2011 Luo, Sun, and Wang 37 A R T I C L E S Emerging Economy Copycats: Capability, Environment, and Strategy by Yadong Luo, Jinyun Sun, and Stephanie Lu Wang Executive Overview Emerging economy enterprises nowadays relentlessly scale the value chain in a quest to compete on the world stage in part by copying the products of others. They develop new products and services that are dramatically less expensive than their Western equivalents. In this article we discuss what these copycats are and how they have grown in their unique trajectory. We emphasize their unique capabilities and weaknesses, internal and external conditions that foster growth, and strategies and paths that transform them along a continuum from duplicative imitators to creative imitators and ultimately to novel innova- tors. To this end, we present the CHAIN Framework (combinative, hardship-surviving, absorptive, intelligence, and networking) capabilities to showcase the copycats’ capabilities and discuss STORM conditions (social, technological, organizational, regulatory, and market) that spur their growth. Finally, we present four case studies of copycats and discuss future research on this issue.I n the past two decades, the economic and man- In this paper we examine the strategy of such firms agement arena has witnessed the emergence, and lay out a research agenda for us to further growth, and dominance of a growing number of understand such businesses.firms from emerging economies. However, our un- To illustrate the strategy, consider these well-derstanding of such emerging market competitors known companies. Samsung leapfrogged from be-remains limited. As a result, there is growing rec- ing a mere assembler of discrete devices to a majorognition that we need a better model for business, player in dynamic random-access memoryone that reaches out further temporally, geograph- (DRAM) chips in only a decade. Once India’sically, and ideologically (Cappelli, Singh, Singh, largest pharmaceutical company, Ranbaxy (now& Useem, 2010; Chen & Miller, 2010). A key owned by Daiichi Sankyo), followed a similarfeature defining most emerging economy enter- trajectory from duplicative imitation to creativeprises is that they begin with imitation and later imitation, enabling them to move up the valueprogress toward innovation. We refer to these chain of pharmaceutical R&D. Brazil’s Embraer iscompanies as emerging economy copycats (EECs). today the third largest global aircraft company; it reached this position after a long period of cre- The authors would like to thank Professor Garry Bruton and severalanonymous reviewers for their valuable comments and suggestions. ative imitation through global partnerships. Rus-* Yadong Luo (firstname.lastname@example.org) is Professor of Management and Emery M. Findley Jr. Distinguished Chair, Department of Manage-ment, School of Business Administration, University of Miami. He is also a distinguished honorary professor of Sun Yat-Sen BusinessSchool, Sun Yat-Sen University, China.Jinyun Sun (email@example.com) is a doctoral student at the School of Management, Fudan University, Shanghai, China, and a visitingscholar at the School of Business Administration, University of Miami.Stephanie Lu Wang (firstname.lastname@example.org) is a doctoral student in the Department of Management, School of BusinessAdministration, University of Miami.Copyright by the Academy of Management; all rights reserved. Contents may not be copied, e-mailed, posted to a listserv, or otherwise transmitted without the copyright holder’s express writtenpermission. Users may print, download, or e-mail articles for individual use only.
38 Academy of Management Perspectives Maysian conglomerates Metal Loinvest, Suek, and intervention to Internet censorship, an increasingRusal quickly evolved from imitators to listed pow- gap between the wealthy and poor to rampanterhouses by challenging major Western multination- corruption, these countries are at the forefront ofals and gaining market share in low-end and mid- rapidly rising emerging markets, and we believerange markets. All of these companies masterfully they will play a definitive role in leading the waycompete locally, regionally, and globally producing, out of the current global recession as the momen-selling, and exporting cost-effective products. tum of emerging economies continues to grow. A recent study and report by the Economist(2010) suggested that emerging economies are Deﬁning Emerging Economy Copycats Ebecoming hotbeds of business innovation in much merging economy copycats are enterprisesthe same way Japan was in the 1950s. Not only are based in emerging economies that significantlythey creating novel products broadly equivalent to mimic a market leader or pioneer’s products.the products of Western companies, but they are EECs often imitate existing technologies, designs,doing so at a fraction of the cost. By reinventing and functions. This definition does not necessarilyproduction and distribution systems and experi- entail a negative connotation, and does not nec-menting with the way they use available resources essarily refer to the imitators that illicitly andand networks, EECs are creating entirely new illegitimately infringe a pioneer’s intellectual andbusiness models. Thus, emerging economy firms industrial property rights, such as brand, trade-offer a unique mix of copying and innovating that mark, and patent. Korea’s rapid industrializationoffers a major challenge to existing business. stemmed largely from imitation, which does not So are these entirely new business models? What necessarily imply illegal counterfeits or clones ofare the unique capabilities and strengths of these foreign goods; it can also be legal, involving nei-copycats that enable them to maintain unique com- ther patent infringement nor pirating proprietarypetitive advantages over Western counterparts? know-how (Kim, 1997). Those companies thatWhy are emerging economy copycats that were until cause billions of dollars in losses for innovativerecently discounted as merely sources of cheap labor global businesses by manufacturing and marketingnow becoming such powerful global competitors? counterfeits are referred to as “business pirates”What are the driving forces behind their revolution- and are not included in our study.ary strategies and business models? Probing these The distinction between the two groups, how-understudied questions will help us better under- ever, is not always easy to delineate. It can bestand firms that are challenging and overturning the difficult to appraise the legality and legitimacy ofprevailing Western paradigms (Bruton, Ahlstrom, EECs’ imitation as imitation itself is not black and& Obloj, 2008; Cappelli et al., 2010; Chen & white but instead falls within a “zone of accep-Miller, 2010; Guillen & Garcia-Canal, 2009; Im- tance” (Deephouse & Suchman, 2008). Stevenmelt, Govindarajan, & Trimble, 2009; Prahalad Schnaars (1994) categorized several distinct imi-& Mashelkar, 2010). This is particularly critical tations: counterfeits (or pirate products), knock-since existing theories on innovation based offs (or clones), design copies, creative adapta-mainly on Western companies do not fully apply tions, technological leapfrogging, and adaptationto ever-evolving firms in emerging economies. to another industry. Pirate firms are excluded from We set out to explore these issues, providing an our definition of copycatting. Smaller and neweranalytical framework for EECs’ environment, ca- copycats often remain in the pure imitation phasepability, and strategy. To do so we examine four (knockoff or design imitation), while more estab-companies: two from China, one from Brazil, and lished copycats evolve to become innovativeone from India, each representing a different type imitators (creative adaptation) or even novel inno-of copycat. Among leading emerging economies, vators leapfrogging technology and adapting tech-China, India, and Brazil furnish a rich research nology to other industries. Some EECs imitate afield of EECs. Although plagued with controver- pioneer’s product designs and appearance; otherssial debates ranging from foreign exchange rate mimic product performance and technology, brand
