21COE, University of Tokyo

MMRC Discussion Paper No. 80

MMRC
DISCUSSION PAPER SERIES

MMRC-F-80

Customer Interface Process and the Locus ofInterfirm Overlapping
The Case of Japanese Handset Manufacturers in US

Aoyamagakuin University(MMRC, The University of Tokyo)

Masanori YASUMOTO
April 2006

21COE, University of Tokyo

MMRC Discussion Paper No. 80

Customer Interface Process and the Locus
of Interfirm Overlapping
The Case of Japanese Handset Manufacturers in US

Masanori YASUMOTO
Aoyamagakuin University(MMRC, The University of Tokyo)

April 2006
Abstract
This study attempts to explore how a firm successfully exploits its
accumulated technologies and product development capabilities in multiple
relationships with more than a few customer firms within and beyond borders.
“Closed” relationships with a few customer firms enhance the “exploration” of
distinguished/novel product technologies and capabilities. Yet, growing
customer/market diversity in the era of globalization requires many of firms tocope with more customer firms. A firm needs to develop products effectively
assimilating knowledge specific to each of customer firms in both local andoffshore markets.
Drawing on the anecdotal case of Japanese mobile handset manufacturers in
US, the study argues that the customer interface process confined to upstream
product development stages helps a firm manage more open close relationships
with more than a few customer firms even across borders. In productdevelopment, the contrived customer interface process contributes to the effective
selection and combination of specifications/technologies according to therequirements from each of domestic and oversea customer firms. These findings
are explicated by knowledge/problem-solving perspectives.

1

Masanori YASUMOTO

1. INTRODUCTION
Collaborativeinterfirm

relationships

arecriticalvehiclesofthe“exploration” of

distinguished/novel technologies and capabilities. For instance, studies on automobile development
elucidate that collaborative relationships between firms enhance the knowledge exchange/sharing for
exploratory problem-solving in product development process (Clark and Fujimoto 1991, Dyer andSingh 1998, Takeishi, 2002, Wasti and Liker 1999).
However, in the line of studies, critical knowledge is assumed to be bound to “closed”
collaborative relationships between specific firms (Dyer and Singh 1998). Thus, we could infer that afirm in closed relationships with a few specific customer firms is likely to have difficulties whenattempting to cope with other firms outside the existing relationships.
In the era of globalization, a firm needs to cope with multiple customer firms beyond closed, inmany case local, interfirm relationships (Bartlett and Ghoshal 1989, Prahalad and Doz 1987, Shanand Hamilton 1991). The situation witnesses the necessity of the “exploitation” of accumulated
technologies and product development capabilities in cooperation with more than a few customer
firms. The attempts for the exploitation require firms to assimilate customer/market specificknowledge, particularly tacit knowledge, even across borders (Subramanian and Venkatraman 2001).
The importance of the effective exploitation of technologies and capabilities (Yasumoto andFujimoto 2005a) is suggested in terms of the modularity/modularization of product design andengineering activities (Baldwin and Clark 1997, Cusumano and Nobeoka 1998). Yet, effective
application of accumulated technologies and capabilities to multiple customer firms relies oncustomer relation process (Day 2000, Fujimoto 2004). For the competitive advantage, a firm needs tomaster market relationship capabilities to create and maintain relationships with customers (Day
2000).
Insofar, how a firm assimilates the knowledge from multiple customer firms in more open
interfirm relationships is not sufficiently examined relevant to product development process.
Drawing the anecdotal case of Japanese mobile phone handset manufacturers in US, the article
addresses the question how customer interface process contributes to the effective exploitation of
accumulated technologies and capabilities in product development projects of multinational firms.
At first, the article reviews the determinants of interfirm relationships drawing on
knowledge/problem-solving perspectives, and thereby points out the role of interfirm knowledge
exchange/sharing at upstream product development stages. Second, the article attempts to cultivate
the concept of customer interface process in product planning process. Drawing on the proposed2

