Disruptive Innovation in Chinese and

Indian Businesses

With the rapid development of China and India as new economic powers in
global competition, an obvious question is whether these emerging economies
present great opportunities or threats. Whilst answers are bound to differ depend-
ing on one’s perspective, it is increasingly clear that local firms, especially local
entrepreneurs, from these emerging economies will play a critical role in global
competition by becoming challengers to global incumbents. Indeed, the fact that
the majority of their populations are at the bottom of the pyramid, and thus
cannot afford products designed for the developed markets, has made these
emerging economies fertile ground for the development and application of dis-
ruptive innovations.
With a novel mix of key attributes distinctive from those of established tech-
nologies or business models, disruptive innovations are typically inferior, yet
afford­able and “good-­enough” products or services, which originate in lower-­
end market segments, but later move up to compete with products and services
provided by incumbent firms. This book sheds new light on disruptive innova-
tions both from and for the bottom of the pyramid in China and India, from the
point of view of local entrepreneurs and international firms seeking to operate
their businesses there. It covers both the theoretical and practical implications of
disruptive innovation using conceptual frameworks alongside detailed case
studies, whilst also providing a comparison of conditions and strategic options in
India and China. Further, unlike existing studies, this book focuses on the
neglected perspective of local challengers as the primary players, and in doing
so reveals the extent to which the future landscape of global competition may be
shaped by disruptive innovation, as well as its capacity to make the world
“flatter” and more sustain­able.
This unique book will be valu­able to both scholars and practitioners inter-
ested in disruptive innovation, and to those working in the fields of Asian
studies, international business, economics and globalization.

Peter Ping Li is Professor of Chinese Business Studies at Copenhagen Business

School, Denmark
Routledge contemporary China series

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inequality in China The Shanghai cooperation
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in China
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A view from Lijiang
Culture
Xiaobo Su and Peggy Teo
Cannibalizations of the Canon
Edited by Carlos Rojas and
44 Suicide and Justice
Eileen Cheng-­yin Chow
A Chinese perspective
Wu Fei
36 Institutional Balancing in the
Asia Pacific 45 Management Training and
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China’s rise Educating managers in a
Kai He globalized economy
Edited by Malcolm Warner and
37 Rent Seeking in China Keith Goodall
Edited by Tak-­Wing Ngo and
Yongping Wu 46 Patron–Client Politics and
Elections in Hong Kong
38 China, Xinjiang and Central Bruce Kam-­kwan Kwong
Asia
History, transition and crossborder 47 Chinese Family Business and the
interaction into the 21st century Equal Inheritance System
Edited by Colin Mackerras and Unravelling the myth
Michael Clarke Victor Zheng
48 Reconciling State, Market and 58 Law, Wealth and Power in
Civil Society in China China
The long march towards prosperity Commercial law reforms in context
Paolo Urio Edited by John Garrick

49 Innovation in China 59 Religion in Contemporary China

The Chinese software industry Revitalization and innovation
Shang-­Ling Jui Edited by Adam Yuet Chau

50 Mobility, Migration and the 60 Consumer-­Citizens of China

Chinese Scientific Research The role of foreign brands in the
System imagined future China
Koen Jonkers Kelly Tian and Lily Dong

51 Chinese Film Stars 61 The Chinese Communist Party

Edited by Mary Farquhar and and China’s Capitalist
Yingjin Zhang Revolution
The political impact of the market
52 Chinese Male Homosexualities Lance L.P. Gore
Memba, Tongzhi and Golden Boy
Travis S.K. Kong 62 China’s Homeless Generation
Voices from the veterans of the
53 Industrialisation and Rural Chinese civil war, 1940s–1990s
Livelihoods in China Joshua Fan
Agricultural processing in Sichuan
Susanne Lingohr-­Wolf 63 In Search of China’s
Development Model
54 Law, Policy and Practice on Beyond the Beijing consensus
China’s Periphery Edited by S. Philip Hsu,
Selective adaptation and Suisheng Zhao and Yu-­Shan Wu
institutional capacity
Pitman B. Potter 64 Xinjiang and China’s Rise in
Central Asia, 1949–2009
55 China–Africa Development A history
Relations Michael E. Clarke
Edited by Christopher M. Dent
65 Trade Unions in China
56 Neoliberalism and Culture in The challenge of labour unrest
China and Hong Kong Tim Pringle
The countdown of time
Hai Ren 66 China’s Changing Workplace
Dynamism, diversity and disparity
57 China’s Higher Education Edited by Peter Sheldon,
Reform and Internationalisation Sunghoon Kim, Yiqiong Li and
Edited by Janette Ryan Malcolm Warner
67 Leisure and Power in Urban 77 Looking for Work in Post-­
China Socialist China
Everyday life in a medium-­sized Governance, active job seekers
Chinese city and the new Chinese labour
Unn Målfrid H. Rolandsen market
Feng Xu
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Alicia Garcia-­Herrero
69 Education Reform in China
Edited by Janette Ryan 79 Mao’s China and the Sino-­
Soviet Split
70 Social Policy and Migration in Ideological dilemma
China Mingjiang Li
Lida Fan
80 Law and Policy for China’s
71 China’s One Child Policy and
Market Socialism
Multiple Caregiving
Edited by John Garrick
Raising little Suns in Xiamen
Esther C.L. Goh
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Global Context
72 Politics and Markets in Rural
Taiwan’s foreign policy and
China
relations
Edited by Björn Alpermann
Edited by C. X. George Wei
73 China’s New Underclass
Paid domestic labour 82 The Chinese Transformation of
Xinying Hu Corporate Culture
Colin S.C. Hawes
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China 83 Mapping Media in China
Alternative approaches to poverty Region, province, locality
assessment Edited by Wanning Sun and
Lu Caizhen Jenny Chio

75 International Governance and 84 China, the West and the Myth of

Regimes New Public Management
A Chinese perspective Neoliberalism and its discontents
Peter Kien-­Hong YU Paolo Urio

76 HIV/AIDS in China – The 85 The Lahu Minority in Southwest

Economic and Social China
Determinants A response to ethnic
Dylan Sutherland and marginalization on the frontier
Jennifer Y.J. Hsu Jianxiong Ma
86 Social Capital and Institutional 92 The Chinese Corporatist State
Constraints Adaption, survival and resistance
A comparative analysis of China, Edited by Jennifer Y.J. Hsu and
Taiwan and the US Reza Hasmath
Joonmo Son
93 Law and Fair Work in China
87 Southern China Sean Cooney, Sarah Biddulph and
Industry, development and Ying Zhu
industrial policy
Marco R. Di Tommaso, 94 Guangdong and Chinese
Lauretta Rubini and Diaspora
Elisa Barbieri The changing landscape of
Qiaoxiang
88 State-­Market Interactions in Yow Cheun Hoe
China’s Reform Era
Local state competition and global 95 The Shanghai Alleyway House
market building in the tobacco A vanishing urban vernacular
industry Gregory Bracken
Junmin Wang
96 Chinese Globalization
89 The Reception and Rendition of A profile of people-­based global
Freud in China connections in China
China’s Freudian slip Jiaming Sun and Scott Lancaster
Edited by Tao Jiang and
Philip J. Ivanhoe 97 Disruptive Innovation in
Chinese and Indian Businesses
90 Sinologism The strategic implications for local
An alternative to orientalism and entrepreneurs and global
postcolonialism incumbents
Ming Dong Gu Edited by Peter Ping Li

