheets with a washing machine, whereas
86% washed their underwear by hand, even if they had a private washing machine.
2.

Examination through in-depth interviews
One female member of the CLR-Centre focused on the fact that many people washedtheir underwear by hand. The member thought that there must have been a strong reason
behind this fact, and a potential need could be identified if the reason was figured out.
The CLR-Centre conducted repeated in-depth interviews with Chinese consumers. As aresult, it became clear that many consumers agreed to the following recognition:
At that time, it was highly likely that public places in China were contaminated withbacteria. As a result, their outerwear is dirty when coming home from outside work.
If dirty outerwear and underwear are washed together in a washing machine, there
is a risk that the underwear could be contaminated. Therefore, consumers wash theirunderwear by hand without putting it in a washing machine to prevent germs fromadhering to the underwear.
13

3.

Concept proposal
Based on the consumer recognition revealed by above examination, the CLR-Centre
made two proposals at regular meetings with the R&D department in Japan. The first idea
was to develop a washing machine that could reliably sterilise clothes while washing.
Second, because there as a wide range of needs for sterilisation in China, they planned to
install sterilisation devices on products other than washing machines.
4.

New product development
Ultimately, three departments including R&D Japan, production China and marketing
China were convinced of the importance of the product concept with sterilisingcapabilities proposed by the CLR-Centre. Based on the Centre's proposal, Company X
promoted commercialisation in cooperation with the three departments.
At the time, there were already one or two companies in China that were selling
washing machines with bacterial sterilising functions. However, it was not uncommon
that the newly introduced functions were not as trustworthy as their Chinese
manufacturers claimed. The market, hence, did not always respond positively to new
products espousing new functions. Company X had the technical capability to develop asterilising device on its own but decided to conduct a joint research with Shanghai Jiao
Tong University. They believed that the joint research would increase the credibility of
new products for Chinese consumers, because Shanghai Jiao Tong University was one ofthe premier university in China. They jointly developed a light-emitting diode Ag bacteria
sterilisation device.
5.