Customer Interface Process and the Locus of Interfirm Overlapping
perspective, the anecdotal case of Japanese mobile handset manufacturers in US is described. At last,
the article summarizes findings, and thereby draws some implications.
2. LOCUS OF OVERLAPPING PROBLEM-SOLVING AND INTERFIRM RELATIONSHIPSInterfirm relationships are associated with architectural interdependencies between thecomponents of a product system (Brusoni and Prenicipe 2001a, 2001b, Fujimoto 2004, Sturgeon
2002, Sturgeon 2002, Takeishi 2002, Ulrich 1995). In the line of studies, firms are presumed tobenefit either of two alternative types of interfirm relationships, “closed” or “open”, according to thelevel of interdependencies between the subsystems of the products concerned: integral/modular
architecture.
The attributes of interfirm relationships is further explicated by the transferability of knowledge
within and between firms (Kogut and Zander 1992, 1993). The transferability explicates how thelocus of problem-solving in product development is partitioned between related firms (von Hippel
1994, 1998). The necessity of closed relationships between specific firms is attributed to the tendency
that knowledge required for problem-solving is dispersed across firms (Brusoni and Prenicipe 2001b,
Clark and Fujimoto 1991, Takeishi 2002). The locus of problem-solving calls upon the iteration
among the multiple sites of specific knowledge (e.g., sticky information, von Hippel 1994). The
iteration would result in close relationships between a few firms, which each would possess related
specific knowledge.
Drawing on the knowledge partitioning in automobile development projects, Takeishi (2002)
finds the factor to enhance the knowledge exchange/sharing between partner firms. When an
automobile project includes the development of components based on new technologies, the fluidityof the boundaries of knowledge calls for overlapping problem-solving process across firm boundaries(e.g., design-in activities). The exchange/sharing of specific knowledge in the process bears closed
manufacturer-supplier relationships.
On the contrary, if the knowledge required is partitioned by clear-cut boundaries between related
firms, firms may rely on open interfirm relationships, such as modular production networks of firms(Sturgeon2002).

Problem-solving

activities

arepartitioned

into

each

of

subsystemengineering/design activities when related knowledge is localized within each subsystemdevelopment group.
In the line of studies, interfirm relationships is characterized with knowledge exchange/sharing
at design/engineering stages. However, closed interfirm relationships at design/engineering stages are

3

Masanori YASUMOTO

at best one of the options to satisfy customer firms’ needs.
If partitioned by clear-cut firm boundaries, most of design/engineering knowledge is held at
each of specialized firms (e.g., modularity, Baldwin and Clark 1997). In the case, a supplier willattempt to respond to customers’ requirements assimilating customer-specific knowledge within thelimit of confined development activities such as product concept/specification planning.
The limited locus of knowledge exchange/sharing will allow the supplier to confine iterative,
thus overlapping, problem-solving process with customers to the range of fluid knowledge
boundaries at upstream stages. The limitation of the range of overlapping problem-solving may
reduce knowledge exchange/sharing costs relevant to task interdependencies between these firms.
Thus, the supplier may expand the scope of customers, to which manufacturer’s technologies anddevelopment capabilities are applicable.
The logic makes us infer that the necessity of specific knowledge exchange/sharing between
firms does not necessarily result in “closed” relationships between a few firms (See Fig. 1). Even if
the relationship is relatively open to more than a few specific customer firms, a firm could assimilate
customer-specific requirements into products. In reality, several Japanese electronic firms (e.g.,
Denso, Omron, Roam) are dexterous at customizing products for multiple customers withoutchanging their technological bases (Fujimoto 2004).

Figure 1

Interfirm interface and knowledge specificity

Customer
specific(closed)Pretentious closed
relationship“Closed” relationship(e.g., ideal Japanesesupplier system)

Versatile(open)

Market transaction“Close” relationshipbased on contrived
interface process

Interfirm Interface
Process(interfirm Relationship)