91 The Middle Class in Neoliberal

China
Governing risk, life-­building, and
themed spaces
Hai Ren
Disruptive Innovation in
Chinese and Indian Businesses
The strategic implications for local
entrepreneurs and global incumbents

Edited by Peter Ping Li

First published 2013
by Routledge
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Simultaneously published in the USA and Canada
by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2013 selection and editorial material, Peter Ping Li; individual chapters,
the contributors
The right of Peter Ping Li to be identified as the author of the editorial
material, and of the authors for their individual chapters, has been asserted
in accordance with sections 77 and 78 of the Copyright, Designs and
Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
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any information storage or retrieval system, without permission in writing
from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is avail­able from the British Library
Library of Congress Cataloging in Publication Data
Disruptive innovation in Chinese and Indian businesses: the strategic
implications for local entrepreneurs and global incumbents/[edited by]
Peter Ping Li.
p. cm. – (Routledge contemporary China series; 97)
Includes bibliographical references and index.
1. Diffusion of innovations–China. 2. Diffusion of innovations–India.
3. Technological innovations–China. 4. Technological innovations–
India. 5. Entrepreneurship–China. 6. Entrepreneurship–India.
I. Li, Peter Ping.
HC430.T4.D57 2013
338′.0640951–dc23 2012036131
ISBN: 978-0-415-68081-3 (hbk)
ISBN: 978-0-203-38754-2 (ebk)
Typeset in Times New Roman
by Wearset Ltd, Boldon, Tyne and Wear
I Delicate This Book to My Wife, Yvonne Yang, and My
Daughter, Helen M. Li
Contents

List of illustrations xv
List of contributors xvii
Preface xxiv

1 Introduction: disruptive innovation from the bottom of the

pyramid: the strategic implications for local challengers and
global incumbents 1
PeTeR PiNG Li

PART I
The contexts for DI from China and India 31

2 Economic competitiveness and disruptive innovation:

exploring the macro and micro contexts in China and India 33
KiRANKUMAR S. MOMAYA AND RUCHiTA GUPTA

3 The role of government in an emerging disruptive

innovation: the case of E-bikes in China 50
Yi RUAN, CHANG-CHieH HANG, YANMiN WANG AND RUfei MA

4 The emerging pattern of disruptive innovation from the

bottom of the pyramid 68
XiAOBO WU AND YANBiN JiANG

PART II
The strategies of DI for local challengers 83

5 Mapping innovations in the disruptive innovation realm in

India: what and where in the national pyramid of India 85
KARUNA JAiN, MUKUNDAN R. AND DHARMeSH GUPTA
xiv Contents
6 Transformative capacity and absorptive capacity: the rise of
Chinese wind turbine manufacturers 109
SUNNY Li SUN AND XiAOMiNG YANG

7 Disruptive innovation in China’s “shanzhai” cell phone

industry: theory-building via case studies 136
JiANGHUA ZHOU, JiZHeN Li, AND YUNHUAN TONG

PART III
The strategies of DI for global incumbents 165

8 Disruptive innovation at the bottom of the pyramid (BOP):

what role can Western incumbents play? 167
CONSTANTiNOS C. MARKiDeS

9 The new wave of disruptive innovation from China: why

and how global incumbents need to respond 179
PeTeR J. WiLLiAMSON AND eDeN Y. YiN

10 Ambidextrous capability: the case of Japanese enterprises 199

MASATOSHi fUJiWARA

11 Conclusion: future research agenda 218

PeTeR PiNG Li

Index 224
Illustrations

Figures
3.1 Industry clusters of E-­bikes in China 53
3.2 Simple model/E-­bicycle vs. deluxe model/E-­scooter 54
3.3 Sales of three types of 2-wheelers in China 55
3.4 Banning of E-­bikes by city governments over the years 61
5.1 Population–income distribution pyramid 88
5.2 Market segments 94
5.3 India Mark II pump 97
5.4 Jaipur foot 98
5.5 Mapping innovations to sector-­wise market pyramids 102
5.6 Problem solving approaches to achieve engineering targets 104
6.1 Market share of WTG products in China 116
6.2 The evolutionary process of Chinese firms’ innovation capacity 123
7.1 The value eco-­system of SCPs 142
7.2 Production process of “shanzhai” cell phone 152
7.3 The interaction between disruptive technology providers and
Shanzhai cell phone manufacturers in the industrial chain 153
7.4 Business model as linkage between disruptive technology and
BoP market 158
7.5 Synergetic innovations of technologies and business model
oriented to BoP market 158
10.1 The framework of ambidextrous capability 202
10.2 Ratio of the cost of non-­genuine inks over the cost of genuine ink
in Denmark 205
10.3 A disastrous result of using non-­genuine products 209
10.4 L100 launched in Indonesia 210

T­ables
1.1 An integrative typology of global innovation 12
2.1 Trends in the ranks of national competitiveness 36
2.2 Number of innovative firms from leading countries (among top 50) 39
xvi   Illustrations
2.3 Comparative glimpse of select innovative firms from China and
India 41
2.4 Firm DI and R&D strategy to achieve successful DI 43
2.5 Measure of innovation output: trends in triadic patents 44
2.6 Comparative glimpse of select indicators of innovation 45
3.1 1999 National Standard (GB17761–1999) 57
3.2 Examples of provincial governments’ approaches to regulating
E-­bikes 61
4.1 Four basic paths of DI as its primary patterns/mechanisms 75
5.1 Brief description of innovations and their mainstream
competitors 89
5.2 Approaches of DI 96
5.3 The unique characteristics of DIs 100
6.1 The high growth of global wind installed cumulative capacity 112
6.2 Global rank of wind turbine manufacturers 113
6.3 The cooperation between Chinese new players and foreign
partners 125
6.4 Main parts and components suppliers 126
6.5 A summary of three leading WTG manufacturers 128
6.6 A comparison between disruptive innovation and absorptive
capacity 132
10.1 Summary of the cases 214
Contributors

Masatoshi Fujiwara is Associate Professor of Strategy and Innovation at Kyoto

Sangyo University, Japan. He received his BA, MA, and PhD (commerce and
management) from Hitotsubashi University in Japan. He has conducted stud-
ies on the dynamic spiral mechanisms of knowledge accumulation and utili-
zation in diversified firms. His current research focuses primarily upon the
dynamic interactions between strategy, innovation and business model. In
particular, he is interested in organizational ambidexterity and examining
established Japanese firms which have succeeded in managing two seemingly
contradictory elements at the same time: brushing up existing technologies
while developing new technologies; holding their original business models
for high-­end markets while developing new models for low-­end markets; and
exploiting current capabilities while exploring novel capabilities. He will join
Hitotsubashi University in Japan from April 2013 as Associate Professor of
Strategy and Innovation.