2011 Luo, Sun, and Wang 39names, images, and even slogans. EECs tend to treat seize new opportunities in blue-ocean or uncon-imitation as an early-stage stepping-stone to survey tested markets (Kim & Mauborgne, 2005).a targeted market before expanding toward inno- Fourth, successful EECs are characterized byvation. In the majority of cases, products are imi- speed of design, production, and marketing and theirtated through reverse engineering, patent purchase ability to quickly adapt to mass markets. China’sthrough licensing, the purchase of key components Haier, Mexico’s Mabe, and Turkey’s Arcelik arein open markets, and joint development through successful copycats, characterized by rapid learning,partnerships. To further explicate what EECs are, we innovative imitation, and mass production in thenow turn to common characteristics of EECs. early stage of international expansion (Bonaglia, First, EECs tend to remain in either a pure/ Goldstein, & Mathews, 2007). In less than a decade,duplicative imitation stage (early phase) or in a Tianyu, China’s third largest cell phone maker, hascreative/innovative imitation stage (later phase). engineered a design process significantly faster thanThe products offered imitate a successful incum- those of globally recognized leaders Nokia andbent’s existing products and services. EECs often Motorola. Tianyu produces mobile phones in lessbegin with reverse engineering and imitation, than one third of the time of these mobile tele-without proprietary core technology, know-how, communications giants. Today, the companybrands, and reputation, but quickly evolve from launches more than 100 new cell phone modelsduplicative imitation to creative or innovative each year. EECs like Tianyu develop productsimitation (improvement included) and finally with easy-to-use functions at extremely affordableproduce innovative products of their own (often prices for masses of price-sensitive consumers.focusing on new designs, functions, and speed). Last, EECs are heterogeneous: They differ in bothOnce an EEC surpasses duplicative and innova- their evolutionary stage and in their imitative traits.tive imitation stages, it is no longer considered a MyTrip.com, India’s leading travel agency Webcopycat. Two former copycats, China’s Huawei, a site—listed on the NASDAQ in 2010 —adopted aleading global telecommunications solutions pro- business model and management process system veryvider, and India’s Arcelor Mittal, a leader in the similar to that of Expedia.com. Sany, China’s largestglobal steel market, have evolved to become novel concrete machine manufacturer, took a different ap-innovators with enormous investments in R&D. proach. For Sany, reverse engineering was a vital Second, most EECs are privately owned enter- early step that accelerated its creative imitation. Theprises (POEs). Unlike state-owned enterprises company identified and analyzed every possible area(SOEs), POEs lack government protection and crit- that could be imitated, learned, and assimilated toical access to government-controlled resources. achieve its current status as a market leader. Today,They, however, maintain high levels of opera- Sany operates both a national research center and ational flexibility, market knowledge, and aggres- postdoctorate research station in China, as well assive opportunity-seeking ambition. This entrepre- research and manufacturing bases in Germany, theneurial spirit enables them to adopt prompt, United States, and India. This notable former copy-novel, and realistic tactics without running afoul cat now owns 536 patents and hundreds more know-of government policies and legal provisions. how technologies. Third, EECs are evolutionary. Equipped with Through extensive field studies and interviews,the learning advantage of newness, many EECs we observed that EECs possess three competitiveparticipate in fierce competition with domestic advantages: cost, channel, and speed. These advan-and global firms early in their life cycles and have tages mutually reinforce one another. EECs have aninherent learning advantages over late entrants edge in “cost innovation” (Zeng & Williamson,because they possess fewer deeply embedded rou- 2007) by delivering suitable technology at a low costtines (Autio, Sapienza, & Almeida, 2000). More- by leveraging inexpensive R&D resources, bettingover, they face fewer structural constraints, such as on low-cost alternative technologies, and using theorganizational inertia, corporate politics, and in- rise of open architecture to dismantle competitors’ternal bureaucracies, resulting in the ability to high-margin proprietary systems. These companies
40 Academy of Management Perspectives MayFigure 1Typology of Emerging Economy Copycats 1st Generation 2nd Generation 3rd Generation Large II IV Duplicating Adaptive World-stage Wildcat: Junglecat: Innovator: MARKET SHARE (Li Ning) (Tianyu) (Destination) I III Mocking Emulating Novel Kitten: Housecat: Specialist: (Video (Dr. Reddy’s) (Destination) Brinquedo) Small Duplicative Innovative Novel Imitation Imitation Innovation IMITATIVENESSoffer customers substantial variety at mass-market ness in proprietary innovation and lack of in-houseprices by focusing on process innovation and recom- R&D. Improved inbound and outbound logisticsbination of existing technologies. EECs apply scale- services also fortify their channel advantage. Manybased technology to specialty products and thus EECs in consumer products industries remove de-transform businesses by dramatically reducing costs sign and component manufacturing to specializedand prices, hence increasing volume. The sheer size outsiders through inshore outsourcing after build-of the EECs’ home market makes this possible. ing their own supply channels and necessary net- Channel advantage is the EECs’ unique strength works. This not only bolsters their cost advantagein identifying, developing, and utilizing all channel but also increases their ability to get products tonetworks needed for both primary and support ac- market quickly.tivities. These channels include market information EECs possess a speed advantage. Their entrepre-channels, government channels, supply chain chan- neurial orientation, combined with their learningnels, distribution and marketing channels, interme- advantage, channel advantage, and improved opendiary production or services channels, and outsourc- markets in specialized services and important re-ing channels. To leverage their learning advantages sources, increases their ability to quickly identifyof newness while dispelling the liabilities of lateness, market opportunities, respond to market needs, andmany EECs develop a unique ability to identify introduce and deliver products to the market. Hardwhere to secure critical resources, raw materials, key work propels speed too. Lax labor laws permitcomponents, government support, important em- around-the-clock production, and it is not uncom-ployees, and distribution networks. As a result, they mon to see 24-hour design and manufacturing oper-quickly create new businesses or introduce new prod- ations in EECs. In fact, this pressure has pushed theiructs. Although often EECs do not own original or speed advantage to a higher level in recent years. Tocore technologies, their ability to license, purchase, market leaders, fast imitation by followers undercutsor outsource standard technologies, key compo- the durability of their first-mover advantages (Lee,nents, and specialized service providers in an open Smith, Grimm, & Schomburg, 2000).market makes it possible to circumvent their weak- Figure 1 offers a typology of EECs in three distinct
2011 Luo, Sun, and Wang 41Figure 2Emerging Economy Copycat’s Capabilities: The CHAIN Framework CombinaƟve Intelligence Copycat’s CompeƟƟve Capability Capability Advantage • Cost Advantage • Channel Advantage Hardship-Surviving • Speed Advantage Networking Capability Capability AbsorpƟve Capabilityphases: duplicative (or pure) imitation, innovative Yet another risk is brand image. Consumers per-(or creative) imitation, and novel innovation. An- sistently perceive copycats as low-end, low-qual-other dimension used in this typology is a copycat’s ity, cheap product manufacturers. Thus, changingmarket share or its market influence. This 2ϫ3 ma- the image from copycat to innovator after the firmtrix produces six cells or identities, which will be begins developing its own proprietary technologyfurther illustrated in our case study section. The and independent innovation has proven difficult.three phases are often linked to the developmental Altering this view can be formidable, time-con-phases of the respective national economies. In the suming, and expensive.1970s and 1980s, weak intellectual property rights(IPR) protection in India facilitated duplicative Copycat Capabilities: CHAIN Framework Himitation. Conversely, countries with strong IPR ow have EECs built the above advantages?legal regimes must take a more novel or indepen- Our answer rests in the capabilities of thedent approach. Duplicative imitation may be an CHAIN Framework (see Figure 2). EECs’astute strategy in the early industrialization of a cost advantage, channel advantage, and speedlow-wage country as duplicative imitation of ma- advantage are a function of the manner inture technology is relatively easy to undertake which the company possesses, leverages, and(Kim, 1997). Many EECs’ imitative acts are tech- upgrades the five CHAIN capabilities: combi-nically and legally ambiguous, eroding a target native, hardship-surviving, absorptive, intelli-pioneer’s market share and profitability. Lack of a gence, and networking.well-established and well-enforced legal system toprotect IPR can make counteracting EECs’ imita- Combinative Capabilitytive acts difficult and costly. Combinative capability is an EEC’s distinctive Relatedly, copycatting itself involves many ability to combine outside technologies, key com-risks, one of the most common of which is legal ponents, and specialized services available fromambiguity. Because their products reach consum- open markets with its own resources, designs,ers in many nations, including developed coun- and/or production to offer better performance fea-tries where legal systems and IPR safeguards are tures, lower cost, and/or other improved attri-much more established, navigating legal issues can butes. EECs are often inferior in creating a novelbe challenging. More often than not, market lead- set of product offerings (idea, design, function,ers do not allow EECs to easily enter and compete technology, brand, etc.) but superior in combin-in these markets, and they tactically position ing and integrating outside technologies withthemselves to outmaneuver copycatting behavior. their own resource base. This capability is the
