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This paper focuses on the product development process. It analyzes state-of-the-art collaboration workflows, and industry-standard collaboration tool functionalities. It then compares these with new tool and process concepts from industrial and academic research and development. New concepts of user-interaction are introduced, which will allow the linking of virtual and hardware prototypes collaboratively in a mixed-mode, for project reviews. The “virtual co-location” concept is explained based on several use-cases derived from the cross-functional development of mechatronic systems. Furthermore, based on business case analysis from real distributed development projects, it explains why there is a need in the automotive industry to further explore advanced technology solutions for collaborative product development.