Dharmesh Gupta is a doctoral student in the area of Innovation Management at

Shailesh J. Mehta School of Management, Indian Institute of Technology
Bombay. His doctoral research focuses on understanding disruptive service
innovations and frugal innovations, especially in the ICT sector. As the holder
of a postgraduate degree in Engineering (Electronics & Instrumentation) from
IIT Kharagpur, Dharmesh has 18 years of professional experience in the field
of IT & Telecoms. He has rich technical expertise in the area of electronics,
telecoms and software engineering, developing innovative products, and
mobile service solutions across major Indian telecom companies. His areas of
interest are emerging architecture for convergent network solutions (voice &
data), value added services and delivery, intelligent mobile networks, eTOM,
and developing technology strategies for telecom solutions. He has three
international publications to his credit.

Ruchita Gupta is a research scholar currently pursuing a PhD at Shailesh J.

Mehta School of Management (SJMSOM), Indian Institute of Technology,
Bombay, in the area of Technology Management with a focus on adoption
and diffusion of mobile telephony. She holds an MTech in Digital Systems
xviii   Contributors
from MNNIT, Allahabad, and was the rank holder. She did her BE (Electrical
Engineering) at Nagpur University and was the gold medalist. She was the
recipient of a SJMSOM Endowment Scholarship from Electric Light and
Power Company Ltd, a Golden Jubilee Gold Medal, and the G.H. Raisoni
Memorial Gold Medal for outstanding performance during her academic
years. She was also engaged with Hewlett-­Packard and Financial Technolo-
gies, and was the recipient of a Hewlett-­Packard e-­award for outstanding
effort and contribution in a project. Her works has been published in reputed
international conferences (IAMOT, POMS, and ISDSI, among others) and in
academic journals (e.g., Technology Forecasting and Social Change). Her
areas of interest are Technology Management, Technology Forecasting, and
MIS.
Chang-­Chieh Hang received a PhD in control engineering from the University of
Warwick, Coventry, UK, in 1973. He is professor and head of the Division of
Engineering and Technology Management, National University of Singapore
(NUS), and a Professor of Business Strategy & Policy at NUS Business School.
Since 2011, he has also been appointed executive director, Institute for Engi-
neering Leadership, NUS. Previously, he designed refinery automation systems
at the Shell Eastern Petroleum Company (1974–1977), oversaw research as
deputy president of the National University of Singapore (1994–2000), and
managed the strategic planning of mission-­oriented R&D as executive deputy
chairman of Singapore’s Agency for Science, Technology, and Research
(2001–2003). His current research interests include the practical aspects of
innovation management, especially in emerging markets. Professor Hang has
been a Foreign Member of the Royal Academy of Engineering since 2000.
Karuna Jain (PhD, IIT Kharagpur; Post Doctoral Fellow, Faculty of Manage-
ment, University of Calgary, Canada) is the MHRD IPR Chair Professor at
the Shailesh J. Mehta School of Management, Indian Institute of Technology
Bombay. Professor Jain has extensive industrial and teaching experience in
the field of Operations and Technology Management. Her active research
interests span Strategic Management of Technology and Innovation, Intellec-
tual Property Strategy and Management, Project Management, and Supply
Chain Management. She has published her research in international journals
and conferences across the areas of Technology and Operations management.
Her publication in the Journal of Intellectual Capital won the “Emerald Lit-
erati Network 2007 Awards for Excellence”, and also received the best
research paper awards in international conferences. Professor Jain is the
recipient of the “Best Teacher in Operations Management” at the 16th Busi-
ness School Affaire, Dewang Mehta Business School Awards in 2009, and
“Best Professor in Operations Management in Asia” by CMO Asia in 2010.
Professor Jain serves on numerous academic, professional and government
bodies in various capacities, including the Member of Sectoral Innovation
Council on Intellectual Property Rights under the Department of Industrial
Policy and Promotion, Ministry of Commerce and Industry, Government of
 Contributors   xix
India (2011–2012); the Member of Decision Sciences Institute Board
(2011–2012); the Regional Vice President for the Decision Sciences Institute
Indian Subcontinent Region (2011–2012); and Vice Chairperson for Project
Management Institute, India Academic Advisory (2011–2012).
Yanbin Jiang is a PhD student at the School of Management, Zhejiang Univer-
sity, China. His major research interests focus on inclusive development and
inclusive innovation. His work has been published in international journals
such as Asia Journal Technology Innovation, Applied Economics, Economics
of Innovation and New Technology, International Journal of Enterprise Net-
work Management, and also in domestic journals such as Journal of Quanti-
tative & Technical Economics, amongst others.
Jizhen Li is Associate Professor of Innovation and Entrepreneurship at the
School of Economics and Management, Tsinghua University, China, where
he also received his PhD. He visited MIT Sloan School of Management as an
International Faculty Fellow for half a year in 2006. He is also a research
fellow and assistant director at the Research Center for Technological Inno-
vation at Tsinghua University. He teaches courses such as Management of
Technological Innovation, Innovation Research, Engineering Economics, and
Project Management. His research interests include management of techno-
logical innovation, science & technology policy, and project management.
Peter Ping Li is Professor of Chinese Business Studies at Copenhagen Business
School, Denmark. Before joining CBS, he was Professor of Management at
California State University. He received his PhD from George Washington
University. His primary research focus is on re-­examining extant Western
theories from the cultural and historical frames of China and East Asia, espe-
cially applying the Chinese frame of Yin-­Yang Balancing to the development
of holistic, dynamic and duality theories. He has been widely recognized as
one of the leading scholars in two rapidly emerging research streams: (1)
emerging multinational firms, and (2) indigenous research on Chinese man-
agement. He has published over 30 articles in various academic journals, and
serves on the editorial boards of four major management journals: Journal of
Management Studies, Global Strategy Journal, Management and Organiza-
tional Review, and Asia Pacific Journal of Management. He is also the found-
ing Editor-­in-Chief of Journal of Trust Research.
Rufei Ma received his PhD in business administration from Zhejiang University,
and is currently a Lecturer of Strategy, Organization and Innovation at the
School of Economics and Management, Tongji University, China. His research
interests include disruptive innovation and competitive dynamics, and dynamic
processes from imitation to innovation. He is the author or co-­author of several
articles published in refereed journals such as IEEE Transactions on Engineer-
ing Management and Industry and Innovation and Management World (in
Chinese), as well as in several international proceedings such as AOM,
PICMET, IAMOT, IEMC, ISMOT, ICMSE and ­Globelics.
xx   Contributors
Constantinos C. Markides is Professor of Strategy and Entrepreneurship and
holds the Robert P. Bauman Chair of Strategic Leadership at the London
Business School (University of London). A native of Cyprus, he received his
BA (Distinction) and MA in Economics from Boston University, and his
MBA and DBA from Harvard Business School. He serves on the Editorial
Boards of several academic journals including Strategic Management Jour-
nal, Academy of Management Journal, Sloan Management Review and Euro-
pean Management Journal. He was a presenter at the World Economic Forum
in Davos between 1999 and 2003 and in 2012. He has researched and pub-
lished on the topics of diversification, strategic innovation, international
acquisitions, and business-­model innovation. He is currently studying how
established firms compete effectively with dual business models and how
firms can respond to disruptive innovation.
Kirankumar S. Momaya (MTech, IIT Delhi; PhD, University of Toronto) is
Professor of Competitiveness at the SJM School of Management, Indian Insti-
tute of Technology, Bombay. He has done extended assignments in Asia,
including with the Department of Management Studies (IIT Delhi), Institute
of Innovation Research (Hitotsubashi University) and Shimizu Institute of
Technology (Tokyo), and has presented at leading business conferences in
Japan, Korea, and other countries. His pioneering contributions to research on
competitiveness and cooperative strategies for sustainability are appreciated
by industries and governments. He has authored/edited (singly/jointly) two
books and published more than 35 articles in refereed national and interna-
tional journals, including IIMB Management Review, Vikalpa, and Competi-
tiveness Review. He has made editorial contributions to journals such as the
International Journal of Global Business and Competitiveness (IJGBC, as
Founding Editor), Journal of Advances in Management Research (JAMR),
and Giftjourn@l.
Mukundan R. is a doctoral student in the area of Intellectual Property and Inno-
vation Management at Shailesh J. Mehta School of Management, Indian Insti-
tute of Technology, Bombay. He is the first recipient of the MHRD IPR chair
PhD fellowship at SJMSOM, IIT Bombay. His doctoral research is on the
intersection of Intellectual Property Management, Innovation Management,
and Technology Strategy. He is a recipient of best research paper awards at
international technology management conferences. With an engineering back-
ground in electrical and electronics, Mukundan started his career as a member
of the Research and Development team at Banyan Networks, an Indian Tele-
communication start-­up firm that successfully commercialized indigenous
wire-­line broadband technologies. Mukundan is presently a project research
fellow at the National Centre for Photovoltaic Research and Education
(NCPRE), IIT, Bombay. His current research involves the development of a
technology roadmap for the National Photovoltaic Mission, India. His
research interests lie in the interdisciplinary areas of strategic management of
technology, innovation, and designing IP Management Systems.
 Contributors   xxi
Yi Ruan received a PhD degree in Strategic Management from National Univer-
sity of Singapore (NUS) in 2010. She is a research fellow in the Division of
Engineering and Technology Management, NUS. Since 2011, she has worked
as a research fellow in the Institute for Engineering Leadership, NUS. Her
research focuses on technology commercialization, entrepreneurship, and
management of technology (disruptive innovation, reverse innovation, open
innovation, etc.) in emerging economies. Her research papers have appeared
in International Journal of Technology Management, Academy of Manage-
ment conferences, the Babson Entrepreneurship Conference, the Asia Aca­
demy of Management conference, the Triple Helix International Conference,
and the IEEE International Conference on Management of Innovation and
Technology.