42 Academy of Management Perspectives Maymain source of cost advantage and speed advan- have added to existing institutional hardship intage. Savvy EECs, skillful in combinative capa- many emerging economies.bility, can deliver products even at an early While hardship increases a firm’s transactionstage of their life cycle. The availability of open costs and even destroys some firms, establishedmarkets in key components, technology, design, copycats often survive under economicallyand assembly facilitates the development of fragmented and institutionally harsh conditionscombinative capability. (Cuervo-Cazurra & Genc, 2008; Luo & Rui, Careful consideration of the target market and 2009). Private ownership, organizational resil-culture is imperative to success when imitating or ience, learning advantage, and lower innovationcopying a product from a developed country. Fur- investment costs allow copycats to learn and adaptther, imitation requires a considerable degree of faster than others in responding to institutionalcombinative capability in terms of adaptation austerity. When seeking out new opportunities in(Yoon, 1998). This explains in part why many new geographic regions (domestic and inter-EECs competent in combinative capability can national), EECs can leverage their institutionalsuccessfully evolve from duplicative to creative arbitrage advantages (Boisot & Meyer, 2008;imitation. Emerging modularization for many Cuervo-Cazurra & Genc, 2008). EECs tend to beproducts (e.g., household appliances and telecom- more successful in investing and marketing inmunication products) has also simplified the pro- developing countries than in developed ones.cess of imitation and utilizing combinative capa-bility (Pil & Cohen, 2006). Since MediaTek, a Absorptive Capabilityleading semiconductor company based in Taiwannow investing in mainland China, offered a total This capability demonstrates an EEC’s distinctivesolution and technology package combining mo- ability to value, assimilate, and apply new knowl-bile chips and software, hundreds of Chinese edge. It involves a broad set of skills needed tocopycats have been using this package, delivering deal with the tacit component of transferredcell phones with more product choices and per- knowledge and the need to modify the knowledgeformance features than even Nokia and Motorola imported (Cohen & Levinthal, 1989, 1990;provide. Mowery & Oxley, 1995). Speed is made possible through an EEC’s absorptive capability: Followers invest in absorptive capacity to facilitate learningHardship-Surviving Capability from others and accelerate implementation. Fol-This capability represents an EEC’s distinctive lowers with strong absorptive capacity delay com-ability to both operate and survive in an institu- mitment and collect better information withouttionally austere environment and to deal with compromising their ability to respond. Absorp-demanding business stakeholders (e.g., govern- tive capacity extends the window for effectivemental institutions) that impose significant con- action, reducing the risk that the firm willstraints on business activities. In major emerging imitate too early or too late, and allows foreconomies, political, economic, and administra- improved decision-making processes (Lieber-tive decentralization, originally aimed at unclog- man & Asaba, 2006). Many successful EECsging blockages in the central bureaucracy, has led equipped with sharpened skills assimilate andto a more fragmented economy, redundant pro- use technological skills and process the knowl-duction capacity, and heightened formal and in- edge of market leaders. In fact, a large propor-formal barriers to domestic trade (Boisot & Meyer, tion of EECs are led by those with science2008). Such unintended consequences, together degrees and industrial experience in researchwith long-standing challenges in the institu- and development (Hu & Mathews, 2008). Intional environment, including regulatory hin- addition, their superior background in reversedrance, policy uncertainty, weak legal protection, engineering enhances a solid foundation for fur-ubiquitous corruption, and poor public services, ther developing their absorptive capability.
2011 Luo, Sun, and Wang 43Intelligence Capability ability to do so has been identified as a powerfulIntelligence capability is an EEC’s distinctive abil- tool in helping it maintain a competitive ad-ity to identify, collect, analyze, and interpret busi- vantage and achieve superior performance. Eco-ness information pertaining to market, technol- nomic fragmentation and institutional obsta-ogy, competition, standards, and regulations cles, combined with cumbersome governmentneeded for its duplicative or innovative imita- control over critical resources and market entry,tions. Among the three competitive advantages put copycats at a disadvantage compared withmentioned above, speed and channel advantages established state-owned rivals that are largelyparticularly benefit from this ability. Intelligence protected by the central or local governments.gathering helps an EEC gain the requisite insights This in turn prompts copycats to rely moreto gain a competitive advantage (cost, speed, or heavily on formal and informal networks. Evenchannel) associated with duplicative or innova- for mature copycats that have passed the dupli-tive imitation and increase the quality of its cative imitation stage and progressed to inno-strategic decisions. Further, it helps the firm vative imitation and even novel innovationformulate imitative and innovative plans and in- phases, networking capability remains key tovestment priorities. Intelligence capability makes firm growth, domestically and internationally.it possible for EECs to know what to do, whileother capabilities in Figure 2 show them how. For Copycat Growth: STORM Conditions Cexample, intelligence capability has advanced the apability endowment, as explained above, is aability of many Indian pharmaceutical firms to necessary but not sufficient condition for EECbetter predict global demand for generic drugs, growth. As Figure 3 shows, five conditions,analyze critical markets, choose target firms to termed here as STORM (social, technological,acquire, and secure inbound and outbound net- organizational, regulatory, and market) condi-works vital to success in foreign markets. tions, facilitate EEC development. Social ConditionsNetworking Capability Many emerging economies rely on imitative re-This is an EEC’s distinctive ability to obtain the search of foreign inventions to maintain indus-necessary resources from outside institutions (e.g., trial competitiveness (Kim, 1997). Emerginggovernment, suppliers, buyers, partners, competi- economy societies tend to be apathetic to intel-tors, or vendors) through both formal and infor- lectual property rights protection, thus allowingmal networks. Networking is one of the major social acceptance of imitation (and even counter-strategies pursued by emerging market enterprises feits to some degree). Fragmentation and disparityto gain access to resources and cope with environ- in economic development, real income, social jus-mental uncertainty and impediments to their op- tice, public service, and infrastructure conditionserations (Hoskisson, Eden, Lau, & Wright, 2000). are common characteristics of large emergingWhen organizations are linked by stronger net- economy countries. Such fragmentation and dis-work ties, they are more likely to have detailed parity foster the popularity of wild imitation andinformation about each other, which facilitates even counterfeits in underdeveloped regions andimitation (Gulati, Nohria, & Zaheer, 2000). Im- for low-income populations. Further, nationalismitation tends to be socially beneficial and poten- encourages indigenous companies to imitate, pro-tially profitable in situations where imitators com- duce, and deliver products to replace those origi-plement each other, which often arise in nally developed by well-known foreign multination-environments with network externalities or ag- als. Import substitution, a government-enactedglomeration economies (Lieberman & Asaba, policy adopted in many developing countries for2006). decades, fuels growth for localized imitation in Social networking helps EECs draw on con- these countries.nections in business relationships, and a firm’s During economic and social transformation,
44 Academy of Management Perspectives MayFigure 3Conditions Fostering Copycat Growth: The STORM Framework Social CondiƟons • Apathy to intellectual property rights protecƟon • Tolerance for counterfeiting • Asymmetric informaƟon fostering fake goods • Blind naƟonalism encouraging knockoﬀs • Herding eﬀect enlarging all condiƟons above Emerging Economy Copycats MoƟvaƟon of Copycats Technological Seeking mass-market opportunity for low-end and Market CondiƟons CondiƟons mid-range consumers Seeking high volume with low margin • Presence of mass market • StandardizaƟon and Behavior of Copycats for copycat products modularizaƟon ImitaƟon of product oﬀering • Social acceptance of • Availability of open market EvoluƟon from complete to creaƟve imitaƟon copycat products in many for key technology, countries components, and design • Increasing sensiƟvity to • Rise of specialized OrganizaƟonal CondiƟons price-value raƟo intermediaries • Improved logisƟcs, • Convergence of technical channels, and networks • Flat organizaƟonal structure norms • Low entry barriers or low • Entrepreneurial orientaƟon startup/exit costs • Performance-based culture and incenƟves • Learning advantage of newness Regulatory and Legal CondiƟons • Lack of a clear disƟncƟon between legal and illegal copycat products • Ambiguous IPR systems • Weak enforcement of IPR protecƟon and weak punishment for IPR infringement • Inadequate puniƟve regulaƟons for counterfeitsthese societies also tend to become increasingly modernization encouraged a decline in traditionaldemoralized, often allowing copycatting and even social controls based on family and communalsome immoral business practices to prevail. Moral relationships, a resultant weakening of norms,degradation—the process of a society’s progressive and, in turn, increased deviance. Moral degrada-loss or weakening of morality and ethics—socially tion provides fertile soil for the growth of theand culturally upholds imitation. This view is anomic pressures associated with market arrange-consistent with the premise of institutional ano- ments. In an anomic organizational context, pres-mie theory (e.g., Messner & Rosenfeld, 1997), sure exists to take any path necessary to achievewhich suggests that cultural and social drivers performance goals.result in conditions in which pressures for goalachievement through any means—legitimate or Technological Conditionsnot— displace normative control mechanisms. In- International supply chains are increasingly mod-stitutional and cultural changes associated with ular, many activities are now outsourced, and
