Cost Innovation: Preparing for a ‘Value-for-Money’ Revolution
Section snippets
A new era of global competition
Imagine a world where high technology, variety and customisation - along with specialist products - are available to customers at dramatically lower prices, and where the value-for-money equation offered to global consumers has been transformed by the appearance of new players with new kinds of business models. Could even the best entrenched incumbents ignore this kind of dramatic change in the competitive climate? This new era of global competition is not far-fetched: it is precisely the
Established business models under threat
Two of the classic generic strategies (as recommended by Porter) for dealing with a competitive challenge from a low-cost competitor involve business models based on ‘differentiation’ and ‘focus’. Differentiation, in turn, is frequently based on the introduction of improved technology, or on offering more choice of varieties and customisation, supported by marketing and brand-building investments.1
The goal of differentiators is to bring their distinctiveness to the mainstream market. But when
The cost innovation challenge
‘Cost innovation’ might sound like an oxymoron - most of us in the commercial world have got used to associating innovation with the business of providing more functionality and greater sophistication. But the fact that it breaks conventional wisdom is precisely why it has the potential to rewrite the existing rules of global competition. Cost innovation has three faces:
- •
First, challengers are starting to offer customers high technology at low cost. Chinese computer maker Dawning, for example,
Global pressures for a value-for-money revolution
Three different long-term forces are creating important changes in the requirements for global competitive success. First and foremost, emerging markets, especially in the BRIC (i.e., Brazil, Russia, India and China) and VISTA (i.e., Vietnam, Indonesia, South Africa, Turkey and Argentina) countries are becoming increasingly important as drivers of demand. The Economist magazine recently pointed out how, by 2005, the combined GDP of emerging and developing economies had risen to over half of
New business models for winning in the new global game
Dealing with the disruptive potential of cost innovation in the context of changing requirements for global market success will call for some radical re-thinking about future business models. One way or another, the objective for established players must be to incorporate cost innovation capabilities into their future business models. Three kinds of responses look promising as indicating ways forward:
- •
Using cost innovation to beat the challengers at their own game;
- •
Giving a global mandate for
Meeting the challenge of cost innovation
Whether you are an established multinational, a national champion or a entrepreneurial start-up, positioning yourself for success in the coming global competitive environment - illustrated in Figure 1 - involves some clear choices: you can take on board the notion of cost innovation and deploy it to complement your own distinctive capabilities and experience; you can restructure your own organization to fully leverage the potential advantages of the unique environment emerging economies offer
Acknowledgements
I would like to thank Charles Baden-Fuller and Ian C. MacMillan, editors of this special issue, for their invitation to contribute, and for their advice and encouragement during the process.
Peter J. Williamson is Professor of International Management at Judge Business School, University of Cambridge and Fellow of Jesus College. His previous appointments include ten years at the Asian Business and International Management faculty at INSEAD, Visiting Professor in Strategy at the Cheung Kong Business School in Beijing, Visiting Professor of Global Strategy at Harvard Business School (1993-1996) and Professor of Strategic and International Management at London Business School. His
References (7)
Competitive Advantage
(1985)- et al.
Dragons at Your Door, How Chinese Cost Innovation is Disrupting Global Competition
(2007) Emerging Economies are Climbing Back
The Economist
(21 January 2006)
Cited by (111)
ISM-MICMAC-based study on key enablers in the adoption of solar renewable energy products in India
2023, Technology in SocietyInnovations, informality, and the global south: A thematic analysis of past research and future directions
2023, Technology in SocietyMeasuring frugal innovation capabilities: An initial scale proposition
2023, TechnovationInnovation process and uncertainties in resource-constrained environments: A case from the water service sector in East Africa
2020, Environmental Science and PolicyBusiness model innovations in China: A focus on value propositions
2020, Business HorizonsCitation Excerpt :Operating on imitation-based good-enough BMs, these firms’ target customers are in the value and poor populations, their customer relationships are built and maintained based on attractive price–function ratio, and they rely on existing channels that they used when they were OEMs for MNEs or contract manufacturers for leading brands. Because these firms rely on low-cost resources, employ local labor, and replace capital-intensive with labor-intensive manufacturing processes, they typically enjoy cost advantages and earn fair revenues (Williamson, 2010; Zeschky et al., 2011). One example is Guangdong Galanz Group Company Limited (Galanz), which manufactures electronic home appliances.
Peter J. Williamson is Professor of International Management at Judge Business School, University of Cambridge and Fellow of Jesus College. His previous appointments include ten years at the Asian Business and International Management faculty at INSEAD, Visiting Professor in Strategy at the Cheung Kong Business School in Beijing, Visiting Professor of Global Strategy at Harvard Business School (1993-1996) and Professor of Strategic and International Management at London Business School. His most recent book is Dragons at Your Door: How Chinese cost innovation is disrupting global competition (Harvard Business School Press, 2007). Judge Business School, University of Cambridge, Trumpington Street, Cambridge CB2 1AG UK. Tel: +44 (0) 1223 764229; Fax: +44 (0) 1223 339701; Email: [email protected]