Sunny Li Sun is an assistant professor of entrepreneurship and innovation at the

University of Missouri-­Kansas City. He received a PhD from the University
of Texas at Dallas, an MPhil from the Chinese University of Hong Kong, and
a BA from Renmin University, China. His research interests include new ven-
ture creation and financing, business models, entrepreneurial firm growth,
internationalization, M&A, and corporate governance. He has published 13
research articles in top academic journals, including Strategic Management
Journal, Journal of Management Studies, Journal of World Business, Acad-
emy of Management Perspectives, Asia Pacific Journal of Management, Mul-
tinational Business Review and Asian Case Research Journal. Experienced in
the areas of raising capital, startup management and bootstrapping, he has
over 11 years of industry experience. He also is a popular columnist in
CEO&CIO magazine on entrepreneurship and innovation. His 17th book,
Replaying Global Innovation Chess, was recently published by Peking Uni-
versity Press.

Yunhuan Tong is a professor of innovation and entrepreneurship at the School

of Economics and Management, Tsinghua University, China. He is also the
Director of Center for Green Leap Research at Tsinghua University. He
received his Bachelor degree in Mechanical Engineering from Huazhong
Technology University in 1982, and his Master’s in Management Engineer-
ing from Tsinghua University. He teaches courses such as Business Research
Methodology and Decision-­making of Project Investment and Financing. His
main research interests include Theory and Methods of Evaluation and
Assessment, Management of Technology Innovation, Project Management,
and Sustain­able Development. He has been the principal investigator for sev-
eral major research projects funded by the National Natural Science Founda-
tion of China (NSFC), the Ministry of Education, and Beijing Municipal
Science and Technology Commission, among others.

Yanmin Wang is a Research Fellow at College of Global Change and Earth

System Science (GCESS), Beijing Normal University, China. She has
received a PhD in Management (2010), and an MA in Law (2004) from the
xxii   Contributors
School of Government, Peking University, China. Her research interests
include Technology Innovation and Innovation Policy, Management of Inno-
vation and Industry Development, and Enterprise Innovation Strategy. She
has substantial experience in empirical research and has conducted in-­depth
case studies involving approximately 135 indigenous Chinese innovative
enterprises related to almost 20 industries such as the automobile industry,
nuclear power industry, equipment manufacturing industry, and port machin-
ery industry, amongst others. She is the author or co-­author of several articles
published in Chinese Public Administration and China Soft Science, as well
as in several international workshops.
Peter J. Williamson is Professor of International Management at the University
of Cambridge, Judge Business School and Fellow of Jesus College, Cam-
bridge. He has a PhD in Business Economics from Harvard University and
has held professorships at London Business School, Harvard Business School,
Cheung Kong Graduate School of Business, and INSEAD. Peter has worked
with companies in China since 1983 and co-­authored Dragons at your door:
How Chinese cost innovation is disrupting global competition. He also serves
as non-­executive director of several companies, spanning financial services to
green energy.
Xiaobo Wu is a Professor at the School of Management, Zhejiang University,
China. He is also the Dean of the School of Management, and the Director of
the National Institute for Innovation Management. He was a Visiting Fellow
at Cambridge University, and a Fulbright Scholar at Sloan School of Manage-
ment, MIT. His major research areas are innovation management, technology
capability, and manufacturing networks. His work has been published in
international journals such as IEEE Transactions on Engineering Manage-
ment, International Journal of Technology Management and Asia Journal of
Technology Innovation, as well as domestic journals such as Management
World, among others.
Xiaoming Yang is a first-­year PhD student in entrepreneurship and innovation
at the University of Missouri-­Kansas City. He received a Master of Science
from NTU in Singapore, and a Bachelor of Engineering from Wuhan Univer-
sity in China. His research interests include new venture creation, technology
innovation, internationalization and corporate entrepreneurship. He has pub-
lished one conference article in IEEE. He has over seven years of industry
experience in Southeast Asia.
Eden Y. Yin is a senior lecturer at the Judge Business School, University of
Cambridge. He received his PhD from the Marshall School of Business, Uni-
versity of Southern California. His research areas are new product growth,
success in high-­tech industries, and innovation in firms from emerging econo-
mies. His work has appeared in journals such as Marketing Science, Journal
of Marketing Research, Journal of International Marketing, Management
International Review, and a few others.
 Contributors   xxiii
Jianghua Zhou is a post-­doctoral fellow of innovation management at the Chi-
nese Academy of Sciences. He received his PhD from the School of Econom-
ics and Management, Tsinghua University, China. His major research areas
are innovation management, Bottom of the Pyramid, and business model
innovation.
Preface
Peter Ping Li

