What Panasonic Learned in China

At the beginning of the article there is a statement given that, When your manufacturing base becomes
your growth market, your strategy has to adjust. This article is about a multinational company, Panasonic.
The article discusses how many multinational companies tend to operate with a headquarters-centric
mindset, keeping a clear divide between their home country operations and those in emerging markets.
Despite benefiting from cost savings and profits in these markets, these companies often maintain a one-
way flow of ideas and directives from the headquarters to the emerging markets, hindering true global
integration.
The example of Panasonic in China is presented as a departure from this typical approach. Faced with
slowing growth in China, Panasonic's leaders realized the need to engage more deeply with local
customers. Despite historical animosities between Japan and China, Panasonic sought to bridge the gap
between global integration and local adaptation. The company learned to treat both objectives as equally
important, leading to a bidirectional flow of ideas between China and Japan.
Panasonic's experience highlights the tension between global integration and local adaptation, which is
particularly challenging for multinationals pursuing growth in emerging markets while trying to control
costs at home. The company's approach involved using deeper localization to invite greater worldwide
integration, creating a cycle that enhanced both aspects. As a result, Panasonic started thinking of itself as
a global powerhouse rather than just a Japanese company.
The article suggests that this case study offers valuable lessons for other multinationals. It encourages
companies to exploit the tension between cross-border integration and local adaptation, viewing them not
as mutually exclusive but as interconnected elements that can contribute to building a competitive
advantage. The shift in mindset at Panasonic demonstrates that embracing both global and local
perspectives can lead to meaningful changes and enhance a company's global presence.
Crossing the East China Sea:
The story begins with a significant event in 1978 when Chinese leader Deng Xiaoping visited Japan and
sought help from Panasonic's founder, Konosuke Matsushita, to modernize China's industries. This led to
Panasonic licensing technologies to China and establishing its first joint venture, Beijing Matsushita
Color CRT, in 1987. Over time, more than 40 manufacturing operations were set up in China, making
products like washing machines, air conditioners, and TVs. China became Panasonic's global
manufacturing hub, with around 30% of the company's global output of home appliances produced there.
Initially, Panasonic's main focus in China was to leverage lower manufacturing costs, and much of the
output was intended for export rather than the domestic market. The company had a strong tradition of
studying individual and household product usage in Japan but made minimal efforts to understand the
Chinese market. As a result, Chinese plants mostly produced low-cost, simplified versions of products
designed for the Japanese market.
As the Chinese middle class grew, Panasonic recognized the flaws in its strategy. Local competitors like
Haier surpassed Panasonic, and its growth in China remained stagnant while the Chinese home appliance
market experienced annual growth of 20% to 30%. Panasonic faced further challenges when Chinese
competitors started exporting their low-priced products globally, leading to Panasonic's first annual loss in
2002.
Realizing the need for a stronger presence in China, Panasonic underwent a significant reorganization in
2003. The company streamlined its corporate structure, reducing costs, and consolidated business units to
foster cross-unit innovation. Panasonic established the Beijing-based Panasonic Corporation of China to
provide essential services to its manufacturing subsidiaries. This marked a transformation in Panasonic's
approach, shifting from viewing China as a place for cheap manufacturing to recognizing it as a crucial
source of future growth. The company began to integrate its central resources, such as marketing and
R&D expertise, to enhance its operations in China and adapt to market shifts caused by digitalization and
modularization in home appliances.
Learning About Lifestyles :
Two years after the initial reorganization, Panasonic took the next step in its approach to China and
globalization. The Home Appliances Company established the China Lifestyle Research Center in
Shanghai, representing Panasonic's first serious effort to understand consumer lifestyles outside Japan.
Tetsu Miyoshi, an experienced product planner, was appointed to lead the center, emphasizing a mission
beyond merely collecting lifestyle data: interpreting the data.
Miyoshi sought local talent by unconventional means, assessing job candidates' ability to interpret raw
marketing data and personally training researchers to generate consumer insights while understanding the
cost implications of product concepts. He embraced the tension between cross-border integration and
local adaptation, encouraging his staff to learn about Panasonic Japan's advanced technologies and
develop new product proposals based on them.
The center accumulated local knowledge on consumer preferences specific to different regions and
income groups. For instance, researchers discovered regional preferences for short-grain, medium-grain,
and long-grain rice in different parts of China. This data was shared with all Panasonic business units and
subsidiaries.
In addition to conventional market research, the center's staff visited consumers' homes, considering
factors like floor plans and kitchen counter heights. This hands-on approach led to insights such as the
need for slimmer refrigerators in Chinese kitchens. Collaborating with the R&D team in Hangzhou and
Panasonic's researchers in Japan, the lifestyle center developed narrower refrigerators for the Chinese
market, resulting in a significant increase in sales.
Regular meetings and informal networks were established between the center's staff and engineers from
various business units, facilitating the flow of knowledge in both directions. This interconnectedness
allowed the center to address both local adaptation and worldwide integration. As the company deeply
adapted to local conditions, knowledge integration across the globe became more extensive. The
collaborative approach led to a more holistic understanding of the needs and preferences of the Chinese
market, contributing to Panasonic's success in adapting to local conditions while fostering global
integration.
Embracing the Tension:
Panasonic's efforts to customize products for the Chinese market, such as developing sterilizing washers
to address consumer concerns, led to increased global collaboration. The Shanghai lifestyle center's
findings on hand-washing practices prompted Panasonic to innovate a sterilization feature, collaborating
with Shanghai Jiao Tong University. Introducing the product in China in 2007, Panasonic's market share
for front-loading washing machines surged from 3% to 15%. This success increased trust across teams,
fostering greater autonomy for China operations, a rarity in Japanese firms. Since 2008, the China
subsidiary has had substantial decision-making authority for local product introductions, highlighting the
deeper integration achieved through collaboration.
A Changed Company :
Panasonic's transformation in its appliances unit, driven by its experience in China, has had a profound
impact on the entire company. It adopted a more global outlook by establishing lifestyle research centers
in Europe and India, studying consumer lifestyles in diverse markets. The company expanded research
across product segments, delving into integrated solutions for entire homes and buildings. Panasonic's
localization efforts depend on cross-unit integration at home, managed by a top-down initiative called
Global Consumer Marketing. Although facing challenges, the company aims to strengthen its global
presence by embracing tensions between global and local strategies, fostering lasting competitive
advantage.