generic
SpecificSpecificity of exchanged / shared knowledge
4Customer Interface Process and the Locus of Interfirm Overlapping
The characteristics of interfirm relationships depend upon interfirm interface process. Theinterface process will enhance the exchange/sharing of specific knowledge between a few firms. In
the line of automobile development studies, interfirm interface process, such as “absorptive capacity(Dyer and Singh 1998)”, is presumed to be idiosyncratic to a closed interfirm relationship stretchedover design/engineering or entire development process.
Yet, interfirm interface process, particularly suppliers’ customer interface process, could beversatile. The process enhances the collaborative iteration confined to focused stages, particularly
upstream stages, to the extent that a supplier could benefit “close”, not closed, relationships withmultiple customer firms even across borders.
3. CUSTOMER INTERFACE PROCESS FOR EXPLOITATIONOn the base of the above discussion, the article posits that the attributes of customer interface
process conditions how a firm could exploit the technologies and capabilities in close relationships
with more than a few customer firms. The exploitation process demands coordination between firmand knowledge boundaries when the range of required knowledge ranges customer firms (Herstadtt
and von Hippel 1992, Lilien et al. 2002, Ogawa 2000, von Hippel 1988). Thus, in the exploitation
process, a firm attempts to coordinate its own accumulated technologies and capabilities andcustomers’ requirements (Brusoni and Prenicipe 2001b, Day 2000).
The coordination demands the assimilation of the knowledge on customer firms in the processaligned with the corresponding process of customer firms (Day 2000). As for product development,
two strategies to exploit specific knowledge on customers’ requirements, “lead user approach” and“customer-based

mass-customization

approach”,

areproposed

in

terms

of

knowledge/problem-solving perspectives.
Drawing on the cases of industrial machineries, network systems, test equipments, and so on,
the former approach shows that customer-specific knowledge, such as sticky information on theneeds and solutions of a few lead users, helps a firm create new product concepts, and/or drives
product/technology innovations (Herstadtt and von Hippel 1992, Lilien et al. 2002, Ogawa 2000, vonHippel 1988). Iterative problem-solving with a few lead users is presumed to enhance the explorationof novel products/technologies.
On the contrary, user-based mass-customization (von Hippel 1998) approach focuses on thelocalization of problem-solving within customer firms. The case of application specificsemiconductor demonstrates that a supplier firm leaves customization tasks to customer firms as

5

Masanori YASUMOTO

customer firms would possess the knowledge on its own needs. Whereas user-based
mass-customization enables a firm to cope with more than a few customer firms, customer firms inmany of industries often do not have sufficient design/engineering knowledge.
The specialization of design/engineering process still leaves knowledge boundaries overlapped
between firms in concept generation and product planning process at upstream stages. In the case,iteration across firms will succeed within upstream stages until firms find satisfactory
concepts/specifications for all of them.
Knowledge exchanged/shared at the stages does not range over design/engineering knowledge,
but could be limited to the knowledge for product concept/specification planning. Customer interface
process for the exploitation of technologies and capabilities is expected to enhance theexchange/sharing of knowledge with customer firms within upstream stages.
Amongst all, the involvement of customer firms in product planning process drives thecollaboration process to search and select eligible combinations of technologies and specifications
coupled with customers’ requirements and strategies (Herstadtt and von Hippel 1992, Lilien et al.
2002, Ogawa 2000). The contrived customer interface process confined to product planning stages
conditions the involvement process with more than a few customer firms in a consistent manner. The
principle of the contrived customer interface process is to exploit the accumulated technologies andcapabilities involving more than a few customer firms into product development process.
4. RESEARCH DIRECTION AND DATA COLLECTION
The article focuses on the customer interface process of two Japanese handset manufacturers in
US in the early 2000s. The saturation of domestic market and the international standardization ofmobile telecommunication technologies toward 3G (third generation: CDMA and WCDMA)1 haveencouraged Japanese manufacturers to advance to oversea markets since the end of the 1990s.
However, Japanese manufacturers are positioned far behind top manufacturers, such as Nokia,
Samsung, Motorola, LG, Sony-Ericsson, in terms of the market share in the world. Whereas leading
the evolution of handsets in accordance with advanced mobile telecommunication services, Japanesemanufacturers’ performances are not necessarily prominent in the global mobile phone industries.
Japanese manufacturers have enjoyed the success in the exploration of advanced producttechnologies and handset development capabilities. 2 However, the local manufacturer-supplier
relationship as well as the telecommunication technology difference between Japan and othermarkets hinders the exploitation of their technologies and capabilities (Funk 2002).

6

Customer Interface Process and the Locus of Interfirm Overlapping
In recent years, the rise of several Japanese mobile handset manufacturers, nevertheless, isreported in US. The case of these Japanese manufacturers in US casts doubt on the concept of close
relationships between specific firms.