2011 Luo, Sun, and Wang 45global markets for capital, knowledge, and acqui- Organizational Conditionssitions are more open, reducing the entry barriers Success of EECs is augmented by a series of orga-faced by EECs (Zeng & Williamson, 2007). Mod- nizational catalysts, such as flat organizationalularity—the degree to which a supply chain structure, entrepreneurial orientation, task-ori-system’s components may be separated and recom- ented corporate culture, and learning advantage ofbined—is positively related to the speed of prod- newness. Due to private ownership and entrepre-uct design imitation, which allows EECs to exploit neurial propensity, copycats respond easily to out-technological opportunities and to react to evolv- side opportunities. In doing so, they maintain aing market opportunities through recombination, flat, nonhierarchical structure. This gives employ-modular innovation, and outsourcing (Pil & Co- ees incentives to perform a wide range of tasks andhen, 2006; Thomke & Reinertsen, 1998). Increas- initiatives with greater autonomy and flexibility.ingly, open global markets for key components Entrepreneurial orientation, often comprising in-and technologies facilitate an EEC’s ability to novativeness, risk taking, competitive aggressive-imitate, thus reducing the burden to invest heav- ness, and a proactive approach (Lumpkin & Dess,ily in R&D. This enables mass manufacturing 1996; Miller, 1983), is a critical trait allowingwith standardized technology and offsets techno- EECs to interact with institutional legacies andlogical weaknesses. Austin, Texas-based Silicon the competitive environment of emerging econo-Laboratories supplies semiconductor chips for cel- mies. Corporate executives at EECs must skillfullylular phones and computer modems to several maneuver strategic choices, seeking out ways tolarge EECs including China’s TCL and Brazil’s garner the political support that allows the free-Embratel Participacoes. In the personal computer dom and support to pursue appropriate growth(PC) market, the latest technologies developed strategies. Successful EECs are often led by exec-in Silicon Valley can reach China within a utives with sharp vision and a pragmatic approachmonth or so. This swift transfer of technology to tap into new markets first through duplicativeallows Dongguan, a small city in the Guangdong imitation and subsequently through innovativeprovince with the world’s highest concentration imitation. Moreover, EECs are often managed byof component manufacturers, to provide Chi- a task-oriented corporate culture that uses out-nese PC markets with a ready supply of world- come- or performance-based incentives to evalu-class technology. ate and reward employees. This approach directly Today, well-established open global markets supports EECs’ hardship-surviving capability andin applied technology, advanced machinery and generates high productivity. Last, the learning ad-equipment, latest instruments, and sophisticated vantage of newness fuels EEC growth. These firmsmaterials and components make EECs much more have fewer deeply embedded routines and face less cognitive complexity and structural rigidity,path independent. In addition, convergence and which allows them to easily recognize and respondstandardization of technical norms, pushed in to new opportunities.part by international organizations such as theInternational Organization for Standardization(ISO), encourages EECs to distribute products Regulatory Conditionsin multiple markets and countries. The Internet Undoubtedly, lax regulatory and legal conditions,helps EECs access critical information and especially in protecting IPR, help EECs imitate.strengthen their ability to identify market op- Legal protection of legitimate business activitiesportunities. Finally, the willingness of advanced and IPR is weak in emerging economies. Al-market multinationals to sell (e.g., via licens- though legislative and governmental bodies ining) or share (e.g., via a joint venture) technol- emerging economies have begun to enact moreogy, brands, or other assets provides EECs with commercial laws and regulations, they are gener-an additional channel to purchase or acquire ally not strictly enforced for a variety of political,critical resources they need. socio-cultural, institutional, and historical rea-
46 Academy of Management Perspectives Maysons. This enforcement uncertainty and variabil- key) countries, the Gini index (a measure of theity can be partly ascribed to long traditions of inequality of a country’s wealth distribution)untrustworthy legal and governmental systems, over the past several years ranged from 37 (In-lack of independent law enforcement, deficiency dia) to 57 (Brazil), with other countries fallingof supervision mechanisms, and frequent unjusti- somewhere in between. From 1992 to 2007, thefied law changes. These weak systems cause enor- richest 10% held 28.4% of the nation’s totalmous “appropriability hazards” (a term in transac- income in Russia, 43% in Brazil, and over 30%tion cost economics that indicates possible losses in India and China. These statistics show thatfrom uncompensated knowledge leakages or prop- most inhabitants in these countries remain aterty right infringements by others) for original the bottom of the wealth pyramid, earning lowinnovators. salaries and facing social injustice. Since copy- With weak legal protection, a victim of IPR cat products are more affordable for these in-infringement has very little legal recourse. Un- habitants, who are indifferent to brands butder ambiguous IPR systems in emerging markets, highly sensitive to prices, EECs’ products and“legitimacy” of imitation is better viewed not as services are well-suited to their needs. Whilea binary concept but rather as a “zone of accept- EECs’ cost advantage gives them leadership inability” within which copycats vary in the de- serving this large number of low-end consumers,gree of imitation (Deephouse & Suchman, their channel advantage facilitates economies2008; Zuckerman, 1999). Most copycats operate of scale in distributing products to geographi-somewhere within this zone. Meanwhile, loose cally dispersed consumers.enforcement of IPR protection and weak pun-ishment over IPR infringement lessen the fear Copycats’ Strategies and Transformationof piracy. EECs’ compliance costs are far greaterin countries where IPR legal protection is EEC Strategies Astrictly enforced. Shuanghuan, the Chinese au- lthough this article was not designed to con-tomotive maker, copied three famous car de- cretely discuss EECs’ strategies, it is worthsigns but won a lawsuit in China’s local court, in noting several strategic behaviors unique topart due to legal ambiguity in IPR and lack of EECs. At the corporate level, most successfulIPR knowledge by local judges. EECs use a single or dominant strategy instead of a diversified one. A vast local market and enor-Market Conditions mous export potentials are the premise of theirDespite considerable differences within this single/dominant strategy. China’s Galanz pro-group, emerging markets are economic territo- duces only microwave ovens and holds approxi-ries in national economies that grow rapidly; mately 50% of the global market share. Manytheir industries structurally change, the markets EECs that diversified into different businessesare promising but volatile, regulatory regimes have failed (e.g., the failure of China’s Delong isfavor economic liberalization and adoption of a primarily a result of overdiversification). In thefree-market system, and governments reduce early stages of development, EECs use greenfieldbureaucratic and administrative control over investment and networks or alliances rather thanbusiness activities (Luo, 2002). Despite their joint ventures (due to the necessity for control) orvast size and strong demand, these markets re- M&As (due to their small size and lack of finan-main extremely fragmented and segmented, cial resources). As they mature and evolve intomarred by disparity of real income and purchas- creative imitation and novel innovation phases,ing power and marked by diversity of consump- EECs progressively diversify product categoriestion preference and behaviors of consumers. and product offerings. In these stages EECs oftenAccording to World Bank statistics (World proactively engage in mergers and acquisitions toBank, 2009), in BRIC (Brazil, Russia, India, and diversify and embark on outward foreign directChina) and MIT (Mexico, Indonesia, and Tur- investment (FDI).
