Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition [Hardcover]

Ming Zeng (Author), Peter J. Williamson (Author)

Book Description

Publication Date: June 12, 2007

The new competitive challenge from Chinese businesses is like nothing seen by Western companies since the Japanese arrived twenty years ago with their cars and consumer electronics. To fend off these fierce competitors, managers must forget yesterday's image of Chinese companies as producers of cheap, low-quality imitations flooding world markets. In fact, by strategically implementing what the authors call cost innovation, Chinese firms are advancing into high-end products and industries and competing for such high-value activities as engineering, design, and even R&D. The first book to examine this new competitive force, "Dragons at Your Door" exposes the strategies, strengths, and weaknesses of these fast-rising Chinese competitors, surfaces the underlying logic that enables Chinese firms to attack high-end industries, and provides critical new insight into these very different competitors.

Editorial Reviews

From Publishers Weekly

Starred Review. According to business professors Zeng (of Cheung Kong Graduate School in China) and Williamson (of INSEAD in Fontainebleau and Singapore), the slogan of the China International Marine Container Group, "Learn, Improve, Disrupt," could just as easily apply to any such Chinese corporation, each of whom are busy using those principles to reinvent manufacturing, with global consequences. The authors reveal that low labor costs are only one advantage enjoyed by Chinese companies, and that the "three faces" of cost innovation (offering high technology at low cost, a near-impossible range of choice, and "speciality products" at volume prices) have given them impressive inroads to markets long assumed impenetrable. This is sobering reading for Western audiences; while the authors avoid the alarms that sound throughout many current business books on China, their dry, factual approach may prove even more unnerving. Though it may paint a disturbing portrait of a competitor formidable even in its infancy, the anecdotes and analysis this volume brings to light are bound to inspire anyone serious about global business or politics today.
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Review

Among the books assessing the impact of the Chinese surge into global markets [book] deserves a high ranking. --Financial Executive, Septebmer 2007

These companies are hiring people from anywhere in the world...[they]have different strategies, reflecting their strengths... --The New York Times, April 22, 2007

...a timely book... --Strategy & Business, Fall 2007

See all Editorial Reviews

Product Details

• Hardcover: 256 pages
• Publisher: Harvard Business School Press (June 12, 2007)
• Language: English
• ISBN-10: 1422102084
• ISBN-13: 978-1422102084
• Product Dimensions: 9.5 x 6.5 x 1 inches
• Shipping Weight: 8 ounces (View shipping rates and policies)
• Average Customer Review: 4.5 out of 5 stars  See all reviews (8 customer reviews)
• Amazon Best Sellers Rank: #196,413 in Books (See Top 100 in Books)
  • #63 in Books > Biographies & Memoirs > Ethnic & National > Chinese

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12 of 14 people found the following review helpful:

5.0 out of 5 stars Could mean the difference between life and death of your company/industry..., June 21, 2007

By 

Thomas Duff "Duffbert" (Portland, OR United States) - See all my reviews
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This review is from: Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition (Hardcover)

It seems as if there have been a rash of books on China's increasing dominance in the global markets, and for good reason. Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition by Ming Zeng and Peter J. Williamson lays out how China uses their cost advantage to get their foot in the door of a market, and then dominate it. This is a book well worth reading to understand what you may be facing in a few years (if not already)...

Contents:
Introduction - Dragons at Your Door; Disrupting Global Competition - How Did They Get Here So Fast?; Cost Innovation - The Chinese Dragons' Secret Weapon; Loose Bricks - Rethinking Your Vulnerabilities; The Weak Link - Limitations of the Chinese Dragon; Your Response - Winning in the New Global Game; Conclusion - Charting the Future; Notes; Index; About the Authors

Zeng and Williamson show, through numerous examples, how Chinese companies have exploited their cost advantage to become leading global players in markets. Generally speaking, they get into a field and start with lower pricing due to their lower wage structure. They then look for a "loose brick" in their competition. This is a market segment that they can attack and force a competitor to retreat or abandon. Once that occurs, they are then able to start offering both low cost and high innovation/value solutions to the market. Often, the competition will give up these lower-margin segments to concentrate on the higher-margin businesses, thinking that the Chinese can't compete in that area. But more often than not, those high-margin niches will also succumb to the dragons, leaving a company struggling for survival. It's not a pretty picture... But rather than just paint a "gloom and despair" picture, the authors also outline where the weaknesses lie in China's capabilities. Using this information, companies can both protect their established turf as well as compete against Chinese companies in their own markets. It's not an inevitable conclusion that a company will have to fold under the cost advantages offered by a Chinese competitor.

I see this book being valuable on a couple of levels. First off, it raises awareness of an overall plan that is often overlooked when viewed through the daily competitive battles. Giving up a market segment might not seem like a bad idea, but that's usually not the end of the story. Second, it can help guide partnerships and access to the Chinese market. When faced with the potential market share of China, companies are often willing to give up more control than normal just to gain access. But that short-term view can lead to long-term loss as the Chinese learn from the more established partner, start innovating on cost, and then eventually become direct competition with major advantages.