Issues and background

Given the rapid emergence of new economic powers in global competition, such
as China and India, we are compelled to think about the strategic implications
for both local and global firms. In particular, we wonder if the emerging econo-
mies present great opportunities or threats. The answer is bound to differ due to
the distinctive perspectives between local and global players. In the broadest
sense, however, it seems increasingly clear that more local firms, especially local
entrepreneurs, from the emerging economies will play a critical role in global
competition by serving as local challengers to global incumbents (Li, 1998,
2007; Mathews, 2002, 2006). However, we know little about the key contexts
and strategies for local entrepreneurs to take advantage of these great opportuni-
ties to threaten global incumbents, or those for global incumbents to respond to
such challenges (Li, 2010).
The development of emerging economies, coupled with the fact that the major-
ity of their populations are at the bottom of the pyramid or BOP (Prahalad, 2009)
and thus cannot afford those products designed for the developed markets, has
made these emerging economies fertile ground for developing and applying dis-
ruptive innovations (Christensen et al., 2010; Govindarajan and Ramamurti,
2011; Govindarajan and Trimble, 2012; Sarkar, 2011). In other words, what is
unique about the emerging markets is that those which are lower than the main-
stream market in the developed economies are the mainstream markets in the
emerging economies. In this sense, the mainstream market in all emerging econo-
mies belongs to BOP. Further, the unique market demand in the emerging econo-
mies defines the nature of the most effective innovations in the emerging
economies. Distinctive from the typical innovations from developed economies,
disruptive innovation (DI) refers to a novel mix of critical attributes that are ini-
tially inferior with afford­able “good-­enough” products or services to start from
the low-­end market segment, but the attributes can improve over time via a bot-
tom-­up process (Christensen, 1997; Johnson, Christensen and Kagermann, 2008;
Markides, 2006). Applied to BOP, DI bears unique strategic implications for both
local entrepreneurs in the emerging economies and global incumbents from the
developed economies. In this sense, the future landscape of global competition
 Preface   xxv
can be greatly shaped by DI at BOP. It seems that this type of DI will have the
greatest potential to make the world “flatter” (Friedman, 2007) and more sustain­
able (Samli, 2008). It is worth noting that DI at BOP is also called reverse inno-
vation, i.e., any innovation first adopted in the emerging economies and then
“trickling up” to the developed economies over time (Govindarajan and Rama-
murti, 2011; Govindarajan and Trimble, 2012), or blowback innovation (Brown
and Hagel, 2005).
First, local entrepreneurs in the emerging economies can take advantage of
DI at BOP by competing directly with global incumbents from the developed
economies, initially in the emerging markets and later in the developed markets.
Local entrepreneurs often emphasize the non-­mainstream markets that are either
ill-­served or non-­served by global incumbents. Local entrepreneurs tend to ini-
tially grow rapidly at home, but they do not stop there. They can and will lever-
age their fast-­learned capabilities at home to aggressively enter the
non-­mainstream markets in the developed economies (Brown and Hagel, 2005;
Govindarajan and Ramamurti, 2011; Govindarajan and Trimble, 2012; Hart and
Christensen, 2002). In other words, local firms from the emerging economies
could become multinational latecomers as formid­able challengers to global
incumbents at a much faster pace than anybody has anticipated due to the benefit
of DI at BOP. This is particularly true for those multinational latecomers from
large emerging economies such as China and India (Li, 2007; Luo and Tung,
2007; Zeng and Williamson, 2007), primarily due to their diverse and competi-
tive market at home, which provide ideal contexts conducive for DI at BOP.
This catch-­up and leapfrogging strategy by local entrepreneurs via a bottom-­up
strategy bears far-­reaching economic, political, and social implications (Samli,
2008), which extend beyond the controversial role of global incumbents who
embrace a top-­down strategy (cf. Karnani, 2007; Prahalad, 2009). It seems that
local entrepreneurs tend to have the upper hand in alleviating poverty at BOP as
compared to global incumbents due to the inherent advantage of having the best
value-­price ratios for their products or services, as is necessary to survive at
home as BOP. Such value-­price ratios are often achieved through open innova-
tion (Chesbrough, 2003; Li, 2007, 2010).
Second, some global incumbents (e.g., Danfoss from Denmark and General
Electric or GE from the US) realize not only the threats from, but also the oppor-
tunities in, DI at BOP, so they can not only protect themselves from such inno-
vations, but can also leverage these innovations. DI at BOP which was initially
targeted at the emerging markets can be taken globally, thus reversing the typical
process of innovation diffusion from the developed economies to the emerging
economies (Brown and Hagel, 2005; Govindarajan and Ramamurti, 2011;
Govindarajan and Trimble, 2012; Hart and Christensen, 2002). However, there
are many special challenges to global incumbents, as is well documented by
Christensen and his colleague (1997, 2003). Global incumbents face challenges
because their experience at home has not prepared them to meet the aggressive
value-­price ratios typically required at BOP. Further, global incumbents are not
sensitive to the demands at BOP markets due to the assumed small market sizes
xxvi   Preface
and resource constraints there. In other words, global incumbents have the inher-
ent disadvantage with DI at BOP. This is particularly the case with global
incumbents operating in China and India largely due to the diverse and competi-
tive markets there. The best hope for global incumbents is to team up with local
entrepreneurs (Zeng and Williamson, 2007). In sum, DI at BOP bears many sig-
nificant implications for both local entrepreneurs and global incumbents, and we
need to understand these strategic implications, especially the underlying causal
connections between DI and BOP (Govindarajan and Ramamurti, 2011).