2011 Luo, Sun, and Wang 47 At the business level, many successful EECs and the ability to launch worldwide operationsestablish competitive advantages (cost, speed, and from the manufacturing center. Home countrychannel) in several ways. markets remain the primary focus of operations, First, these companies begin by seeking out but international venturing generates lucrativepromising massive low-cost markets where they opportunities for growth. The long-term successaccumulate experience in operations and market- and viability of EECs lies in their ability to simul-ing and build market share by focusing on limited taneously leverage core competencies at home andproduct lines. explore new opportunities abroad. In particular, Second, they diligently research the right mar- EECs use international venturing to cash in onket to target for imitation. Targets often include their competitive advantage in additional emerg-mass-produced products, standardized technology ing and developing markets. Mass production ca-(not advanced), and easy-to-reverse-engineer or pabilities, experience, and low-cost advantagescash-cow market leaders. To accomplish the mis- drive the manufacture of technologically stan-sion these companies often hire former employees dardized products in new emerging and develop-from a market leader, search for low-cost substi- ing markets where great demand exists. This low-tutes for main components or technology, cut cost position allows them to offer local consumerscosts through economies of scale, and build net- very attractive prices. It then results in marketworks with specialized providers offering standard- share gains over companies from advanced andized or modular components or services. Next, industrialized countries operating in the samethey begin to build their own small-scale R&D market. To upgrade imitated products, EECs oftencapabilities as they progress from duplicative to employ technology newly acquired through inter-innovative imitation. national expansion to both improve domestic Third, successful EECs maintain an accelerated manufacturing and develop new products for in-pace in closing the gap with market leaders. As ternational markets.EECs mature, they aggressively leverage and inte- During international expansion, EECs leveragegrate their established capabilities: using combi- both inward internationalization and institutionalnative capability to sharpen creative imitation arbitrages. EECs actively conduct inward interna-and develop new designs, using intelligence capa-bility to identify new opportunities, using network tionalization in numerous ways, such as interna-capability to benefit from comparative competi- tional licensing, original equipment manufactur-tive advantages contributed by a multitude of spe- ing, cooperative alliances, equity joint ventures,cialized service providers, and using absorptive brand purchasing, and relationship building withcapability to assimilate new technologies and cre- foreign firms. As they develop their knowledgeate new designs and performance features. base, these firms become competitors of compa- Finally, EECs excel in managing value chain nies from advanced economies (Mudambi, 2008).systems, from which they benefit and further re- Inward internationalization provides both oppor-inforce their cost, speed, and channel advantages. tunities to learn and exposure to foreign businessIn conducting support activities such as human practices and markets.resource management, EECs empower employees Many EECs embark on outward FDI as part ofand offer more incentives than their rivals. their growth strategy after gaining adequate inter-Through networks, EECs subcontract and out- national experience through inward cooperationsource activities in which they do not have a with their foreign partners. Finally, EECs leveragecompetitive edge. Through combinative and in- their institutional arbitrage, the term capturing atelligence capabilities, copycats quickly deliver fi- firm’s pursuit of efficient institutions outside itsnal products with new designs and performance home country. The disadvantages previously suf-features appealing to mass consumers. fered at home can be overcome by investing and On an international level, EECs recognize that operating in other developing countries becausesuccess depends on their domestic performance they are experienced in operating in “difficult”
48 Academy of Management Perspectives Maygovernance conditions (Boisot & Meyer 2008; frogging are generic forms of innovative imitation.Cuervo-Cazurra & Genc, 2008). Still, all forms of innovative imitation begin with reverse engineering, which involves purposiveEEC Transformation searching of relevant information, effective co-As Figure 1 illustrates, EECs transform along several operation among technical members of projectpaths. Along with the shift from duplicative (or teams and with marketing and production depart-pure) imitation to innovative (or creative) imitation ments, strong and effective relationships with sup-and ultimately to novel innovation, EECs can opt pliers and customers, and trial and error in devel-for several road maps to grow and evolve: (1) im- oping a satisfactory result (Kale & Little, 2007).prove creation and innovation (a horizontal path), Samsung’s catch-up with Sony may be a lesson to(2) increase market share (a vertical path), and (3) EECs seeking to move forward from creative imita-strengthen both innovation and market share (a tion to novel innovation: In the mid-1990s Samsungdiagonal path). As a latecomer approaches the tech- caught up with Sony in number of patents, and sincenological frontier, its strategies have to shift from then has gone beyond simply imitating and applyingimitation to innovation (Kim, 1997). This has been Sony’s technology (Chang, 2008). Interestingly,the case for many Asian Tigers: First were those from Samsung caught up with Sony in terms of corpo-Japan (e.g., Hitachi, Sharp, and Toshiba), followed rate value and brand value only after the 2000s,by those from South Korea (e.g., Samsung and LG), suggesting that technological catch-up precedesthen Taiwan and Singapore, and now leading corporate value- and brand value-based catch-up.emerging economies. Many Korean firms began du- In the process to improve innovative imitation,plicative imitation during the 1960s and 1970s and EECs leverage low-cost R&D into mass marketsevolved to innovative imitation in the 1980s and and bet on low-cost and disruptive technologies1990s as the economy became more industrialized (Zeng & Williamson, 2007). Cost-cutting initia-(Kim, 1997). Numerous Indian pharmaceutical tives, simplified operations, and lower labor costscompanies share a similar trajectory, starting with underpin these enterprises’ survival and success induplicative imitation and progressing to innovative massive, fast-growing markets. Built on such low-imitation and today to novel innovation (Chittoor, cost advantages, EECs continue exploiting highSarkar, Ray, & Aulakh, 2009; Kale & Little, 2007). technology in low-cost novel ways established While most new copycats begin in the pure global competitors have yet to envision or findimitation stage, more established EECs have re- difficult to conduct. As a result, EECs offer prod-cently advanced to the innovative imitation ucts with incremental innovations in ever-shorterphase. A handful, including India’s Ranbaxy and product life cycles—typically at prices global rivalsChina’s Huawei, have even propelled themselves find hard to match.to the novel innovation stage. Today, most EECs Dawning, a high-performing Chinese computerstrive to collect returns from creative and innova- manufacturer, succeeded in selling high-end prod-tive imitation. Often, they incorporate high tech- ucts to middle and low-end markets with highernology in low-cost products, offer more product volume and lower prices than competitors. BYD, achoices, and even turn high-end specialty prod- Chinese battery manufacturer, holds more than 30%ucts into low-cost, high-volume items (Zeng & of the global battery market share and producesWilliamson, 2007). Creative or innovative imita- batteries at 20% of the cost of its Japanese rivals.tion is aimed at generating facsimile products but These EECs are experts in tailoring products to thewith new performance features. It involves not needs and budgets of local consumers. They are alsoonly activities like benchmarking but also notable good at driving innovations from one market tolearning through substantial investment in R&D another. For example, Shinco gained its market po-activities to create imitative products, which may sition in China’s video compact disc (VCD) markethave significantly better performance features by creating a superior error correction ability thatthan the original (Kim, 1997; Shenkar, 2010). enables consumers to play all kinds of discs— even Creative adaptations and technological leap- pirated ones. Later, the company successfully ex-