Introduction to the market
The device was introduced to the Chinese market in 2007 under the brand name ‘AntiBacterial Diagonal Drum Washing Machine’. This machine was the top-end model outof three models. The price was 7,000 RMB, which is 1,000–2,000 RMB higher than the
average price of top-range products. Simultaneously, Company X introduced products
equipped with sterilisation devices in refrigerators and air conditioners.
X Marketing Sales China then publicised its study data, proving the effectiveness of
its bacteria sterilisation device and announced that the device was developed incollaboration with Shanghai Jiao Tong University. It believed that the collaboration withthe famous institution would contribute to the market acceptance of Company X’s
washing machines.
In its first 10 months on the market, Company X’s market share in China jumped from
3% to 15%. The most expensive model among the three accounted for 60% of sales. In
2009, 2 years later, Company X introduced a small-sized sterilising washing machine forthe middle class at a price of 4,000–5,000 RMB. They determined by exhaustive
measurements the marginal size of the average middle class home.
Discussion
In the case study, the CLR-Centre was a driver promoting global integration among R&D,
production and marketing (Fig. 3). The Centre is a third-party organisation that is, ingeneral, not usually capable of successfully promoting integration. The Centre enabled
this through various hypothesis tests to explain explicitly to Japanese engineers in thehome country the intuition of the local Chinese researchers in the host country that could
not be achieved by the existing organisation, such as production and marketing
departments in China.
This case supports the literature on boundary spanning, where roles evolve in theorganisation’s communication network to fulfil the essential function of linking the14organisation’s internal network to external sources of information, where widespreadcommunication across boundaries tends to be difficult (Tushman, 1977).
So, why would such a third-party organisation connect R&D, production andmarketing in this case? This question is explored from the perspectives of triad integrationand global, as follows.
[Figure 3 about here]
Triad integration at an early stage: front-loading
SCI has been considered relay integration in the form of R&D production and production
marketing as product development progresses (Krishnan et al., 1997; Krishnan and Ulrich,2001). However, it is necessary to consider the integration of those three functions in a
triad. If problems that occur during mass production are not solved at the productdevelopment stage, it will be costly and time consuming to push the problems back to the
R&D section. Additionally, it would be too late to recognise that it is a product thatmarketing cannot sell, once the relay of production marketing comes up. Consequently,
it would be better to solve the problem related to those three functions as early as possible.
Thomke and Fujimoto (2000) examined how to use 3-dimensional computer aided
design (CAD) effectively by examining the production time at each stage of productdevelopment when it was introduced to manufacturing by 3-dimensional CAD. As aresult, an efficient development project that promoted early problem identification andsolving led to efficiency and lead-time improvement. However, it took a lot of production
time at the beginning. Such a project that solves a problem at early stage of development
is characterised as front-loading the problem (Thomke and Fujimoto, 2000; Szulanski etal., 2016). Thomke and Fujimoto (2000) argued that it took time to solve the problems at
an early stage, because many problems pile up early. However, front-loading contributes
to rework elimination that can lead to improved efficiency.
The CLR-Centre was positioned as the most upstream entity in new productdevelopment through the activities of advanced product planning. At the early stages, thefront-loading of problems can be conducted via the CLR-Centre’s communication with
R&D, production and marketing.
Global integration by externalisation
To develop a local product, local knowledge is required and must be understood
intuitively by the local Chinese. However, it is not clear how to do this with an externalorganisation. In this case, the Centre logically transferred this local knowledge on the
Chinese market in a form that could be understood by Japanese engineers. In other words,
the Centre converted local tacit knowledge into explicit knowledge and conveyed it
effectively to Japanese engineers. In that sense, the Centre was in charge of theexternalisation process of the socialisation–externalisation–internalisation–combination(SECI) model (Nonaka and Takeuchi, 1995).
Converting tacit knowledge on the Chinese market into explicit knowledge andconveying it effectively to Japanese engineers was possible because of Japanese language
capabilities of the Centre staffs, who communicated between Chinese staffs in the Centre
and Japanese engineers in the BUs.
On the other hand, the marketing department in China could not transmit such tacitknowledge on the Chinese market as explicitly. Thus, Japanese engineers had somedifficulties developing the products requested by the marketing department in China.
With the SECI model, tacit knowledge can be transferred by sharing tacit knowledge
itself (socialisation) or converting tacit knowledge into explicit knowledge15(externalisation). Subramaniam and Venkatraman (2001) argued that by assigningpersons holding tacit knowledge of overseas markets to development teams, theknowledge within those teams would be utilised effectively for higher productdevelopment performance. However, they did not reveal how tacit knowledge wasunderstood or shared in the development team. Nonaka and Konno (1998) observed thatsocialisation involving the sharing of tacit knowledge required sharing of the same
experience in the same context. This is considerably difficult for persons in different
countries.
If all core functions, such as R&D, production and marketing, are managed locally,such tacit knowledge could be shared easily via the LGTs advocated by Govindarajan andTrimble (2012). However, in this case, the main function for R&D remains in Japan. Thus,
it is necessary to share knowledge across borders. Sheng et al. (2015) argue thatsubsidiary tacit knowledge does not contribute directly to the product innovation of
MNCs. They have empirically shown that cognitive (i.e., task efficacy), behavioral (i.e.,
affective trust), and environmental (i.e., organic structure) factors improve MNCs’
product innovation ability and weaken the negative effect of subsidiary tacit knowledge
level on MNCs’ product innovation ability (Sheng et al., 2015).
Therefore, externalisation of tacit knowledge would be another important way toshare and transfer the local tacit knowledge. From this perspective, it was extremely
important that the CLR-Centre executed their fieldwork thoroughly by collecting market
data to demonstrate their hypotheses and proposing them to Japanese management.
The same phenomenon can be recognised in international knowledge transfer fromother aspects. For example, when Toyota expanded its overseas production bases in the
U.S. at full scale, they made their utmost efforts to convert tacit knowledge about theirproduction into explicit knowledge (Inkpen, 2008). At that time, even in Japan, Toyota
promoted the activities for texting about knowledge, although it was not always necessary.
Moreover, they transmitted a text on the philosophy of manufacturing at Toyota.
Although this text was in English at first (Ohno, 1988), it was translated into different
languages around the world. This text was useful for persons working for Toyota invarious countries to understand Toyota's manufacturing vision.
Externalisation of market knowledge is difficult, because most of the knowledge isrooted in culture, lifestyle and history of the country of the market. Certainly, it is difficult
for foreigners to intuitively understand those contexts. However, the CLR-Centre has
shown that it is possible even for foreigners to understand the local knowledge owned by
local people in a form that makes sense. For locals, it may be a cumbersome process toexternalise that which they intuitively understand. In that sense, it may be quicker tocreate a development team solely with local people. However, there remains thepossibility that product development may proceed with ambiguity even with tacitknowledge. Furthermore, it is possible to drive projects with false beliefs. However,
persuading foreigners who cannot understand tacit knowledge with explicit knowledge
and logic has positive repercussions, in the sense of avoiding mistakes.
Concluding remarks
Existing studies have made it clear that SCI is important. However, they have not shownhow to implement it. This study provides three theoretical implications that address thisimportant research gap. First, the CLR-Centre drove promote global integration among
R&D, production and marketing. Second, implementation of this triad, as opposed to
dyadic integration, was possible thanks to the front-loading of problems conducted atearly stages of product development. Third, the externalisation of tacit knowledge into
16

explicit knowledge promoted by the Centre was very important for global integration of
the triad.
While the R&D function is retained in Japan, the CLR-Centre makes it possible for
the R&D of home country Japan and local R&D, production and marketing in the hostcountry of China to be well connected. Although previous studies addressed the questionof where overseas R&D sites should be located (Kenny and Florida, 1993; von Zedtwitz
and Gassmann, 2002) and the coordination and management of R&D sites that have been
relocated worldwide (Nobel and Birkinshaw, 1998; Reger, 1999), existing studies havefocused on the issue of expanding R&D functions that were concentrated in the homecountry. Thus, the present research shows how to effectively integrate R&D, production
and marketing for local markets in an environment where R&D functions areconcentrated in the home country.
However, when entering the next stage (shifting Japan’s R&D function to China),
there another level of the problem will present itself, about how to develop, produce andsell differentiated products locally in China and how to convert and translate tacitknowledge on cross-organisation’s sources of information into explicit knowledge.
Further theoretical and empirical research should be the next agenda for research.
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