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Playing the Dragons at Their Own Game

Sari Wahyuni, Contributor, Jakarta
Dragons At Your Door:
How Chinese Cost Innovation
is Disrupting Global Competition
Ming Zeng & Peter Williamson
Harvard Business School Press (2007)
pp. 240
 
There is an abundance at present of literature on the increasing power of India and China within the world economy. 

Thus far, people tend to think that the power of China is attributable to cheap labor costs and its huge domestic market.

Is that all? Dragons At Your Door is a new book that may well change this perception. 

Unlike other books that cover the broad issue of China, this spotlights the issue of how Chinese cost innovation is now disrupting global competition. 

Indeed, Chinese companies are starting to disrupt global competition by breaking the established rules of the game. We can clearly see that the world has been overwhelmed by cheap Chinese products. 

How do the Chinese turn out products more cheaply than their competitors? What is their secret? 

The answer is cost innovation: The strategy of using Chinese cost advantage in radically new ways to offer customers around the world dramatically more for less. 

Cost innovation has three faces: * offer the customer high technology at low cost * present the customer an unmatched choice of product * turn the product into volume business. 

Chinese cost innovation is disruptive because it strikes at the heart of what make many businesses in high-cost countries profitable today. 

It threatens their ability to earn high margins on high technology. 

Interestingly, Chinese companies are not just competing by offering lower prices. 

One of the distinguishing features of these emerging dragons is the extent to which they are deploying some of the tools of product differentiation. 

These include the application of high technology to everyday products that offers varied product lines, customization and specialty products -- all at a time that Chinese costs are still rock-bottom. 

This book reminds everybody that, sooner or later, the emerging dragons will come knocking on the door of your industry, whether you are low- or high-tech, serving the mass market or a specialized niche. 

The questions every manager needs to ask, therefore, are: * How will the dragons disrupt global competition? * When are they likely to come knocking at my door? * What should I be dong about it? 

The book is devoted to addressing the above three fundamental questions and tries to help managers whose business -- whether they realize it yet or not -- will come under threat from the disruption of Chinese cost innovation. 

Explanations of why the Chinese have been able to conquer the business world can be summarized as follows: 

* How did they get here so fast? Reasons: access to low-cost talent at all skill levels, access to state assets and intellectual property at discount, exceptional management autonomy, strong incentives to succeed, benefits of globalization. 

* How did China develop its cost innovation? Reasons: high technology at low cost, and leveraging low-cost research and development (R&D) into the mass market. 

This is only a summary; a closer reading of the book will reveal the full picture. 

For example, another strategy is to outclass established competitors by offering customers a wider choice of product variety from a massive lineup of different models. 

But this raises a question: How are Chinese companies able to offer such variety yet still maintain low cost? 

I believe you will find the answer to this question once you have finished the book.

The daunting task at present for Indonesia as an emerging economy is how to positions ourselves in this fierce competition. 

There are some choices available: 

* Take on board the notion of cost innovation and deploy some of our distinctive capabilities and experience to beat the dragons at their own game; 

* Restructure organizationally to fully leverage the potential advantages of China's unique environment across the spectrum from R&D and design to operations and marketing; 

* Seek to access these advantages by partnering with a Chinese firm for global (not just local) advantage. 

Written by Ming Zeng (Professor of Strategy, Cheung Kong Graduate School of Business, China) and Peter J. Williamson (Professor of International Management, INSEAD Fontainebleau & Singapore), the book sets out not only the strategies and strengths but also the weaknesses of these fast-rising Chinese companies. 

It is a must-read for businesspeople, academics and anyone else who would like to learn the secret of how to become a global player. 

Sari Wahyuni is a lecturer in the PhD management program at the University of Indonesia and editor-in-chief of South East Asian Journal of Management. 
 
Source : The Jakarta Post