Dragons at Your Door: China's Impact

If there's one thing I've learned over 25 years of helping multinationals build their businesses in China and, more recently, advising Chinese companies to go global, it's that underestimating Chinese enterprise, speed and determination is almost always dangerous.

I fear that as the best of China's multitude of companies begin to build a new breed of multinationals, many managers of established companies in the U.S. and Europe may be blindsided by just such a mistake. Because China is still, in many ways, a developing country, managers may not take its emerging multinationals seriously until it's too late. And because the Chinese companies are deploying unorthodox strategies and targeting markets at segments their competitors don't recognize are vulnerable, many managers may not see it coming at all.

I am not saying that Chinese companies are going to take over the world. But I do believe their appearance on the world stage, backed by China's economic rise, will disrupt global competition as we know it today. I believe managers need to start preparing their response to these new challenges and opportunities now. Those beliefs provided an important motivation for writing, with my friend and co-author Ming Zeng, Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition.

We argue that it's time to forget the idea that the rise of Chinese competitors simply means cheap, low-quality imitations flooding world markets and recognize that they are starting to reshape global competition across a wide range of markets from low- to high-tech. Their tool of choice 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. First, Chinese companies are starting to offer customers high technology at low cost. Computer maker Dawning, for example, has put supercomputer technology into the low-cost servers that are the everyday workhorses of the world's IT networks. This novel strategy is demolishing the conventional wisdom that high technology is restricted to high-end products and segments.

Second, the emerging Chinese competitors are presenting customers with an unmatched choice of products in what used be considered standardized, mass-market segments. Goodbaby, for example, offers a product line of over 1,600 types of strollers, car seats, bassinets and playpens -- four times the range of its nearest competitor -- all at mass-market prices, thus challenging the idea that if customers want variety and customization, they have to pay a price premium.