The original data on the sample handset development process was collected from 2001 to 2005
both in US and Japan. Eight Japanese handset manufacturers and four non-Japanese handset
manufacturers were involved in the study. The study conducted semi-structured interview researches
based on a questionnaire sheet on “platform/base-model” handset development process, which
includes knowledge exchange/sharing processes with major customer providers.
Respondents were product planning managers and/or handset development project leaders, whowere mostly engineering section mangers. The business/corporate information was gathered frompublications on mobile phone industry, handset business, and handset manufacturers.
Five Japanese and non-Japanese manufacturers provided the information on the handset
development for both US and Japanese markets. After examining the collected data, the study focuseson two Japanese manufacturers, which were relatively successful in both US and Japanese markets.3
Technological factors would be controlled to some extent since these Japanese manufacturers
develop handset business based on CDMA technology in both US and Japan.4
5. JAPANESE MOBILEHANDSETMANUFACTURERS IN US

In recent years, Korean and Japanese manufacturers have soared as the handsets meet thedemands for high-specification models in US.5 Particularly the CDMA handset market raises thesemanufacturers. In the surge of the US CDMA market around the 2000s, two Japanese CDMA handset
manufacturers, Company D and Company X, flourish among Japanese manufacturers. While thesemanufacturers are not prominent in the global total handset market, their positions in both the US
handset and global 3G market exceed those of larger Japanese and non-Japanese manufacturers suchas Sony-Ericsson, Siemens, NEC, Panasonic, and Sharp.6
The success of these manufacturers might be attributed to the manufacturer-provider
relationship distinctive among both non-Japanese and Japanese manufacturers in US. In close
relationships with US providers, these firms, particularly Company D, enjoy the high evaluations on
the products and drastic sales growth in US market. Company D focuses on nothing but the high-end
handset market in US. Company X covers the middle to high-end handset markets, but rather focuseson the middle market. These manufacturers make full use of their advanced features and technologies

7Masanori YASUMOTO

in order to penetrate into US market.
The handsets for the Japanese provider are more advanced and complex than for US market.7
Reflecting the difference, the product development strategy largely rests on how to apply thetechnologies and capabilities, which have already been verified in Japan, in the relationships with US
customer providers.
As is the case of other manufacturers in Japan, Company D and Company X develop specifichandsets in close relationships with customer providers, particularly CDMA providers, in US.8
Company D devotes to Sprint PCS, and Company X copes with Verizon Wireless and other providers.
Most of the advanced features and functions of their handsets, not least related to mobile
telecommunication services, are transferred from Japan to US in the relationships with theseproviders (e.g., contents download, data transmission, music player, user-friendly color graphicalinterface).

Their handsets for US market are roughly divided into two types: the handsets designed
specifically for US market and the applied handsets of Japanese models to US market. Both the firms
adopt similar handset development process in both the projects for US and Japan.
In many cases of the former type model development, both the hardware and software aredesigned for specific models for each US provider. These manufacturers develop model-specificdesigns and components without definite basic designs and common parts.
Yet, common resources for CDMA manufacturers, which are mostly arranged or provided by aleading US CDMA technology vendor, Qualcomm, are available for these manufacturers.9 These
manufacturers exploit common components particularly related to wireless connection (e.g.,baseband chip) and software (e.g., BREW/JAVA applications and application platform, OS, wirelessinterface software) in the models for both US and Japan. Also reference designs, which layouts
baseband chips, RF units, related components on basic circuit designs, may be shared among themodels for both US and Japanese markets.
Based on these common resources, these manufacturers develop new product designs (circuitand mechanical design) and components mostly relevant to applications (e.g., camera, display,
keyboards). Software and related data are developed or modified in accordance with the services andspecification requirements of customer providers (e.g., model/provider-specific application, device
driver, user-interface, wireless connection).
On the other hand, projects for the latter type model reuses basic hardware design, components,
8

Customer Interface Process and the Locus of Interfirm Overlappingand software of past models for Japanese market. Considering specifications demanded by US
providers and subscribers, the manufacturers modify the portions of elements of preceding Japanesemodels.