2011 Luo, Sun, and Wang 49panded into the digital versatile disk (DVD) market cording to a report by the World Intellectualthroughout the world. Property Organization in 2009). But not all copycats thrive; in fact, many EECsterminate operations, liquidate assets, and end up Mocking Kitten: Video Brinquedofiling for bankruptcy. Failure to evolve and trans-form in ever-changing markets tops the list of Founded in 1994, Video Brinquedo is an anima-reasons for failure. Many EECs learn not only from tion video company based in Sao Paulo, Brazil. ˜market pioneers but from their own failures and Predominantly owned (90%) by a British offshoresuccesses. Despite the apparent weaknesses and company called RXSG Media Group Ltd., thehandicaps EECs face, few experts doubt that their company is led by Silvana Aparecida da Silva,growth will accelerate. who holds the remaining 10%. Video Brinquedo’s absorptive and intelligence capabilities appear to play a critical role in fostering the firm’s growth. Case Studies The recent availability of computer-generatedE ach of the four cases here represents a different imagery (CGI) software and increased computer type of EEC. Two cases are from China (Li speed has made it possible for individual artists Ning and Tianyu), one is from India (Dr. Red- and small companies to produce professional-dy’s), and one is from Brazil (Video Brinquedo). level films and games from their home comput-We chose these companies after extensive field ers. The company produced low-cost films bystudies and desk research. Since 2005 we have adeptly imitating established international ri-been conducting nationwide field studies and vals such as Disney-Pixar and DreamWorks. Byinterviews in China to collect the needed in- taking advantage of Brazil’s state-of-the-art 3-Dformation for the two Chinese cases. The infor- rendering and booming CGI animation tech-mation for Dr. Reddy’s and Video Brinquedo nology, Video Brinquedo was able to quickly an-was obtained through thorough desk research, alyze and reproduce new releases by establishedincluding identifying and cross-checking rele- international rivals and then distribute Videovant information from dozens of online sources. Brinquedo’s version almost simultaneously withWe finally opted for these four cases because the original movie’s release (judging from thethey met our selection criteria: (1) they vary in dates of the New York Times reviews). For exam-size and age, (2) they vary in market share and ple, as noted on the Web site of Brazil’s Ministryscale of operations, (3) they belong to different of Culture, Ratatoing, the cartoon film by Videotypes of copycats proposed in this study, (4) Brinquedo, which was distributed in North Amer-their imitation is not illegal, and (5) they offer ica by Branscome International, was recognized assufficient insight into critical practices relative being very similar to the famous 2007 Pixar filmto imitation and its evolution. Table 1 high- Ratatouille. Likewise, The Little Cars series bylights the profile of these four cases. Video Brinquedo closely resembles the Pixar film China, India, and Brazil are among the fastest Cars, Heavy Weight Panda resembled Kung Fugrowing emerging economies, with an average real Panda, and Gladiformers resembled Transformers.gross domestic product (GDP) growth rate of Armed with advantages in both cost and speed,10%, 8%, and 5% respectively from 2006 to 2008 Video Brinquedo adopted a well-matched niche(World Bank, 2009). While the number of inter- distribution strategy, namely direct to video, un-national patents owned by Chinese firms is far der which films were released to the public onsmaller than those owned by firms in G7 countries home video formats before or without being re-(Canada, France, Germany, Italy, Japan, the leased in movie theaters or on broadcast televi-United States, and the United Kingdom), many sion. These direct-to-video releases are well-suitedEECs in these three countries exhibit steady to Video Brinquedo’s niche in lower technical orgrowth in filing patents and registering trademarks poorer artistic quality and fewer content restric-(annual growth of over 20% in such filings, ac- tions. In this way, Video Brinquedo managed to
50 Academy of Management Perspectives MayTable 1Case Summary Company Video Brinquedo Li Ning Dr. Reddy’s Tianyu Year founded 1994 1990 1984 2002 Home country Brazil China India China Ownership Private Publicly listed Publicly listed Private Size n/a 6,200 retail stores 10,000 employees 1,100 employees Revenue (USD) n/a 635 million (2008) 854.6 million (2008) 1,150 million (2008) Sales growth n/a 37.7% 26.05% 45.5% (05–09) Major business Animation Sporting goods Pharmaceuticals Mobile phones Domestic market n/a 11.1% (2008) 2% (2008) 14% (2008) share CHAIN Framework Combinative ● Imitated multiple targets ● Identiﬁed and imitated ● Quickly reverse-engineered ● Excelled in utilization outside capability separately (e.g., Disney- competitors’ brand generic drugs core technologies (e.g., the Pixar, DreamWorks) management and marketing ● Delivered high-quality drug turnkey model invention) strategies offerings ● Was skillful in delivering a ● Hunted talents from ● Achieved successful variety of products sophisticated MNEs integration via sequential M&As Hardship-surviving ● Survived in underdeveloped ● Survived as a latecomer in an ● Survived under hyper- ● Survived under hyper- capability domestic market by industry occupied by well- competition in local generic competition in domestic competing with known foreign brands drug market mobile market sophisticated international competitors Absorptive ● Developed analogous but ● Adopted new forms of ● Had a distinctive ability to ● Quickly and continuously capability different key elements marketing and channel (e.g., develop new generic drugs launched newly designed (e.g., character design, the ambush marketing with public patent models with improved animation, scenery, and strategy of the 2008 Olympics) information features voice acting) ● Established research centers in India, the U.S., and the U.K. Intelligence ● Aware of opportunistic ● Prioritized marketing and shoe ● Could foresee and respond ● Catered to rapidly changing capability potential of new releases by design research to local IPR policy changes consumer preferences established international ● Used timely celebrity ● Had ﬁrst-mover ● Had ﬁrst-mover advantage rivals marketing advantages resulting from of related license and ● Built online sales channels the Waxman-Hatch Act in channel partnership the U.S. Networking ● Focused on direct-to-video ● Undertook collaborative R&D ● Had good connections with ● Had close connection with capability channel projects with universities and local and global venture distributors and retailers ● Built online sales channel MNEs capitalists and other ● Maintained partnerships or ● Maintained close afﬁliation investors sales agents in several with related authorities ● Maintained excellent countries through sponsorship programs collaborative R&D with other research-focused ﬁrms