Purpose and agenda

Despite the strategic salience of DI at BOP, it is surprising that this issue has not
yet been explored in any systematic and in-­depth manner. The extant literature
on DI is largely confined to domestic settings. The critical link between DI and
BOP has been only briefly explored in popular books and practitioner magazines
(see Govindarajan and Ramamurti, 2011 for the only exception). In particular,
there is no work on the unique role of local entrepreneurs for DI at BOP. It is our
conviction that DI at BOP could be the next, novel “big question” in the field of
International Business (Govindarajan and Ramamurti, 2011; Ricart et al., 2004;
Sarkar, 2011), particularly the unique role of local entrepreneurs at BOP. This
topic also bears a strong practical relevance, so it is perfect for scholars to
connect with practitioners. Additionally, this topic can shed light on the histori-
cal patterns by which Japanese firms (e.g., Toyota and Sony) caught up with
Western incumbents, and also the ways in which the firms from newly industri-
alizing Asian economies (e.g., South Korea and Taiwan) are now catching up
with those Japanese firms (Li, 2003). This is the unique theme of Asia’s catch-
ing-­up model, and potentially for the catching-­up model for all emerging econo-
mies across the world if history is any guide (Hart and Christensen, 2002).
Further, DI at BOP in the current context of globalization also has the potential
to shed light on the specific contexts and strategies for the local entrepreneurs in
the emerging economies as latecomers, to catch up with and leapfrog the “early-­
mover” global incumbents from the developed economies (cf. Li, 2010).
This topic has the great potential to enrich and integrate the research streams
in the field of International Business, such as the Eclectic model, Internationali-
zation Process model, international entrepreneurship, emerging multinational
latecomer, market entry mode, and learning-­based view of internationalization
as well as across the overall field of management, as reframed from the dynamic
learning perspective of transaction value with entrepreneurship at the center
stage of a meta-­theory of the firm in which both firm growth and firm existence
are taken as the raison d’être of the firm (Li, 2010). In particular, the most signif-
icant potential contribution of this topic lies in its critical challenges to the pre-
vailing models and theories in the existing literature (Govindarajan and
Ramamurti, 2011; Li, 2010; Sarkar, 2011). Given the salience of China and India
as the two largest, fastest-­growing, and most complex emerging economies in
the world, we must focus on China and India as the best contexts for DI at BOP.
 Preface   xxvii
The primary purpose of this book is to shed light on the theme of DI at BOP
in the specific contexts of China and India from two contrasting perspectives: the
perspective from local entrepreneurs emerging from China and India with a
primary role in DI at BOP, and the perspective from global incumbents operat-
ing in China and India with a secondary role in DI at BOP.
The concrete agenda of this edited book contains a set of research questions
around the theme of DI at BOP. The specific questions are listed below:

1 Could BOP become the emerging source of innovation, particularly DI? If

so, why and how?
2 Could DI at BOP become the emerging pattern of global competition? If so,
why and how?
3 What are the most conducive contexts at BOP for effective DI?
4 How can local entrepreneurs engage in DI for the mainstream market at
BOP, while under-­served or not serviced by global incumbents?
5 How can DI at BOP become the best possible mechanism for local entrepre-
neurs at BOP to catch up and even leapfrog global incumbents?
6 How different is the emerging pattern of catch-­up and leapfrogging by local
entrepreneurs from the historical pattern of Japanese and Korean firms in
the recent past?
7 What role should global incumbents play in DI at BOP?
8 How can global incumbents become sensitive to the unique opportunities
for DI at BOP?
9 Is the strategy of alliance with local entrepreneurs the best option for global
incumbents to engage in DI at BOP?

This book consists of 11 chapters, which are structured into three parts in addi-
tion to Chapter 1 (Introduction) and Chapter 11 (Conclusion). Part I consists of
three chapters based upon the theme of the contexts for DI in China and India as
BOP. Chapter 2 focuses on the general macro and micro contexts for DI in
general in China and India. Chapter 3 focuses on the specific context of govern-
ment policy for DI in the e-­bike industry in China. Chapter 4 focuses on the
general conditions and patterns of DI at BOP. Further, Part II consists of three
chapters on the theme of strategies of DI for local entrepreneurs. Chapter 5
focuses on the strategic patterns of DI in multiple industries in India. Chapter 6
focuses on the specific strategic pattern of DI in the wind turbine industry in
China. Chapter 7 focuses on the specific strategic pattern of DI in the cell-­phone
industry in China. Finally, Part III consists of three chapters on the theme of the
strategies of global incumbents. Chapter 8 focuses on the secondary role of
global incumbents in the process of DI at BOP as compared to the primary role
of local entrepreneurs, and thus the imperative need for global incumbents to
team up with local entrepreneurs for DI at BOP. Chapter 9 focuses on the new
wave of innovation from local entrepreneurs in China, and also the best strategic
options for global incumbents, especially cooperating with local entrepreneurs.
Chapter 10 focuses on the ambidextrous capability for global incumbents to
xxviii   Preface
manage the challenges of DI at BOP. In addition to the three parts covering the
three salient aspects of DI at BOP, the book also has a chapter (Introduction)
devoted to the overall theoretical framework for DI at BOP, as well as a chapter
(Conclusion) devoted to the future agenda for research on DI at BOP built upon
the research agenda proposed by Govindarajan and Ramamurti (2011). In sum,
this edited book presents cutting-­edge research on DI at BOP.
Covering the above three salient aspects of DI at BOP in a systematic and in-­
depth manner, and with the top scholars in this area as contributors, this book is
positioned to serve as a valu­able reference book for both scholars and practition-
ers who are interested in the topic of DI at BOP. This publication is unique in
three aspects. First, as the first book on DI at BOP, this book covers both the
theoretical and the practical implications of DI at BOP in a systematic and in-­
depth manner through both conceptual frameworks and detailed case studies in
order to answer both “why” and “how” questions. Second, this book compares
the contextual conditions and strategic options of both China and India. Third,
this book focuses on the neglected perspective of local entrepreneurs as the
primary players as compared to the perspective of global incumbents. This par-
ticular focus is distinctive from the current focus on global incumbents in the
research on both BOP and reverse innovation (e.g., Prahalad, 2009; Govindara-
jan and Trimble, 2012). In short, the above three features makes this edited book
unique as compared to the other publications currently avail­able.
I am most grateful to all of the contributors for their great efforts in making
this book possible. I would also like to thank Hannah Mack for her help through-
out the process of getting the book ready for publication. I have certainly
enjoyed working on this book, and hope that the readers will also enjoy this
edited book.

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 Preface   xxix
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1 Introduction: disruptive
innovation from the bottom of the
pyramid
The strategic implications for local
challengers and global incumbents
Peter Ping Li