The effect of China on your company's survival can not be underestimated. Time spent reading this book might make all the difference in the world...

1 of 1 people found the following review helpful:

5.0 out of 5 stars Invaluable -, August 25, 2010

By 

Loyd E. Eskildson "Pragmatist" (Phoenix, AZ.) - See all my reviews
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This review is from: Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition (Hardcover)

One of the of the authors' key points is that as leading Chinese firms go global, they are challenging basic assumptions on which many companies in developed nations depend on to remain profitable. Example - retreating/focusing 'up-market' to avoid intense price competition and obtain large margins. Toyota's and Wal-Mart's early U.S. strategies showed both how futile this can be, as well as the value of avoiding major competition when just beginning, and the Chinese have proven fast learners. A second key point is that the Chinese market is so large that even niches provide the opportunity to achieve large learning curve, scale, and high utilization benefits; multinational competitors (MNCs) that don't fight emerging dragons in China leave themselves exposed in the long run. A third is that Chinese firms are more likely than others to leap forward by copying, partly because they are relatively new and have little personal ego or capital invested in older approaches. Thus, they are quick to acquire foreign firms, brands, patents, physical assets, and proprietary expertise, as well as to hire consultants. Fourth - while Chinese firms have an inherent advantage from low-cost manufacturing labor, the best build upon that with low-cost R&D to further reduce costs - innovating with new methods, materials, and/or approaches. Fifth - Chinese companies can seemingly come out of nowhere - eg. moving from software or textiles to medical equipment or microwave manufacturing. Sixth - manual production is more flexible, taking only days instead of months for production changeovers, and avoids expensive equipment maintenance; in addition, human operator flexibility sometimes permits use of lower-cost less-standardized inputs. Seventh - building and operating plants, as well as sales in underdeveloped nations provides valuable technical, managerial, and marketing experience prior to entering developed markets. On the weakness side, Chinese businesses lack strong brands, have difficulty penetrating businesses where the market is immature/non-existent in China (eg. investment banking - especially M&A), are not strong service sector players (eg. retailing, health care), and their science/engineering graduates are currently not comparable to those from U.S. colleges and universities. (The latter point is being addressed through an intense improvement effort, as well as strong efforts to recruit its overseas science/engineering students to return.)

The bulk of "Dragons at Your Door" is a treasure trove of examples of how Chinese companies have moved quickly from minor in-country entities to major world-wide competitors.

Dawning Computer (founded in the late 1980s) makes supercomputers and servers. Its initial challenge was catching up with its global competitors. Analysis revealed that only 20% of the performance improvement achieved in supercomputers during the prior decade came from better chips. Improved software accounted for another 30%, and the biggest contributor came from innovations in the way the chips interacted. Its first supercomputer (1993) performed 640 FLOPS (floating point operations per second); Nebulae, its latest, was ranked as the world's second-fastest in 2010, and performed 1.27 thousand trillion FLOPS (Petaflops). The U.S. 'Jaguar' from Oak Ridge Laboratory was #1 and 35% faster (1.76 Petaflops), but Nebulae was much cheaper - $39/megaflop, vs. $114, consumes less than half the power, and is believed to have greater potential speed. Nebulae was built using American chips and Windows; Dawning's next product will use Chinese designed and built chips, with Linux. Meanwhile, using its skills linking supercomputer processors, it has also cut server development costs by 30-40 percent, and added supercomputer management software features that reduce server downtime.

Zhongxing Medical Systems (founded in mid-1990s) decided to build a direct digital radiography (DDR) system that bypassed the hundred year-old chemical processes. G.E. and Phillips were using advanced flat-panel machines for high-end users (eg. heart scans) that cost $150,000-$200,000. Zhongxing instead went with a simpler line-scan approach that works well for standard chest scans and medical examinations. In 1998, Zhongxing bought the technology previously developed by the Russian Academy of Sciences. Zhongxing innovations reduced scan times from ten to two seconds and created a machine costing around $20,000. Five years later Zhongxing had 50% of the Chinese DDR market, G.E. had to drastically cut prices, and Phillips left the market.

Teknova Medical decided to create a low-cost all-digital ultrasound scanner; Siemens and G.E. had restricted digital technology to their highest-end products and used expensive computers equipped with specially designed chips. Teknova decided to instead use programmable chips developed for Internet equipment and add its own software. Six years later it succeeded, and also replaced competitors' expensive proprietary input-output devices with PC-compatible equipment. The new approach had the added advantage of being much simpler and cheaper to update by simply reprogramming newer generic chips. Neusoft, founded 1991 as a software group, took a similar approach to designing MRI and digital X-ray machines, is now the 7th-largest supplier of medical equipment in the world, and has forced competitors to drastically cut prices.

