What Panasonic learned in China
By Toshiro Wakayama, Junjiro Shintaku, & Tomofumi Amano
In the article “What Panasonic learned in China”, which is five pages long, published by the Harvard Business Review in December 2012, the authors Toshiro Wakayama, Junjiro Shintaku, and Tomofumi Amano describe the change in business strategy the multinational company Panasonic underwent to adapt to China as a new growth market instead of a manufacturing base.
The article starts off by stating how multinational companies still think in the “us’ and “them” mindset, focusing mainly on their home market and neglecting emerging markets and the business opportunities they offer.
When Panasonic first expanded to China in 1987, it was to make use of the host country location advantages of China, namely the low manufacturing costs, just like other multinational companies. In 2002, however, Panasonic made their first annual lost, due to cheap Chinese manufacturers, and realized the importance of a strong presence in the Chinese market. Afterward, they changed their business strategy to cater to the needs of the Chinese people.
The authors main argument is that with the increase of research, through the Shanghai-based China Lifestyle Research Center, Panasonic increased sales and market share as they were able to satisfy the needs of the Chinese consumers.
The first example given is how Panasonic developed their rice cookers differently, due to the research which provided information about the grain size preferences of the people according to location.
The second example is how research showed that the average household has only 55cm space for a refrigerator, but Panasonic’s narrowest model was 65cm. After introducing a smaller model, sales jumped by 1000% in China.
The third example is how Panasonic’s market share for front-loading washing machines increased from 3% to 15% in China after developing a new sterilization process in cooperation with engineers at the Jiao Tong University of Shanghai.
This technology was then later brought back to the home market of Panasonic, which is the second argument the authors make.
Multinational companies not only profit financially from researching foreign markets but also develop new technologies, which they can later apply on their home market and globally.
The example stated by the authors in the text is that Panasonic transferred the new sterilization technology they developed in China for the Chinese market, to its Japanese market by applying it in the refrigerators as Japanese consumers rather worry about bacteria in food than in clothing.
The third argument made is how local knowledge, gained through the research made by the Shanghai-based China Lifestyle Research Center, can make product development more effective and efficient by decentralizing the decision making process.
Since 2008 the Chinese branch of Panasonic was given more autonomy to develop new home appliances, which is highly unusual for a Japanese company.
Strengths and Limitations
The strengths of this article are how the authors provide the reader with a large amount of historical and cultural background information, crucial to comprehend the difficulties of a Japanese company expanding to China, and were working closely with Panasonic to provide correct information. This on the other side can also be seen as a weakness as the text is bias and does not show any negative aspects of studying local preferences.
Furthermore, the article does not contain examples of another multinational company, which succeeded in expanding its market shares to a foreign country by studying local preferences.
This means that there is a lack of proof that this strategy was not only a success for Panasonic. This limits the legitimacy of the article, due to a lack of examples.
The article still provides the reader with new information, about to what extent researching foreign markets is helpful and necessary when trying to expand. It also provides an example of how decentralization can be utilized to increase progress in technology.
The article shows that new information accumulated on the foreign market can be facilitated to improve products on the home market as well.
Questions that came up during reading the article were
‘Are there other multinational companies who also succeeded through market research?’
‘Are there other methods than market research to succeed in expanding?’
‘Does this article also apply to other emerging markets or is it specific to China?’.
In conclusion the article describes how Panasonic succeeded through market research on the Chinese market and increased its global relevance in a comprehensive and fact-based way. This article also shows how companies can profit financially by expanding to a foreign market, but also gain insight and new information for its home market.
It is written in a fairly Panasonic-centered way, which calls for caution, as it fails to acknowledge other companies that succeeded or failed utilizing this technique.
The article has highlighted the importance of adaptation to a new market to us, and the necessity of knowledge over the market one is trying to expand to.