We Already Have a Local Team. Why Do We Need Independent Research?

A historical case study on the distance between business performance in China and what headquarters understands

Japanese companies with established operations in China usually have no shortage of people who know the business.

The local leader understands the market. The team manages production and customer relationships. Regular reports and internal briefings are already in place. The business is running, and someone is handling problems. Under these circumstances, what can an independent research firm add?

A historical investigation in which we participated, involving the China operations of a Japanese company, brought this question into focus. The local leader’s contribution to the business was widely recognized, and the China team had developed substantial production and technical capabilities. Beyond these achievements, however, it was also necessary to understand how information reached headquarters, who made important decisions and how much the organization depended on key individuals.

Having people who can run the local business well and having a headquarters that fully understands how that business operates are related, but different, things.

The value of the local team deserves recognition first

The investigation concerned a manufacturing company’s operations in China.

Multiple interviewees credited the local leader with sustained commitment and substantial contributions to market development, team building and the establishment of production operations. He understood operating details and could intervene directly in customer discussions and production issues when difficulties arose.

The local team had also developed capabilities of its own. Certain technical and production capabilities had been established in China, and day-to-day operations did not require headquarters in Japan to be involved in every matter. The team could adjust capacity as orders increased, while designated personnel handled problems on the production floor.

These findings supported a positive assessment of the leader and the team. Headquarters had a reasonable commercial basis for relying on such a person.

The question lay elsewhere: as the business expanded, had trust in one individual also become the principal basis on which headquarters understood the entire operation?

There may be many information channels, but only one underlying source

In this investigation, an interviewee familiar with reporting arrangements described an increase in the frequency of reporting to headquarters in Japan, from annual financial materials to monthly operating analysis. Yet the reports remained predominantly in Chinese, feedback was infrequent, and the personnel at headquarters responsible for liaising with the China business had changed repeatedly.

This combination mattered.

The local operation was submitting information, and headquarters had established a channel to receive it. Sustained understanding, however, required continuity of personnel, language capabilities and accumulated knowledge of the business. With repeated personnel changes, explanations of the same business had to begin again, making the local leader’s account increasingly important.

Staffing arrangements in key functions reinforced this reliance. Multiple interviewees described finance and other core positions as being held primarily by people whom the local leader had trusted for many years. Important personnel and operating matters were also concentrated within the same management chain.

Reports, briefings from the local team and explanations from the leader therefore took different forms, but all revolved around the same center of authority.

Headquarters appeared to have several information channels, yet it could still be receiving the same underlying account, shaped before it reached them.

No deliberate concealment was required. The same organizational relationships influenced what was reported first, which issues required explanation and what was considered unworthy of further escalation. More reports and meetings would not necessarily change how that information was formed.

Even the leader who knows the business receives information shaped by others

Information filtering did not occur only between headquarters in Japan and the China operation. The local leader was part of the same organizational environment.

One interviewee described how, before the leader visited a factory, some production would be paused so that staff could concentrate on cleaning and preparation. Normal operations resumed after the visit. What the leader saw was a prepared site, at some distance from its everyday operating condition.

Another interviewee explained that the leader habitually reduced budget requests during approval. Subordinates learned this pattern and began building room into their submissions. The figures therefore reflected both sides’ anticipation of the approval process.

The expression of differing opinions was affected in a similar way. An interviewee described how subordinates seeking an approach different from the leader’s original thinking would often raise it privately first, allowing him to consider it and then present it himself at a formal meeting.

These examples had something in common: subordinates gradually learned how to make information acceptable, and what they reported upward changed accordingly.

Sites became tidier, budgets became easier to cut, and differing views appeared in a form more likely to be accepted. The leader remained diligent and closely involved in operations, but the information reaching him had already been shaped by the organization’s adaptation to his preferences.

Personal commitment did not automatically remove this distance. The more a business depended on a central leader, the more important it became to understand the habits of communication that formed around him.

If headquarters relied primarily on that leader’s explanations, the information it received could have been shaped twice: first by subordinates preparing reports to suit the leader’s preferences, and then by the leader explaining the business to headquarters.

Independent research adds another vantage point

The local team’s first responsibility is to run the business.

Its members handle customers, delivery, production, personnel and budgets within existing authority and reporting relationships. What they can say, when they can say it and how best to say it to resolve a problem all depend on their position.

This does not make the local team untrustworthy. It means that internal reporting serves both information sharing and the practical needs of management and execution.

Independent research adds another vantage point: outside management-arranged access, it reaches people beyond the existing reporting chain—including former employees, customers, suppliers and other industry participants—and compares their firsthand experience with internal explanations.

In this historical project, positive assessments of the leader’s capabilities, together with descriptions of reporting, approval and the expression of opinions, formed our understanding of the business.

Retaining only the positive assessments would understate how much the organization revolved around one individual. Focusing only on the latter descriptions would overlook why that leader had earned longstanding trust and the value he had created.

We do not need to begin with an overall positive or negative judgment of the local leader to examine how the business operates.

For headquarters in Japan, this distinction has practical value. It helps separate achievements supported by established organizational capabilities from those requiring continued coordination by key individuals. It also clarifies which information can be obtained consistently through existing arrangements and which requires another perspective.

What can independent research deliver when a local team is already in place?

Having a local team does not mean that every question about the business can be answered fully through existing reporting.

FUWA LAB’s independent research supplements that understanding. Our findings explain the local management team’s actual contributions, the organization’s dependence on key individuals and differences between external accounts and the existing understanding of the business. We distinguish supported facts, research assessments and matters that remain unconfirmed.

Questions concerning formal authority, related-party transactions or rights to assets require financial and legal teams to examine the relevant documents. Interviews can provide important leads, but they cannot replace that professional work.

With in-depth interviews at the core, we combine public materials and other available external information to provide China-related commercial due diligence, management due diligence and independent research into business operations for Japanese companies and other institutional clients.

Clients do not need to conclude that something is wrong locally before commissioning independent research. Sometimes, the question is simply what sustains a well-performing business—and how much headquarters’ understanding of it depends on one person’s explanation.

The local team runs the business. Independent research helps clients understand, from another vantage point, what makes that business work.

To discuss independent research concerning your China operations, business partners, acquisition targets or key executives, please contact: research@fuwalab.net

This article draws on a historical investigation in which FUWA LAB’s founder participated. The identities of the client and subject company are not disclosed, and industry, organizational and operating details have been generalized where necessary. Interview findings and assessments reflect circumstances at the time of the investigation and do not constitute an assessment of the company’s current circumstances or the group’s governance as a whole.