The new research on emerging-­economy multinational enterprises (EMNEs) has

grown rapidly (e.g., Li, 1994, 2003, 2007; Luo and Tung, 2007; Mathews, 2002,
2006). This emerging research has focused primarily on the potential of EMNEs
as global latecomers to catch up with and leapfrog the established multinational
enterprises from the developed economies (DMNEs) as the global incumbents,
despite the doubts raised by the traditional multinational enterprise (MNE) theo-
ries, such as the Ownership–Location–Internalization (OLI) Model (Dunning,
1988, 1995, 2006) and the Internationalization Process (IP) Model (Johanson
and Vahlne, 1977, 1990, 2009). Even though the unique potential of EMNEs has
been recognized (e.g., Li, 2003, 2007; Mathews, 2002, 2006), we know very
little about the underlying mechanisms for EMNEs to catch up with and leapfrog
DMNEs, especially their sources of competitive advantage and the unique mech-
anisms of innovation that underlie the trajectory of accelerated learning via
exploration and exploitation (see Li, 2010 for a review). The implicit assumption
is that most EMNEs rely primarily on low-­cost imitation as the basic source of
their competitive advantage. Hence, there exists a major gap in the literature on
EMNEs as emerging challengers. In order to understand the trajectory of accel-
erated learning by EMNEs and further develop the learning-­based view of inter-
nationalization (Li, 2010), we must consider the unspecified drivers behind the
trajectory of accelerated learning by EMNEs in sharp contrast to those of
DMNEs (cf. Hobday, 1995, 2005; Li, 1994, 2003, 2007; Madhok and Keyhani,
2012).
Further, given the rapid emergence of China and India as the new economic
powers in global competition, one has to wonder if the emerging economies
present great opportunities or threats. The answer is bound to differ due to
diverse perspectives. In a broad sense, however, it seems increasingly clear that
EMNEs as latecomers will play a critical role in global competition by being the
bottom-­up disruptive challengers to the incumbent DMNEs. The rise of emerg-
ing economies, coupled with the fact that the majority of their populations reside
at the bottom of the pyramid (BOP) as the lowest-­end segment of the global
market (Prahalad, 2009) and therefore cannot afford the products and/or services
2   P. P. Li
designed for the established markets, has made emerging markets the most
fertile for disruptive innovation or DI (Ricart et al., 2004; Yu and Hang, 2010),
which is also referred to as reverse innovation (Govindarajan and Ramamurti,
2011; Govindarajan and Trimble, 2012) or blowback innovation (Hagel and
Brown, 2005). This is especially true for business model innovation at BOP
(Eyring, Johnson and Nair, 2011; The Economist, 2010). In this sense, the previ-
ously separated streams of research into DI (Christensen, 1997; Christensen and
Raynor, 2003; Christensen, Anthony and Roth, 2004) and BOP (Karnani, 2007;
London and Hart, 2011; Prahalad, 2009) should benefit from cross-­fertilization.
In particular, DI in the emerging economies (where the majority of BOP resides)
may serve as a core mechanism to drive the trajectory of accelerated learning by
EMNEs. In other words, as a driver of accelerated learning, DI at BOP has the
potential to explain why and how EMNEs can catch up with and leapfrog
DMNEs. Hence, accelerated learning is particularly salient to EMNEs, as a
special form of entrepreneurship (Li, 2010; Madhok and Keyhani, 2012).
Despite the strategic centrality of DI at BOP, it is surprising that the issue has
not yet been explored in a systematic manner. The extant research on DI is
largely confined to the context at the top of the pyramid (TOP) (e.g., Chris-
tensen, 1997; Christensen and Raynor, 2003; Christensen et al., 2004). Further-
more, limited attention has been devoted to the link between DI and EMNEs
(e.g., Eyring et al., 2011; Hagel and Brown, 2005; Hart and Christensen, 2002;
Immelt, Govindarajan and Trimble, 2009. See Govindarajan and Ramamurti,
2011, and Zeng and Williamson, 2007, for exceptions). Hence, DI by EMNEs
has the rare potential to cross-­fertilize the diverse research streams on entrepre-
neurship, innovation, dynamic capability, strategy, business model, and cogni-
tion in the salient context of globalization (Li, 2010). We posit that DI by
EMNEs can serve as a shared “big question” in the domains of international
business, strategy, and entrepreneurship, with the unique potential to challenge
the prevailing paradigm and also to facilitate the imperative paradigm shift
toward an interdisciplinary approach to any complex phenomenon as holistic and
dynamic.
This topic also has the potential to settle the debates over the nature, rationale,
criteria, and processes of DI by clarifying the extant conceptual ambiguities and
confusions (see Yu and Hang, 2010, for a review) as well as the nature and
impact of BOP (see Karnani, 2007, for a review). This is largely because DI tends
to occur at BOP due to the indigenous need for novel value propositions to be
embodied by initial sub-­standard (low price as frugal innovation) and emerging
future standard (unique value with disruptive potential) as two defining qualities
of DI. Further, this new stream of research is imperative because we know rela-
tively little about the complex link between globalization and innovation (Aharoni
and Brock, 2010; Castellani and Zanfei, 2006; Loof, 2009; Nieto and Rodriguez,
2011), especially their interaction and the underlying mechanisms in the emerg-
ing economies (Asakawa and Som, 2008; Gassmann and Keupp, 2008; Gorod-
nichenko, Svejnar and Terrell, 2010). The globalization of innovation by DMNEs
(Lewin and Couto, 2007) and EMNEs (Li, 2007) bears critical implications. In
 Introduction   3
this chapter, I will focus on DI at BOP by local entrepreneurs (some of them will
emerge as EMNEs) not only because it is novel and in need of research, but also
because it directly challenges the prevailing paradigm in the domains of interna-
tional business as well as innovation toward their needed paradigm shift (see
Christensen et al., 2010; Govindarajan and Ramamurti, 2011; Li, 2007, 2010;
Ricart et al., 2004; Sarkar, 2011). This focus is also relevant for global incum-
bents since the strategic implications for latecomers are the mirror image of those
for incumbents.
The purpose of this introductory chapter is to integrate the research streams
on DI and BOP toward a new model of the mechanisms for EMNEs to catch up
with and leapfrog DMNEs. As the primary contribution of this chapter, the
model of entrepreneurial leapfrogging further develops the learning-­based view
of internationalization by specifying the driving force behind the trajectory of
accelerated learning (see Li, 2010 for a review of the learning-­based view). First,
I reframe the constructs of BOP and DI in order to settle the related debates.
Second, I offer an integrative typology of global innovations to differentiate, and
also to integrate, all major types of innovations in all types of markets so as to
provide a conceptual core for a model of entrepreneurial leapfrogging with DI at
BOP as the underlying mechanism to catch up with and leapfrog DMNEs.
Finally, I discuss the major implications of the new model for research and
practice.

Key constructs reframed

The reframed construct of BOP

If we follow the metaphor of the pyramid, we can divide the world population
into five key segments: the top first and second segments are TOP, the third
segment lies in the middle of the pyramid (MOP), while the fourth and fifth seg-
ments are BOP. This is the global pyramid, from which the notions of TOP,
MOP, and BOP are derived. According to the World Resources Institute, those
people with GDP per capita below $3,000 belong to BOP. According to this
benchmark, the majority of the population in the emerging economies (e.g., 80%
in China and 98% in India) are BOP. In this sense, Prahalad refers to BOP spe-
cifically as the “emerging consumer markets or just emerging markets” (Praha-
lad, 2009: 7). Others refer to BOP in term of “the base of the pyramid” (e.g.,
London and Hart, 2010). From this perspective, the primary differences between
the emerging economies and the developed economies can be framed in terms of
the global pyramid. Specifically, TOP resides primarily in the established econo-
mies, BOP resides largely in the emerging economies, while MOP resides in
both the developed and emerging economies as the overlapped segment (i.e., the
lowest market segment in the developed economies and the highest market
segment in the emerging economies). To simplify our analysis, it is beneficial to
evoke the notion of the mainstream market as the reference point. Hence, I can
provide the following working definitions of BOP, TOP and MOP:
4   P. P. Li
Within the global pyramid, BOP refers to the mainstream market and the
segment lower than the mainstream market in the emerging economies, in
contrast to the mainstream market and the segment higher than the main-
stream market in the developed economies i.e. TOP. However, the segment
lower than the mainstream market in the developed economies, as well as
the segment higher than the mainstream market in the emerging economies,
jointly constitute MOP as the overlapped segment in the global pyramid.

