Embedding modularity and openness in global strategy – A case study of a leading air-conditioning company

Promotion of transnational strategies is inevitable for multinational companies, but a fundamental challenge is the resolution of the dilemma between cost reduction and local adaptation (responsiveness). This exploratory case study investigates this issue and motivates that a modular strategy can be effective in paving the way to solving the captioned transnational integration challenge. Daikin Industries, which is a remarkable success story of globalization, overcame the challenges it faced by shifting from a conventional product development strategy to a modular product development strategy. It also instituted a three-tiered global development system accompanying the modularization strategy. The global development system interconnects different local sites at different tiers to facilitate cross learning, and design and production knowledge transfer, the outcome of which is to achieve local responsiveness at reduced cost. Our case study proposes that the modular strategy and the global development system organization be theorized as an innovation “unit of analysis” for the study of mitigation of the transnational integration challenge, i.e. the two combines to enable the firm to overcome the dilemma. We further motivate that such a dual strategy enables glocalization which is simultaneous (at the same time) globalization and localization. Glocalization leads to commoditization of products. Daikin Industries pursued open innovation to stay competitive amid transnational integration and be a front runner. This case study provides a theoretical framework to the strategic study of multinational or global technology firms.