Is disruptive innovation in emerging economies different? Evidence from China

Abstract

Most studies on disruptive innovations have focused on developed economies and little work examines this type of innovation in and from emerging economies. Moreover, previous studies on disruptive innovations have not investigated the processes behind. This study begins to fill these research gaps. Analysing disruptive innovations in and from China, we identify three important differences from the kinds of disruption observed in developed economies. First, rather than being based on launching products with inferior performance, disruptive innovations in China focus on offering different value propositions. Second, the rate at which Chinese disruptive innovations are improved and extended is typically faster than in developed markets. Third, Chinese disruptive innovations are often launched directly into a mass market rather than a niche. Besides identifying these differences, we also discuss how Chinese firms generate disruptive innovations. The findings expand the understanding of disruptive innovation and hence enrich the existing literature on this important phenomenon.

Introduction

Since its introduction two decades ago, disruptive innovation has become one of the most influential concepts in management and innovation research, drawing enormous attention from both managers and academics (Adner, 2002; Christensen, 1997; Christensen et al., 2018; Danneels, 2004; Immelt et al., 2009; Dedehayir et al., 2014; Markides, 2006; Radnejad and Vredenburg, 2019; Si and Chen, 2020; Tan et al., 2020; Tellis, 2006). A Google search on “disruptive innovation” returns over 3 million entries, easily making it the most popular innovation term. Books on disruptive innovations especially by the late Clayton Christensen have become global best sellers and are widely read by MBA students and business executives, including two iconic figures, the late Steven Jobs and Andy Grove, the former chairman of Intel. It is, therefore, not an exaggeration to claim that the notion and theory of disruptive innovation have become a cornerstone not just for innovation management and research but for wider general management’s theories and practices.

However, despite the theoretical significance of this theory and the increasingly important role played by innovations, in particular disruptive innovations, in driving the growth of firms and overall economies, this theory suffers from two main limitations. First, little academic research has focused on investigating the phenomenon of disruptive innovation in and from the emerging economies. Most of the research on disruptive innovation has been conducted in the context of developed economies. Yet there is increasing evidence that disruptive innovations observed in emerging economies such as China exhibit different characteristics from those observed in developed economies (Wan et al., 2015). Christensen et al. (2018, p. 1044) foreshadowed the idea that the nature of disruptive innovation might vary with its context, alerting us to the fact that: "given the contingent nature of disruption theory, applying a one-size-fits-all solution is a particularly egregious mistake". The significance of this omission is increasing as emerging economies, especially China, become an important source of disruptive innovation, impacting both local and global markets (McKinsey, 2015).

Second, few studies have examined the processes through which a firm can systematically generate disruptive innovations (Wan et al., 2015; Yu and Hang, 2010). Understanding the underlying innovation processes is important for both incumbents and new entrants in either launching or defending against disruptive innovation.

This article begins to fill these research gaps by investigating two research questions. First, what are the key differences in the nature of disruptive innovation observed in developed versus emerging economies such as China? Second, what are the processes through which Chinese firms effectively and systematically generate disruptive innovations and how do these differ from those typically observed in developed economies? In answering these questions, we first present an in-depth analysis extant theories of disruption innovation in order to establish a baseline for the phenomenon in developed markets against which disruptive innovation in China can then be compared. By analysing a series of case studies of disruptive innovation launched by companies in China, including Huawei, Xiaomi, Chint, Lenovo, and BYD, we then compare and contrast these with the base-line characteristics of disruptive innovation in developed markets.

Based on this comparison, key findings are threefold. First, while disruptive innovation in developed markets generally begins with challengers launching products with inferior performance in the face of over-specification by incumbents relative to customer requirements, disruptive innovations in China focus on offering a range of differentiated value propositions. Second, Chinese disruptive innovations tend to be launched at an earlier stage in the product life cycle (Williamson and Yin, 2014; Zhang et al., 2017) and are also improved and extended more rapidly than in developed markets. A third finding is that Chinese disruptive innovations often rapidly achieve large scale sales volumes because they are directly launched into the huge mass market rather than into niche segments.

In addition to characterising these important differences between disruptive innovations in and from China and those in developed economies on which the original theories were based, our study has also identifies five major processes through which disruptive innovations in China are generated by firms in various industries. These processes involve substituting high cost materials with low cost ones without compromising performance, de-automating the production process, R&D industrialization, parallel product development, and modularization in product development.

These findings have important theoretical and managerial implications. In terms of theory, this study is to our knowledge the first to explore whether the characteristics of disruptive innovation vary according to the economic context. Specifically, whether the nature of disruptive innovation differs between developed economies and emerging economies, in this case represented by China. The systematic differences we identify suggest how existing theories of disruptive innovation might be further developed and extended to incorporate the ways in which the context of emerging economies shape the fundamental characteristics of the disruptive innovation phenomenon.

Managerially, by extending and deepening our understanding of different types of disruptive innovation and the processes Chinese firms use to generate it, our findings can help firms from other parts of the world to more effective develop and launch their own disruptive innovations.

The remainder of the paper proceeds as follows. First, we distil the key characteristics of disruptive innovation developed in the extant literature. We then compare and contrast these with the characteristics we observe across our sample of case studies of disruptive innovation developed in China. Next we turn to investigate the processes and mechanisms Chinese companies use to generate their distinctive types of disruptive innovations. In the concluding section, we discuss the theoretical and managerial implications and suggest directions for further research.