Disruptive Innovation - Making it happen in Organizations

GM has been focusing on China to an increasing extent in recent times. In 2002 it opened an assembly plant for manufacturing its Buick model in China. GM has also entered into a joint venture with a Chinese company (Shanghai Automotive Industry Corporation Group) to manufacture mini-vehicles targeting the Chinese middle class. This way it is avoiding competing against Mercedes, BMW, and Lexus who are targeting China's wealthy and sophisticated customers. GM has a definite reason for approaching the market this way. Even if a car company wins the segment of wealthy people in China, the country does not have the infrastructure and quality suppliers to provide quality materials that will go into manufacturing of cars for sophisticated customers. If GM were to target the wealthy section and serve these customers successfully by some means or other, it would not be able to use China as a base to manufacture quality cars meant for export (bringing quality materials into China from other countries erases any gains that accrue from cheap labor). Instead, through its joint venture, GM can produce a small car that is fuel-efficient, and is priced at just $4,000. At this price, GM can sell millions of cars to the Chinese middle class, a majority of which still does not own cars. Other benefits include creating export capabilities for similar (not-so-sophisticated) markets. GM can export slightly better, bigger and more sophisticated cars to eastern Europe and Russia.

In the 1950s, Honda was manufacturing motorbikes for people living in crowded and impoverished Japanese cities. The company's business model was to sell at low prices, and yet make profits by squeezing costs as much as possible. When Honda entered the US market in the early 1960s with its Supercub, it immediately captured a particular segment of the market. The product was simple and low-priced. Americans who could not afford a Harley-Davidson were happy to buy a Supercub instead. Honda's experience in Japan offered it a huge competitive advantage, when it disrupted the US motorcycle market. The US bike-makers were unwilling to offer their motorcycles at the price at which Honda was selling. Thus Honda's business model which was successful in Japan was also successfully employed in the high-income US market.