2011 Luo, Sun, and Wang 51satisfy the needs of price-sensitive customers un- Yelena Isinbayeva, and several high-profile NBAconcerned with brand affiliation. players, including Shaquille O’Neal, Baron Davis, Not surprisingly, with an excessive focus on Chuck Hayes, and Damon Jones, to compete withimitation, Video Brinquedo’s films are plagued rivals Nike, Adidas, and Reebok. Like Nike, Liwith a less than stellar reputation. For instance, Ning hosted college basketball games in 2005,over 70,000 negative comments have been posted building brand familiarity with more than 10,000for the trailer of Video Brinquedo’s Ratatoing and students from 120 different universities.over 50,000 for Heavy Weight Panda on YouTube. On the management side, founder Li Ning hasNevertheless, aside from largely imitated central tapped talent from sophisticated multinationalconcepts and characters, Brinquedo managed to companies. The firm’s chief financial officer hailsdeliver a certain style of its own (e.g., online from Reuters Group, the chief marketing officerordering of the combination of DVDs and char- brings his expertise from Coca-Cola, its publicacter toys) and contributed to Brazil’s CGI indus- relations director came from DuPont, and one oftry by helping bolster the country’s animation and its vice presidents transferred from Procter andentertainment production. In order to survive and Gamble. The company continues to evolve, striv-thrive in the movie industry this mocking kitten ing to rise along the imitation-innovation curve.needs to work hard to shed its gloomy reputation It has also increased its R&D and innovationfor plagiarism and innovate by incorporating more capabilities. In 1998, the company set up its firstoriginal content and creating a signature style. R&D center. In 2004, the company collaborated with Hong Kong Chinese University to build aDuplicating Wildcat: Li Ning research database for footwear style and design.Li Ning is an outstanding Chinese “gym prince” The company purchases core technologies andwho won six gold medals in the sixth World patents for style design and color application andGymnastics Championships in 1982. His com- keeps costs down by outsourcing its manufacturingpany, Li Ning, is now recognized as the largest operations. To capture growth from direct-to-con-Chinese sporting goods company, rivaling the sumer channels, it expanded online sales byU.S.’s Nike and Germany’s Adidas in China. Es- launching a Web site in 2009. Meanwhile, thetablished in 1990 after Li Ning’s retirement, the company opened its first overseas flagship store incompany operates more than 6,200 retail stores in Singapore and is projected to open 70 to 100China, 1,012 of which opened in 2008. To ensure overseas outlets for badminton and related equip-successful marketing strategies, the company fol- ment. Li Ning’s main challenges include its per-lowed an approach similar to that of sophisticated ception as a copycat brand and competition fromcompetitors such as Nike and Adidas. It closely established international brands. Nevertheless, Limimicked the famous Adidas slogan “Impossible is Ning is successfully emerging from its status asnothing” when crafting its own slogan “Anything duplicative copycat and showing strong signs ofis possible,” and its logo closely resembles Nike’s becoming an adaptive and creative copycat, hold-famous swoosh. ing a substantial market share in China. The company has demonstrated a remarkableability to actively and creatively follow and ex- Emulation Housecat: Dr. Reddy’stend marketing strategies from established coun- Founded in 1984, Dr. Reddy’s has evolved from aterparts. For example, it sponsored four Chinese small private firm to a leading Indian pharmaceu-national teams (table tennis, diving, gymnastics, tical company with global impact. Among the firstand shooting), as well as the Spanish, Swedish, Asian pharmaceutical companies listed on theand Argentinean national basketball teams. In New York Stock Exchange (NYSE), Dr. Reddy’sdoing so the brand expanded into international has enjoyed a soaring growth rate in both salesmarkets in Russia, Southeast Asia, and Spain. Li revenue and profit (26% and 78% respectively) inNing signed a variety of celebrities such as profes- the last five years, according to Dr. Reddy’s finan-sional tennis player Ivan Ljubicic, pole-vaulter cial statements reported to the NYSE. After India
52 Academy of Management Perspectives Mayabrogated laws respecting international pharma- Southeast Asia, and Latin America. With accu-ceutical patents through its Patents Act in 1970 mulated rich cash reserves, the company later(this act removed composition patents from food expanded domestically and internationallyand drugs), the pharmaceutical industry became through a series of mergers and acquisitions tohypercompetitive, with 20,000 or so local firms strengthen its manufacturing capacity, foreigncompeting in the domestic market, which is the sales channels, and most important, patents andworld’s second largest pharmaceutical market to- technology. Dr. Reddy’s acquired Benzex Labora-day by volume. By 1990, Dr. Reddy’s survived by tories in India, Trigenesis and American Reme-boasting a wide range of imitative drugs in its dies in the United States, BMS Laboratories andportfolio and by buttressing its strong reverse- Meridian Healthcare in the United Kingdom, be-engineering and hardship-surviving capabilities. tapharm Arzneimittel GmbH in Germany, and With its high intelligence capability, Dr. Red- Roche’s API plant in Mexico. It has nine Fooddy’s carefully scrutinized the U.S. market—the and Drug Administration-approved plants (six inworld’s largest pharmaceutical market, accounting India and one each in the U.K., U.S., and Mex-for half of global sales. It aggressively copied ico), five research centers (two in India, one inblockbuster drugs and searched for potential the U.K., and two in the U.S.), and seven strate-anomalies or loopholes in the patents by hiring a gic business units.team of experienced and specialized lawyers. Be-tween 2002 and 2004, Dr. Reddy’s was involved in Adaptive Junglecat: Tianyuat least seven lawsuits for drug patent violation, Founded in April 2002 as a mobile phone salestwo of which involved patented drugs with ex- agent, Tianyu performed well compared with itspected sales of more than US$700 million, ac- peers, selling approximately 50% of Samsung’scording to various news reports. In 2002 Dr. Red- mobile phones in China. The turnkey model in-dy’s succeeded in defeating Pfizer in a New Jersey vention by MediaTek, a leading Taiwanese chipcourtroom and was allowed to produce and sell the design company, made low-cost integration ofpatented drug Norvasc, with annual sales of multiple chip functions possible in 2006. ThisUS$3.7 billion. This success helped Dr. Reddy’s activity spurred low-cost mobile phone produc-reposition itself and get a foothold in the lucrative tion. Since then hundreds of Chinese knockoff“branded generic” segment of the massive U.S. (shanzhai in Mandarin) phone manufacturers havepharmaceutical market. emerged. Approximately 50% of Chinese consum- While Dr. Reddy’s began by copying existing ers favor shanzhai phones because they includetop-selling drugs, technological advances triggered larger screens and more features at a price signif-its ability to develop new molecules and apply for icantly lower than high-priced brands from Nokia,its own patents. In 2001, when the Waxman- Motorola, and Sony. By the end of 2003, ChineseHatch Act took effect, allowing generics compa- knockoffs accounted for 60% of the market.nies to undertake preparatory actions to file In 2006 Tianyu became further entrenched inregistration applications before the patents of the mobile phone manufacturing market, quicklyoriginators expire, Dr. Reddy’s appeared as the transforming its operations from pure imitation to“first to file” and quickly moved to the U.S. mar- innovative imitation. Given fierce competition inket with its well-prepared abbreviated new drug the mobile phone market, the company quicklyapplications. One example of these successes is its realized that pure imitation would not be sustain-US$56 million profit from producing and selling able and that profit margins arising from pureEli Lilly’s off-patent drug Prozac. imitation would constantly drop due to increasing Dr. Reddy’s successfully expanded internation- modularization and standardization. Thus, theally by following a strategy that focused on merg- company emphasized its strength in creative imi-ers and acquisitions as well as R&D (a combina- tation, increasing creative components in its prod-tive capability). Dr. Reddy’s first expanded to uct design and also taking a creative approach toother developing countries in Eastern Europe, market distribution and customization. It aban-
