Understanding China's approach to innovation is fundamental to figuring out the future direction of technology markets. There is another name for what Junko Yoshida describes above, a notion called "second-generation innovation," an approach that has worked very well for China. It allows Chinese companies to limit risk while serving domestic markets and generating more than enough profit to keep pressing ahead.
Yes, certainly the 80-3-2 rule makes sense, although those exact numbers might not, in every instance. I don't think we need to limit this "rule" just between Eastern and Western products, though.
Most companies offer multiple similar products at different price points. True for cars, true for clock radios, true for TV sets, refrigerators, and anything else you can name. GM USA can sell a whole lot more volume if they offer Chevy Cruzes AND Cadillac XTSs.
The problem I see is mostly that the trade media has come to assume that the way Apple operates is the way Western industry operates, and all the rest happens in the East. This is all part of the media hype surrounding Apple products.
I understand that Apple is an abberation. No company survives with just one model -- iPhone -- for every country.
But the point of this particular story is not about that. It is about how tech companies figure out a "good enough" product, and create a more imaginative business process, to create products in volume at a lower cost for many more people in the developing countries.
My 2 cents: Android may beat Apple in terms of volume by more than 2x. But what the theory ignores is that volume is not equal to profit. The bells and whistles are what gives you the premium price, which translates to larger per unit revenue. Think GM vs. BMW. Or Apple vs. Mediatech. They are simply not in the same league.
"The bells and whistles are what gives you the premium price, which translates to larger per unit revenue. Think GM vs. BMW. ... They are simply not in the same league."
But even that is overstated. Much of that, too, is merely "common wisdom" and media hype.
First of all, profit does not translate to revenues. A company can make a lot more money by going for more volume of sales and less profit. This allows the company to diversify its products better, sell to more markets or market segments, and so on. Again, Apple is the exception to this rule, not the rule.
As to the GM vs BMW comment, perhaps you should read the current issue of Car and Driver, where they review the Camaro convertible against the BMW 6 series convertible. For that matter, GM has a no-holds-barred sports car, the Corvette, that BMW does not compete against.
What this article explains as a phenomenon for developing country markets is ALSO a phenomenon within any single country. Companies that want to make big revenues are always better off serving more than just the top segments of the economy. Android sales are very good in the US too!
Agreed on the theory, Bert. But you do have to consider the human aspect i.e: being present in all markets dilutes brand value. The average man knows GM for its Chevvy Cruze, not Corvette. And android sales, though robust in volume, is not making money.
Diversification may serve mammoth organizations or supplier organizations. But for consumer markets, where wow factor is important, it may actually hurt sales for the flagship product if diversification is towards the low end of the spectrum. For some companies, again, Apple or BMW, its not worth the risk.
This Harvard Business Review article may help articulate what Carlos Ghosn, CEO, Renault-Nissan, for example, means by "frugal innovation."
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