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

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By Ming Zeng and Peter J. Williamson
Harvard Business School Press, 2007
240 pages

It has long been known that there are a million Chinese villages in which people live in close proximity to birds and animals, and those villages thus offer ideal breeding grounds for new viruses capable of jumping from one species to another. It seems that a similar process is at work in the huge, fragmented Chinese econ­omy, where disruptive business ap­proaches are spreading from firm to firm and across industries. Ming Zeng, professor of strategy at Cheung Kong Graduate School of Business in China, and Peter J. Williamson, affiliate professor of in­ternational management and Asian business at INSEAD, have written a timely book on the threat of Chinese competition to established businesses throughout the world. In Dragons at Your Door: How Chinese Cost Innovation Is Disrupting Global Competition, they contend that many Chinese businesses have moved beyond competing on costs alone. Instead, they are offering high technology; unrivaled choice; and what used to be niche products, such as luxury appliances, at unmatchable low costs.

The book is divided into five chapters that, respectively, explain how Chinese businesses evolved, detail the nature of their competitive advantage, describe how Chinese companies look for “loose bricks” in the facades of the businesses they attack, explore the Chinese competitors’ limitations, and present some possible responses from those threatened by these “dragons.” Most interesting are the numerous mini–case studies of Chinese firms that will be unfamiliar to many readers. China International Marine Containers (CIMC) Group, for example, with its slogan “learn, improve, disrupt,” dominates the global market for shipping containers. After starting at the commodity end of the business, it is now in every specialized niche — collapsible containers are an example — that its European competitors thought they could defend indefinitely. This move up the food chain is typical of the dragons. Haier, a name familiar to anyone who has bought a refrigerator recently, has turned the niche for wine refrigerators into a no-go area for its rivals. Often, this disruption is accomplished by substituting labor for complex capital equipment. BYD, a Chinese maker of rechargeable batteries, de­veloped a nicad production line with just 6 percent of the capital cost of its Japanese equivalent but with 10 times the number of workers.

The dragons’ threat may have started in clothing and toys, but the authors clearly believe that it is moving inexorably from sophisticated manufactured goods to high-tech goods and services. At the same time, they argue that the dragons are starting to embrace whole value chains, from R&D through manufacturing to marketing. Given these assumptions, it is not surprising that the defense strategies offered by the authors are mostly of the “If you can’t beat ’em, join ’em” variety. That is, they argue that the only way to defeat the dragons is to go to China to take advantage of the same benefits the dragons have. This will not be news to many organizations — it is generally accepted that China is an important component of many corporate strategies.

Toward the end of the book, the authors’ portrayal of the Chinese dragons makes these companies seem rather too monolithic and omniscient, with their final victory inevitable. The book makes no mention of the changing contexts in which the dragons operate. (See “Context and Complexity,” by Edward Tse.) For example, in southern China in particular, health and welfare costs are rising sharply, and there is a growing shortage of Chinese managers and engineers. Developments like these, together with the steady increase in the value of the yuan, must slow the penetration of markets by Chinese-based competitors. At the national level China faces huge challenges: rebalancing its export-skewed economy and addressing the burgeoning social and institutional issues created by rapid economic growth. In the process, its corporate dragons will have to be “domesticated” — harnessed and put to the plow — and then will have to pull their full societal weight, just like their Western counterparts

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