2011 Luo, Sun, and Wang 53doned its colossal hierarchical distribution net- shows, EECs differ from their Japanese and Koreanwork model and instead willingly shared almost predecessors in several traits and strategies.half of its profit margin with its direct sales agents. By presenting conceptual models and four caseTianyu focused on the design, appearance, and studies, we hope to shed light on why and howperformance of its products rather than original, EECs have experienced rapid growth in recentbasic research. Under a strong, consolidated, and years. We contribute to the growing stream ofrigorous management, Tianyu now introduces research on emerging economy copycats by delin-more than 100 new products to market each year. eating these firms’ capabilities, competitive ad-It takes merely 45 days on average from an idea to vantages, internal and external conditions thatproduction at Tianyu, compared to at least six facilitate growth and progression, and correspond-months at its global rivals such as Motorola and ing strategies underlying their imitation-innovationNokia. Tianyu boasts a strong applied research curve. We suggest that EECs’ unique capabilitiesand development workforce (more than 600 (combinative capability, hardship-surviving capabil-employees in this area), 40% of them holding ity, absorptive capability, intelligence capability, andgraduate degrees. Innovative imitation and its fur- networking capability) and distinctive competitivether push into novel innovation have propelled advantages (cost, speed, and channel) are what setTianyu into the limelight at record speed, with them apart from their rivals in other countries. ThisUS$1.15 billion in revenues in 2009 and 75.4% is made possible by a new set of social, technological,average growth rate. organizational, regulatory and legal, and market con- ditions they face. This study may also provide insight and impli- Future Research and Conclusion cations for practitioners. It may be useful for ex-T he developing world is rapidly surpassing the ecutives to rethink conventional innovation. developed world in terms of economic size, Many firms in developed countries equate inno- with EECs playing a major role in this trans- vation with technological breakthroughs, embod-formation. These enterprises are latecomers to the ied in revolutionary new products designed forworld stage, having started rather unceremoni- mid-range to high-end consumers. Lessons fromously. Yet following a considerable period of de- EECs suggest that innovations also consist of in-velopment, EECs are now beginning to challenge cremental improvements to products and pro-global industry leadership positions. The breadth cesses aimed at the middle or bottom of the in-and impact of EECs is quickly intensifying, and come pyramid. In the economic downturn, suchsome rank among the leaders in their respective lessons become particularly critical. It is true thatfields. many EECs have failed, and many more will fail This study seeks to deliver an overarching due to their inherent weaknesses. But from aframework to better understand EECs’ patterns, learning perspective, cost advantage, speed advan-types, behaviors, strategies, and evolution. Al- tage, and channel advantage are important notthough most have not yet reached global status, only to EECs but to Western companies thatmany have fashioned unconventional business intend to successfully cope with today’s economicmodels and brought an innovative approach to and market conditions.developing products, marketing, engaging custom- Furthermore, EECs’ innovative imitation in-ers, and growing market share. Many elements of volves rethinking entire production processes andmodern business, from supply chain management business models. To this end, many successfulto recruitment and retention, are being retooled EECs actively use specialized vendors and subcon-in one emerging market or another. EECs’ growth tractors for modularized or standardized compo-along the continuum from pure imitation to cre- nents, design, or services; use existing technologyative imitation and finally to novel innovation in imaginative new ways; and apply mass-produc-parallels the growth of many Japanese and Korean tion techniques to serve the masses on the bottomfirms three to four decades ago. Still, as this study of the income pyramid. Emerging economy entre-
54 Academy of Management Perspectives Maypreneurs may find a developmental path under the the end but as a process-based means by which toguidance of the framework presented above and ultimately establish their own competitive edge.learn important lessons from pioneering copycats. Only when transcending is ultimately achievedEntrepreneurs must also realize that future success will EECs thrive, but this transformation requiresdepends on the continuous improvement of cre- a full set of organizational architecture (e.g., cul-ative imitation and ongoing transformation from ture, reward system, routines, and ethics) thatimitation to innovation. Without continuous im- incubates and supports continuous learning andprovement, today’s entrepreneurs can lose their improvement. This process is a critical lacunaposition and shares to next-generation copycats warranting future inquiry.from countries with even less expensive producers Conditioning factors that facilitate creative(e.g., Vietnam). imitation and further transition to novel innova- tion must be examined as well. These factors mayResearch Agenda explain and predict why copycatting behaviorsThis study has aided in setting the groundwork for vary across countries, industries, and organiza-further research. It represents an important step tions. Research should look at such factors from athat analyzes unique strengths, strategies, prac- multilevel (micro, meso, macro, and meta) lens.tices, and environments for firms in emerging This article renders a parsimonious framework oneconomies. A logical extension of our research some of these forces yet does not go as far aswould be to verify this framework empirically. It is articulating specific ways in which they affect thealso important to follow up on EECs’ evolution process and consequence of imitation and itsand transformation as they continue to grow do- transformation. Two fascinating paths for futuremestically and internationally. Our four cases are research are (1) to theorize and verify under whatrather limited and thus not representative of di- circumstances copycatting flourishes in the face ofverse EECs from a large number of emerging econ- competition and globalization and (2) to investi-omies. Even among BRIC countries, EECs are gate how it contributes to the financial return ofquite different in their capabilities, strategies, the firm and the well-being of the society.and performance (Ramamurti & Singh, 2009). When applied to emerging economy enter-To address this bias, new research examiningand contrasting EECs from different emerging prises, resource-based, knowledge-based, and dy-economies is warranted. Also, the lines demar- namic-capability theories may be enriched by in-cating the typology of EECs are constantly shift- corporating the tacit and inimitable knowledge ofing, and some companies may move from one developing innovative imitation and upgradingcategory to another. from imitation to novel innovation. Good imita- Imitation is an intelligent search for cause and tion is difficult and requires intelligence and imag-effect, rather than mindless repetition (Shenkar, ination (Shenkar, 2010). Another worthy avenue2010). Research needs to address imitation from a for future research is to explore what creativerational, deliberate, and process perspective. It is imitation-related competencies can produce a sus-particularly interesting to unpack the black box of tained competitive advantage for EECs. We doc-how creative imitation is initiated, continued, ex- ument that much of copycats’ success has to doecuted, and succeeded. For instance, EECs’ intel- with unique processes associated with intelligentligence-gathering capability may foster their iden- search, target aiming, cost reduction, product of-tification of where, what, when, and how to copy, fering, business networking, and marketing strat-while other unique capabilities we discussed here egies. These processes are difficult to substitutemay stimulate their speedy implementation of in- and mimic and are often achieved by proprietarynovative imitation. Important too, transforma- learning. To unveil such processes, one could in-tional process from imitation to innovation merits tegrate entrepreneurial, learning, and ambidex-scholarly attention because successful copycats in trous insights into capability possession, deploy-every industry and market view imitation not as ment, and upgrading needed to attain sustained