GORDON BROWN has long emphasised his belief in the importance of competitiveness, so whatever else is on his mind in these first few days as Prime Minister, he should not ignore a new warning from the East.
Brown is well aware of how lower production costs in China and other parts of the developing world pose major challenges to manufacturing in Britain. But the traditional argument has been that knowledge - in the form of high-tech skills, design and the rest - is the way to respond. Hence the stress on "education, education, education" under Tony Blair. But, although the new Prime Minister is promising more focus on this area, it is not likely to be enough on its own.
A new book, Dragons At Your Door: How Cost Innovation is Disrupting Global Competition by Ming Zeng and Peter Williamson (Harvard Business School Press, [pound]16.99), suggests that the Chinese are not content to be merely a cheap workshop for Western companies. Instead, they are creating their own multinationals able to compete with and even displace established corporations.
The root of these companies' success is cost innovation - the strategy of using Chinese cost advantage in radical ways to offer customers much more for less, say Zeng and Williamson. This strategy has three aspects. First, high technology at low cost destroys the conventional wisdom that high technology is restricted to high-end products and segments. Second, the introduction of an unmatched choice of products in standardised, mass-market segments, challenges the idea that variety and customisation only come at a premium. Third, turning niche segments into volume businesses through offering specialty products at lower prices challenges the idea that such products must be low-volume and so high-priced.
This is all good news for customers, of course. But it is less good for companies of all sizes - even the smaller ones who have been encouraged to follow their larger rivals into outsourcing production to the Far East.
Zeng, a professor at the Cheung Kong Graduate School of Business in China who is currently president of Yahoo China, and Williamson, professor of international management and Asian business at the international business school Insead, suggest various strategies that businesses can adopt. They include partnering with Chinese companies, enhancing the role of the China operation in their company and using their own unique technologies and capabilities for cost innovation. …