In Company D and Company X, handset development activities for US are separated from thosefor Japan. Nevertheless, these firms adopt similar handset development process, including productplanning, in both projects for US and Japan. The coordination at product planning stages is carried byproduct planning groups. Planning members including managers usually do not devote to a single
project, but are involved in several projects.
Company D and Company X involve focused US providers in their development processes as is
the case in Japan. These manufacturers and providers have routines to exchange/share their proposals
and requests. Yet, in projects for US, intensive involvement of providers is held at product planningstages, 3-4 months, in entire handset development process (6-12 months, depending upon the noveltyof the developed models concerned).
In the process, manufacturers’ product planning groups and product design ones collaborate tocontrive basic product concepts, exterior designs, features, specifications as well as development
costs and schedules. The process draws on technologies and products already verified in Japan.
Bearing the results, Company D and Company X offer handset model plans to providers.
Providers review the proposed handset development plans on the base of their product andservice plans. Reflecting providers’ reviews, manufacturers’ product planning groups select andcombine specifications and technologies to elaborate product concepts, basic designs, features, costs,
and schedules, and so on. The manufacturers improve original plans in the process, and offer revisedplans to providers.
Information exchanged/shared in the search-plan-review cycle includes materialized
requirements as well as intangible requests. The information ranges from basic wireless technology
specifications and costs to components, designs, and software to other miscellaneous features. Theseelements are related to providers’ product strategies and service plans.
Basic requests from providers could be presented in materialized forms (e.g., basic
specifications, cost, schedule, technological requirements). Furthermore, providers show intangible
requests (e.g., application features, body color, exterior design, user-interface).
The search-plan-review cycle is usually repeated at least several times. During the process,product planners, particularly planning leaders, communicate with providers more than once in a9

Masanori YASUMOTO

week. When providers accept the proposal, the handset development project is formally approved.
The intensive manufacturer-provider collaboration confined within upstream stages (See Fig. 2)
is different from those of both European and US manufacturers and other Japanese manufactures. In
Japanese market, manufacturers would need to develop high-specification handsets according toadvanced mobile services of provider. The process requires manufacturers to develop model-specificdesign, components, and software and to furbish specifications and design elements by projects(Yasumoto and Fujimoto 2005a).
Figure 2 Overlapping confined to product planning process

Providers’process
Product
planning

Manufacturers’
process

Design/engineering: Information exchange
As is the case in automobile industry, Japanese mobile handset industry is characterized withclosed interfirm relationships (Funk 2002). In the closed relationship, Japanese manufacturers
collaborate with domestic providers through almost entire development process including
design/engineering process.
On the contrary, major global manufacturers are liable to exploit the basic productdesigns/platforms modifying specifications for providers in the world. The handset development
process is also not adhere to any specific providers, but is applicable to multiple providers. Thus, thehandset development process is rarely overlapped with providers’ process.
Yet, it should be noted that Company D and Company X neither simply offer products forthemselves nor simply follow providers’ requirements. The differences between Company
D/Company X and other manufacturers in manufacturer-provider relationships rest on the interactive
process confined to product planning process. In these manufacturers, the process would boost the
selection and combination of specifications and technologies aligned with providers.
10Customer Interface Process and the Locus of Interfirm Overlapping
6. CONCLUSIONS
The article attempts to explore how a firm could exploit its technologies and capabilities
assimilating specific knowledge from more than a few customer firms. The study draws threefindings from the anecdotal case.
At first, effective customer interface process does not rely on a few local customer firms.
Second, the process (i.e., product planning) contributes to maintaining close interfirm relationships,
which enhance the assimilation of specific knowledge from more than a few customer firms. Third,
the process helps a firm effectively select and combine technologies and specifications aligned withcustomer firms’ requirements and strategies.
These findings make us infer that contrived customer interface process may help a firm links
product strategies, such as platform/multi-project strategies (Cusumano and Nobeoka 1998), withcustomers’ requirements in a consistent manner (Fujimoto 2004). Contrived customer interface
process would also drive the coordination of spreading knowledge in overlaps between firm andknowledge boundaries (Brusoni and Prenicipe 2001a, 2001b).
The study would contribute to elucidating the characteristics and significance of customer
interface process in product development activities across borders. The findings are expected toprovide multinational firms with guidelines for effective exploitation of technologies and capabilities
spanning the differences between customers in the diversity of global markets.
We need to further understand the attributes of customer interface process and knowledge
exchange/sharing between related firms. Also the relevance of customer interface process totechnological bases and strategies should be examined hereafter.
＊ACKNOWLEDGEMENT
The research was supported by the Grant-in-Aide for Young Scientists (B) for Scientific
Research (14710127) from 2002 to 2005, the Ministry of Education, Culture, Sports, Science andTechnology, Japanese Government. I wish to express my gratitude to the directors, project managers,
and staffs for participating in the research.