Build Your Dreams (BYD) was established in 1995 - its original product was a nickel-cadmium rechargeable battery, competing with Japanese imports in China. Handicapped by limited capital and Japanese prohibitions on importing battery-building equipment, it used manual labor for assembly instead of expensive machines, studied patents owned by Sanyo and Sony, and also found a ways to use cheaper inputs and avoid the need for expensive climate-controlled rooms. BYD then innovated from nickel-cadmium into more powerful lithium-ion products, again reducing production and material costs, while avoiding fire mishaps that plagued competitors. BYD is now the world's 4th largest rechargeable battery producer. Meanwhile, it acquired a Chinese auto manufacturer, became the first mass-producer of a plug-in hybrid, now exports electric cars to Africa, South America, and the Middle East , is partnering with Mercedes to produce electric cars, and is expected to soon compete with its $22,000 F3DM against the $41,000 Chevy Volt in the U.S. It now employs 150,000 in China and plans to sell 800,000 vehicles this year, up from 450,000 in 2009.

Lifan was founded as a motorcycle repair shop in 1992 before it became one of the leading motorcycle builders in China. It then set its sights overseas, beginning with a factory in Vietnam, followed by Bulgaria, Thailand, Iran, South Africa, and Taiwan. Its cars are sold in Chile, China, and Russia - the latter using a plant completed in 2009. It is the world's #1 engine manufacturer.

Similarly, Chery (founded 1997) used Japanese consultants and VW licenses to get started. Bosch, Lotus Engineering, Italian design houses, Chrysler, and others also contributed. Its first car exports were to Syria, followed by a 2003 plant in Iran, then Egypt and Taiwan. Manufacturing in Argentina and Brazil will begin within three years.

Pearl River Piano was a small-time piano producer that began in 1956. In 1987 a new one-million square-foot factory was completed; when the founder's son took over in 1992 he committed to building the best and brought in ten world experts. At the time, Pear River was only earning one-third the price of foreign pianos in China because of quality problems. Automated equipment manufacturing, climate control, and improved polishing systems were installed. Partnering with Yamaha brought additional production and equipment updates, and in 2001 another 500,000 square-feet was added for grand piano production. U.S. sales started in 1999. Later Pearl River also bought rights to two respected German brands. Today it has 40% of the U.S. market in upright pianos, manufactures some pianos for Steinway, produces top-of-the-line German-branded pianos, has the world's largest piano factory, and is either the world's #1 or #2 producer.

Haier is the world's fourth-largest white-goods manufacturer. It began in 1984, partnered with a German firm, and through acquisitions and product improvements became the dominant Chinese-market firm. Production facilities were then opened in Indonesia (1996), Malaysia and the Philippines (1997), Pakistan (2002), Jordan (2003). Haier plants are also in Algeria, Italy, Egypt, Nigeria, South Africa, Tunisia, and the U.S., and plans to expand into Venezuela. Its first venture into the U.S. addressed small markets - small wine coolers sold in Wal-Mart, small lockable refrigerators for Office Depot, and small refrigerators for dorm and motel rooms.

Galanz Microwave (1978) began as a small textile-maker, and is now the world's largest microwave producer. Galanz decided to produce microwaves in 1992 because of limited growth in textiles. It purchased an existing Toshiba manufacturing line, patents, and expertise for $4 million in 1994. R&D investments eventually totaled $100 million and brought 600-some patents that were combined with acquisitions, experience as a supplier and OEM, and taking over a French firm's manufacturing by pricing at 20% of its costs.

China International Marine Containers Group (CIMC) has a 55% global market share and is 6X the size of its nearest competitor. CIMC has products with sophisticated refrigeration, electronic tracking, and internal tanks. Production began in 1982, though by 1990 it was still a minor producer producing less than 10,000 containers/year and competing with more than 20 others in China. A new CEO in 1993 used an IPO to buy up competitors and expanded to... Read more ›

2 of 3 people found the following review helpful:

5.0 out of 5 stars Finally: A True Strategy Book on China, October 15, 2007

By 

M. Moran (Hamburg, Germany) - See all my reviews
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This review is from: Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition (Hardcover)

Having read countless books on the topics surrounding the Chinese economy and the rise of Chinese companies, I believe that this is certainly one of the best.

As suggested in the heading of my review, this is finally a book that deals with the business issues of China (and the greater issue of outsourcing) critically and comprehensively.

I too have spent some time in China speaking with a number of different businesses and managers, and this book comes closest to describing the way in which Chinese managers think. In fact, this book can be read in the context of Porter's "Competitive Advantage of Nations", in order to shed light on the ways in which market space and the business environments have and will continue to change.

Based on the difficulties associated with the Chinese business environment, Chinese companies have managed to develop strategies to overcome a number of basic disadvantages, and to turn these into inherent advantages.

My tip, be aware of your strategic position and your competitive scope and do not sacrifice the long term future of your company on the alter of short term gains.