Made in China 2021 is a strategic plan for uplifting China from labor and natural resources to an idea economy. This strategy is around the reinvention of existing products. But it has upset the USA, triggering trade disputes. What is the underlying reason? Why should the uplifting of China be a threat to the USA and other western countries? Because reinvention fuels disruptive innovations. It runs the risk of migrating products across the boundaries of firms and nations. For example, due to reinvention, Japan took over the global business of television, disk drive, display, and many more from the USA. And China is on the way to establishing a strong presence in the global electric vehicle industry through automobile reinvention. The power of reinvention has been at the core of Steve Jobs’ secret of innovation.
Misleading Facets of Reinvention:
There are related terms like reengineering, reverse engineering, frugal innovation, and imitation out of tinkering. They differ from reinvention. Unfortunately, they create misleading understanding and trigger inappropriate industrial strategy and policy.
To improve a product or acquire its manufacturing capability, the approach could be to reengineer it by changing certain features, roles, or system elements. But such an approach does not create the path of taking away the innovation edge from the incumbent leaders. It does not offer the direction of making the re-engineered product a better and cheaper alternative.
This is about acquiring the capacity of making an exact copy of existing products without the help of the inventor. Based on the performance and features of the product, reverse engineering attempts to produce the design of the overall system. It focuses on reproducing the designs of components and how they connect with one another. Of course, reverse engineering succeeds in acquiring the capacity of replicating an existing product. It also raises the issue of infringement of intellectual properties. However, such an approach does not succeed in creating a profitable business. For example, Canon reverse engineered Leica’s camera. But the success of that reverse engineering did not create a sustainable camera business for Canon.
To reduce the cost of existing products, frugal innovation focuses on developing a strip-down version. This approach removes certain features and makes some of the remaining features inferior. For example, Indian Tata pursued frugal innovation to offer affordable cars to low-middle-income families. Tata removed certain features like air conditioner and made a few features such as wheel dimension, engine horsepower, and cabin size smaller. But it also reduced the perceived value or willingness to pay. Hence, customers rejected the less expensive cars, obtained from frugal innovation. Therefore, upon losing more than RS1000 cores, Tata got the lesson that frugal innovation does not sound smart.
It focuses on developing a product, having a similar look and feel. It could be termed counterfeiting too. For example, the imitation strategy became popular in Hong Kong in the 1960s. But it failed to develop a sustainable industrial base. Yes, imitators do not incur R&D costs. Hence, it’s supposed to be a profitable business. But due to lack of brand value and insignificant marginal cost advantage, imitators face a high barrier in generating profitable revenue. Furthermore, due to the low entry barrier, profit from imitation disappears very quickly. For this reason, big firms could not grow even out of trading pirated software or digital content in China and many other countries.
Change of Technology Core: empowering reinvention fuels disruptive innovation
This is about the recreation of products by changing the technology core. For example, Tesla has been pursuing the reinvention of automobiles by changing the mechanical technology core with electrotechnical and electronics. Similarly, Sony reinvented Radio and Television by changing the vacuumed technology core with Transistor. In its journey of reinvention, Sony went further to change the technology core of film cameras with electronic image sensors. Similarly, the mobile phone has been the reinvention of the wireline telephone.
Invariably, reinvention starts the journey with an inferior alternative. It is the recreation of existing products by changing the mature technology core with emerging ones. Despite the latent potential, the emerging technology shows up in primitive form. Hence, products reinvented out of them show up as inferior alternatives. But, sometimes, the emerging technology core is amenable to progression in making reinvented products increasingly better cheaper.
Due to the cumulative effect of redesigning by taking advantage of the continued progression of emerging technology core, reinvented products lead to making inferior reinvention increasingly better and cheaper. Sometimes, this journey leads to the rising of a new wave causing creative destruction to existing products. And if new entrants lead this reinvention journey, incumbent firms suffer from disruptive effects. Hence, reinvention fuels disruptive innovation, causing loss of business and destruction of existing firms.
Japan’s Industrial Economy out of Reinvention Fueling Disruptive Invention:
After WWII, Japan found itself in the new world order. Japanese companies showed interest in the newly invented technology core by the Bell labs, among many other necessary steps. Upon taking license from the Bell labs, several Japanese companies, notable Sony, got in the race of advancing transistor. They adopted this technology to reinvent a series of products. Notable ones are Radio, Television, Music Player, Video and Audio Recorders, and many more. Through the reinvention, Japanese companies emerged as the global leader in these products, which they did not invent. Hence, Toshiba took over the hard disk drive business from IBM by reinventing it flash technology core, and Sony became the global leader in the camera business.
Reinvention Fuels Disruptive Innovation and Creative Destruction:
Japan has emerged as a robust industrial economy through reinvention successes. Yes, in the beginning, many of the reinvented products offered by Japanese companies were inferior. But due to the advancement of the underlying technology core, those products started getting better. Eventually, they succeeded in being better than incumbent alternatives offered around matured technology core. Hence, they grew to cause destruction to the appeal of mature alternatives, causing creative destruction.
Furthermore, incumbent market leaders, primarily American and European firms, suffered from the disruptive effects caused by Japan’s reinvention successes. For this reason, America’s RCA lost its Radio and Television business to Sony. And Kodak got bankrupt due to the uprising of digital cameras. The list goes it.
Due to the disruptive effect of the creative destruction of reinvention, innovations migrate across the boundaries of firms and industries. Already, Japan demonstrated how to take away the global edge, upon being a follower, through reinvention. The disruptive innovation effect of reinvention poses a threat to incumbent influential firms and nations. But it gives the entry opportunity to newcomers to take away the lead. Hence, reinvention makes innovation successes transient. However, the creation of success out of reinvention demands systematic ideation, technology and innovation management, and rational decision-making ability.