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Bartlett, C.A. and S. Ghoshal (1989) Managing across Borders: Transnational Solution, Harvard
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【NOTE】
1

CDMA means the Code Division Multiple Access technology (here including cdma One, cdma One 1x
13Masanori YASUMOTO

and cdma One 1x EV-DO). WCDMA is the Wideband Code Division Multiple Access. Both are based on
IMT-2000 by ITU (International Telecommunication Union).
2
After the introductions of “ez-web” by KDDI in 1998 and “i-mode” by NTT DoCoMo in 1999 are
Japanese manufacturers have preceded European and US manufacturers in the experiences ofhigh-specification handset development. Furthermore, the introduction of 3G after 2001 accelerates
high-specification handset development in Japan.
3
The clinical data of projects for Japanese market were collected from Company D (Dec 26, 2002; Jun
25, 2003) and Company X (Oct 18, 2000; Dec 2, 2003). For the projects for US market, interviews were
held at Company D (Dec 26, 2002) and Company X (Sept 24, 2004). Afterwards, additional data weresuccessively supplemented by project managers through e-mail correspondences from 2003 to 2005. For
the detail of the case, see Yasumoto and Fujimoto (2005b).
4
CDMA subscribers account 46 % (70.5 M) in US (EMC World Cellular Data Base, Apr, 2004) and
21 % (17.25 M) in Japan (TCA, Apr, 2004).
5
Korean and Japanese manufacturers is particularly evaluated by advanced features. Also the
manufacturers are strong at other factors: durability, physical design, battery function, and usability (“U.S.
Wireless Mobile Phone Evaluation Study”, JD Power press releases from 2002 to 2004). The total market
share of Korean and Japanese manufacturers amounts to 40% in 2004. (Strategy Analytics press release,2004).
6
Company D, the top CDMA manufacturer in Japan, is the fourth manufacturers in total Japanese
handset market (unit base, see “2005 Domestic mobile market research (2005
Kokunai-idoutaitsushin-shijo-doukou-chousa),” 2005, Yano Research Institute). Company D provides
WCDMA handsets for NTT DoCoMo instead of Vodafone since 2005. Company D is the top vendor of
Sprint PCS and the 5th manufacturer in the global 3G handset market following LG, Samsung, Nokia, andMotorola (unit base, Strategy Analytics, Nov., 2005). On the other hand, Company X is positioned at the
5th in Japanese CDMA market and the 9th in Japanese total handset market (unit base, Yano ResearchInstitute op.,cit.). Yet, Company X as well as Company D is the 5th manufacturer in global 3G handset
market (unit base, Strategy Analytics op.,cit.). Their positions in North American CDMA handset market
swing within the 4th to 6th, 10-15% share each, following LG, Samsung, Motorola, and sometimes Nokia(Strategy Analytics press release from 2003 to 2005).
7
For instance, advanced handsets in Japan are equipped with complex product functions (more than 1
million step software in 2003). Handsets with equivalent functions prevail in US at least 1-2 years later
than in Japan.
8
These manufacturers have experienced in the handset business in a close relationship with the only
CDMA provider, KDDI, in Japan.
9
GSM/WCDMA manufacturers may exploit similar resources: wireless core chips, reference designs,
common software applications and platforms, and so on. For instance, more than a half of GSM/WCDMA
handsets in the world make use of the reference designs of EMP (Ericsson Mobile Platform) by Ericsson.
Yet, many of GSM/WCDMA Japanese manufacturers apply these platform designs nothing but in the
projects for offshore markets. Related data was collected in the interviews for Nippon Ericsson (3, Mar,
2006) and Qualcomm Japan (10, Mar, 2006).

14