China’s Low-Cost Road to Innovation

We’ve previously mentioned the concept of jugaad innovation and how it may eventually pose a competitive threat to high-value-added activities in the US and other developed countries.  This week, the Wall Street Journal notes that, using a jugaad approach, Chinese chip producers are gearing up to undercut Western tablet makers.  And Apple, Google, et al. are starting to notice:

Many of these Shenzhen tablet makers started out making simpler electronics, such as MP3 players.

“Because we made MP3 players, it gave us the background to move to more advanced devices like tablets,” said Wan Qiuyang, Chief Executive of Shenzhen-based tablet maker Ramos.

But it’s still a big technological gap between MP3 players and tablets, and these small companies were able to make the jump with speed. The key has been chipmakers like Taiwan’s Mediatek and China’s Rockchip, who do much of the technical work for the manufacturers and then sell them a template for making the devices, analysts say.

By spreading the research costs across all their customers, these chipmakers are able to provide a much cheaper tablet solution than if any one manufacturer did all the development in-house. The templates also allow small Chinese firms with limited R&D resources of their own to enter the tablet sector. . . .

. . . .“We want to build our own brand,” said Mr. Wan. “We want to partner with international firms and learn to become a more global company.”

The cumulative effect of the work of individual chip makers produce an innovation ecosystem that may prove to be (in true jugaad style) both cheaper and more agile than the R&D efforts concentrated in the large US firms. The full WSJ story is here.

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