Tag Archives: Disruption Strategy

CAUSING DISRUPTION – A VIABLE STRATEGY?

Not so long ago, I looked at the steel crisis here in the UK and questioned whether China was executing a dedicated ‘Disruption Strategy’ rather than simply ‘dumping’ cheap steel onto the world market?

With steel and, especially, Chinese steel in the news again with the threat it has created to the UK steel industry, I thought I would take a closer look at what exactly a ‘Disruption Strategy’ is and how such strategies, when well executed,  provide a proven, viable way of launching new products into already crowded markets.

disruption1For some, seeking to launch a new or replica version of an existing product into a crowded market might seem like lunacy yet, over the years many companies have managed to do just that by the intelligent application of Disruption Strategy. And how such disruption strategies work should be a lesson to those already occupying space in the crowded market for if they aren’t paying attention it is they who might end up getting squeezed out!

How does the Disruption Strategy work?

Let’s take as our example the Japanese car industry. When firms such as Toyota, Datsun (the original name of today’s Nissan) and Honda wanted to enter US and European markets in the sixties they were faced with a number of challenges. Primary among these challenges were that they were perceived to be already overcrowded markets and that Japanese build quality was thought to be inferior.

In a nutshell, the Japanese manufacturers’ strategy was to attack the ‘discount’ end of the market with lower priced cars that had higher spec as standard than the western competition. This disrupted the accepted ‘norm’ and car buyers, liking the added, higher spec option, slowly started buying the new products. Some of those buyers were from the traditional discount end of the market but some were also people seeing a like for like product with the more expensive, higher specification models they had been purchasing. Gradually, this gained the Japanese a foothold, the big US and European manufacturers happy to concede a little ground at that end of the market to a ‘discount’ brand.

But having conceded that ground they opened the whole market to their new competitor. The market was disrupted and the western ‘big boys’ struggled to recognise what was happening. The Japanese companies slowly started competing higher up the quality/price chain, the western manufacturers conceded more ground although now it was not quite so voluntary but the initial damage had been done.

In the UK, it was British Leyland’s build quality that started to be questioned; “not as good as the Japanese” according the buying public. They couldn’t respond and a slow death began.

Meanwhile the Japanese continued to gradually disrupt the previously accepted way of doing things until they reached a point where market share and their own size allowed them to compete not just as equals but in many cases as superior products. The battle for a significant share of the market had been won.

Today, the Japanese are the world’s largest manufacturer of cars. The British automobile industry has been decimated; the US is still struggling to come to terms with the new reality and European companies like Saab have disappeared. The German auto industry reacted both the fastest and the best and now has a reputation for extremely high build quality which has allowed it to survive and thrive in a market redefined by the Japanese.

Elsewhere, the Korean manufacturers have studied, learned and then employed an almost carbon disruption strategy to that of their Asian neighbours 40+ years ago.

In the last decade or so we have witnessed the ultimate triumph of the disruption strategy which enters at the discount end of a market with its arrival as a luxury brand. Back in the sixties and seventies they would never have believed you had you told them how prestigious Toyota (as Lexus) and Datsun/Nissan (as Infiniti) would be in the 21st century.

 

© Jim Cowan, Cowan Global, 2011, 2016

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HAVE WE MISSED CHINA’S STEEL DISRUPTION STRATEGY?

Recent news has made bleak reading for the UK’s once proud steel industry but, despite political announcements of support, is the real issue being overlooked?

Pic: The Independent

Pic: The Independent

Over recent days and weeks, the UK media has reported on what may prove to be the beginning of the end for the steel industry in this country.

Much of that media commentary has focused on the need for government to do more without reflecting accurately on what more government can do. For despite grand talk from politicians in Westminster and devolved parliaments alike, the fact is that for the three key problems identified by the UK Steel Summit, their hands are tied.

The UK Steel Summit identified high energy costs, restrictions on state aid, and the Chinese dumping steel on the export market below the cost of production as the three key problems. The first two tie the hands of UK politicians due to EU restrictions and policies while the third, although actionable by the World Trade Organisation (WTO) again ties our politicians’ hands because they need Brussels’ consent before they are permitted to act and take the matter to the WTO.

But, has anyone considered that China is not simply dumping cheap, surplus steel on foreign markets but flooding them to a more defined strategic purpose?

Doesn’t it seem strange that a country recognised for its careful planning of industrial growth should make such an apparent ‘school-boy error’ in this sector?

Our politicians appear to have overlooked the possibility that this is a carefully crafted disruption strategy aimed at securing a huge slice of the world steel market. It certainly shows all the hallmark signs of the classic disruption strategy:

  • Come in at the cheaper, lower quality end of the market
  • Flood the market place of your competitors
  • When your competitors vacate the discount end of the market, increase quality but keep prices artificially low
  • And so on until you dominate the market having squeezed your competitors out or restricted them to lower volume niche markets

Unfortunately, as I have pointed out on numerous occasions in the past, the UK’s politicians are woefully inadequate when it comes to strategy, as are the nation’s media judging by the lack of recognition of this inadequacy.

This presents the twin problem of (1) China’s steel market disruption strategy not being recognised until it is too late and, (2) even if it is recognised in time, those tasked with addressing the issue lacking the competence to come up with a credible counter-strategy.

This is a bold, global strategy from the Chinese, a master stroke worthy of admiration from anyone with an appreciation of things strategic. However it must be countered, and countered soon, if we are not going to hand global dominance of this vital market to a single power.

The clock is ticking, and ticking fast.

 

© Jim Cowan, Cowan Global, 2016

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