What Panasonic Learned in China

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The Globe

What Panasonic
Learned in China

PhotograPhy: Corbis

When your manufacturing
base becomes your growth
market, your strategy
has to adjust. by Toshiro
Wakayama, Junjiro Shintaku,
and Tomofumi Amano

M

ultinational companies tend to
insulate their headquarters from
operations in emerging markets.
Sure, they welcome the opportunity to save
money by manufacturing in China or managing customer service out of India, and they’re especially pleased when they make
profits selling to customers in such markets.
But regardless of their global footprints,
American, European, and Japanese companies remain fundamentally American, European, and Japanese. The home country’s executive offices too often have an “us” and
“them” mind-set and encourage a one-way
flow of ideas and directives—from us in the
home country to them in emerging mar-

kets. Local initiatives are expected to stay
local. Companies do this to minimize cost
and risk, and because they believe that their
brands already hold enough cachet to woo
emerging-market consumers. Multinationals may be in global markets, but they’re often not of them; therefore, they’re unable
to expand their products’ appeal to broader
audiences around the world.
It’s surprising, then, when an established giant goes to an emerging market seeking the usual benefits of cheap labor
and low manufacturing costs and comes
back a changed company. That’s what has
happened to Panasonic in China over the
past decade. After the Japanese company’s
December 2012 harvard business review 109

ThE GlobE

leaders saw growth slow in China, they
realized that they needed to engage more
deeply with customers there. Panasonic’s
desire to do that was rather remarkable because of the historical animosity between Japan and China, which can suddenly flare
up. In October 2012, for instance, after Japan announced the purchase of the disputed Senkaku Islands, protests in China forced several Japanese companies, such
as Canon, Toyota, and Panasonic, to suspend their China operations temporarily. Although the difficulties have subsided,
they have probably created a sense of awkwardness among the Japanese and Chinese employees of multinationals.
Through its efforts in the Chinese market, Panasonic learned to bridge two strategies that are often seen as mutually exclusive: on the one hand, finding competitive advantage through expertise in integrated,

worldwide operations, and on the other,
focusing locally to meet consumers’ particular needs. The inherent tension is well understood: Worldwide integration calls
for cooperation and uniformity; local adaptation values independence and diversity. The tension is especially high in multinationals that are chasing growth in emerging markets while desperately trying to keep

costs down at home.
In China, Panasonic learned to treat the
two objectives as equally important. Indeed,
it found a way to ensure that deeper localization invited greater worldwide integration, which in turn enabled even more localization. Over time, ideas began flowing from China to Japan. The company embarked on

new initiatives to understand consumers
all over the world, and Panasonic’s leaders
began to think of the company as a global,
rather than Japanese, powerhouse. Some of
the changes have been subtle—and it could
be argued that they aren’t as deep as they
need to be—but they are real.
Panasonic’s story, which we studied
in collaboration with Takafumi Kikuchi, a
senior manager of global consumer marketing at Panasonic, has much to teach multinationals about building competitive
advantage by exploiting the tension be110 Harvard Business Review December 2012

tween cross-border integration and local
adaptation, rather than ignoring or simply
tolerating it.

Crossing the East China Sea

The story begins with Chinese leader Deng
Xiaoping’s 1978 visit to Japan, during
which he met with Panasonic’s founder,...
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