Companies located in developing countries are currently serving billions of local consumers with innovative and inexpensive products. What happens when more of those companies make the leap into more developed markets?
Image courtesy of chotuKool.
Disruptive innovation has been credited as the strategy that led to Japan’s dramatic economic development after World War II. Japanese companies such as Nippon Steel, Toyota, Sony and Canon began by offering inexpensive products that were initially inferior in quality to those of their Western competitors. This allowed the Japanese companies to capture the low-end segment of the market. As the performance of their products improved, they began to move upmarket, into segments that allowed them more profitability. Eventually, they captured most of these segments and pushed their Western competitors to the very top of the market or completely out of it.
A number of scholars have argued that a similar disruption process is brewing in today’s emerging markets, especially in China and India. Perhaps the best-known example is the Nano, an inexpensive car introduced by Tata Motors in India in 2009. Other examples that are often mentioned include the Tata Swach, an eco-friendly, portable water purification system; the chotuKool, a portable, low-cost refrigerator that can be battery powered, introduced in India by Godrej & Boyce; and the LePhone, which was introduced by Lenovo as China’s less-expensive answer to the iPhone.
These examples are just the tip of the iceberg. Numerous and less-well-known companies and entrepreneurs are currently serving billions of local consumers with low-cost products without significant competition from global corporations. But once the local entrepreneurs establish themselves in their home markets, they should also make the leap into more developed countries. There, they will probably start with the low-end segments and gradually make their way upmarket. The fear among companies in more developed economies is that history is about to repeat itself, this time with companies from markets like China and India at the forefront.
But how inevitable is this threat? To answer this question, I examined 21 low-cost disruptive innovations that took place in Europe and the United States over the last 40 years; my sample included not only successful but also unsuccessful disruptors. As a result, we can compare the successful disruptors to the unsuccessful ones and so identify the differences between the two.