Connecting the global pyramid with the distinctive global strategies of

EMNEs and DMNEs, it is reason­able to expect TOP to be well-­served (and often
over-­served), primarily by DMNEs; in contrast, BOP tends to be ill-­served (and
often non-­served), by DMNEs, and so it requires EMNEs and non-­MNE local
firms; finally, MOP tends to be under-­served by both DMNEs and EMNEs as an
open global battle ground. Despite the strategic imperative of moving down or
up within the global pyramid, we know little about how DMNEs are moving
from TOP to BOP if they can, or how EMNEs are moving up from BOP to TOP
if they can; we also know little about how DMNEs and EMNEs compete at
MOP. In this sense, this moving up and down within the global pyramid is a
major part of the business model for both DMNEs and EMNEs, and has signifi-
cant implications for their innovation means and ends. In order to recognize the
overlaps between TOP, MOP and BOP, I accept that none of these notions is
absolute or has any sharp and fixed boundaries; thus, they are relative in accord-
ance with the Chinese frame of Yin-­Yang Balance (Li, 1998, 2008, 2012a). I also
maintain that there will be a dynamic process with a gradual shrinking of BOP
and a gradual expansion of both MOP and TOP over time. The dynamic process
is the general trajectory of poverty alleviation through the mechanism of DI at
BOP.

The reframed construct of DI

As the most recent literature review pointed out, “the scattered and conflicting
nature of the literature on disruptive innovation in the last decade may pose a
state of ambiguity for future research” (Yu and Hang, 2010: 435). I posit that the
debates over the nature and processes of DI are rooted in prolonged conceptual
confusions and ambiguities in several areas (cf. Christensen and Raynor, 2003;
Danneels, 2004; Govindarajan and Kopalle, 2006a; Markides, 2006; Schmidt
and Druehl, 2008; Tellis, 2006). We can solve problems such as this by refram-
ing DI as a new form of entrepreneurship for bottom-­up leapfrogging, i.e., leap-
frogging innovation.
The first major cause of the current conceptual confusion is the inclusion of
both the low-­end segment of the mainstream market and the non-­consumption
“new-­market” segment below the mainstream as being initially served by DI. I
take issue with this approach. The mixing of the low-­end segment of the main-
stream market with the marginal market for DI creates serious ambiguity and
confusion as to whether DI is solely for the marginal customers in the
 Introduction   5
n­ on-­mainstream market, or for both the marginal customers and the typical cus-
tomers in the low-­end mainstream segment. If the latter is the case, we should
differentiate the low-­end mainstream segment for DI from both the high-­end and
mid-­end mainstream segments for sustaining innovation or SI (cf. Christensen
and Raynor, 2003). There is no compelling reason to make such a distinction
(Schmidt and Druehl, 2008). It would be much clearer if we were to leave all
three segments of the mainstream market out of the notion of DI in order to
focus on the marginal customers below the mainstream market. In other words,
DI is reserved only for the non-­mainstream market. The primary criterion is the
non-­consumption of mainstream products and services provided by DMNEs as
the global incumbents (cf. Schmidt and Druehl, 2008). Applying this criterion to
the global pyramid, I argue that the non-­mainstream market in the global
pyramid consists of the “mainstream market” in the emerging economies as the
primary non-­mainstream market at BOP, and the non-­mainstream market in the
developed economies as the secondary non-­mainstream market at MOP, both of
which are distinctive from the mainstream market in the developed economies at
TOP. Hence, global non-­mainstream consumers are in serious need of any novel
value proposition with a high value/price ratio, as in the case of DI. The above
reframing has removed the conceptual confusion over which market segment DI
should start to serve: it is clear now that DI starts at the non-­mainstream market
and then moves up to the mainstream market in a bottom-­up trajectory. This
reframing of DI connects it directly with BOP as its primary target (and MOP as
the secondary target).
The second major cause of the current conceptual confusion is the notion of
high-­end DI in terms of radically new quality and higher prices (e.g., Carr, 2005;
Govindarajan and Kopalle, 2006a; Markides, 2006; Utterback and Acee, 2005).
This view equates DI with radical innovation (RI) by explicitly assuming RI to
have both superior quality and higher prices. I take issue with the notion of high-­
end DI, as well as the conflation of RI with both superior quality and higher
price, for several reasons. First, the notion of high-­end DI is incompatible with
the original concept of DI as having inferior quality and lower prices (Chris-
tensen, 1997; Christensen and Raynor, 2003; Christensen et al., 2004). Although
Christensen sometimes cites question­able or incorrect examples of DI (e.g.,
higher-­priced Bell telephone and mobile phone), he has been largely consistent
with the theoretical argument that DI tends to have a lower price in order to
disrupt incumbents via a bottom-­up process (Schmidt and Druehl, 2008). Even
those who argue for high-­end DI admit that Christensen’s notion of DI is a low-­
end, bottom-­up type (e.g., Carr, 2005; Utterback and Acee, 2005). Second, it is
the lower price and the resultant lower profit margin which cause the general
neglect of DI by most incumbents. In other words, an innovation will become
disruptive when it emerges from the low-­end market in a bottom-­up process,
rather than high-­end RI in a top-­down process. Govindarajan and Kopalle
(2006a) mentioned four primary reasons which might qualify high-­end RI as DI,
but two of them (the last two) are question­able and inconsistent. The higher
profit margin and the defection from the mainstream market tend to sound an
6   P. P. Li
alarm to incumbents, who then react more forcefully than they would do in the
case of low-­end DI. For instance, in the case of digital cameras for Kodak
(Gilbert and Bower, 2002; Lucas and Goh, 2009), Kodak’s top management
team reacted decisively and swiftly to the threat of digital technology. Even
though Kodak eventually lost the war, this was not due to a lack of motivation
but, rather, to a lack of ability to take proper action (e.g., its reluctant and resist-
ant middle management and the incompatibility between the chemical and digital
paradigms). I refer to a lack of ability to shift between paradigms as paradigm
conflict (cf. Dosi, 1982; Kuhn, 1962) in order to gauge the potential for disrup-
tion beyond architectural and business model innovations (cf. Godoe, 2000;
Henderson and Clark, 1990; Markides and Oyon, 2010). The distinction between
a lack of motive and a lack of ability can differentiate low-­end bottom-­up RI
(from an initial lack of motive to the later lack of ability) from high-­end top-­
down RI (a lack of ability without the lack of motive). Hence, I want to reframe
“creative destruction” (Schumpeter, 1942) into two types: top-­down and bottom-
­up destructions (cf. Carr, 2005; Govindarajan and Kopalle, 2006a; Markides,
2006; Utterback and Acee, 2006). In this sense, I take DI as a form of bottom-­up
destruction, including both bottom-­up RI and bottom-­up incremental innovation
(II), in contrast to both top-­down RI and II.
Third, another major distinction between high-­end RI and DI lies in the
timing of market adoption or consumption, with high-­end RI for early-­adopters,
in contrast to DI for late-­adopters (see Govindarajan and Kopalle, 2006b for the
differentiation between DI and high-­end RI). Fourth, the assumption of RI being
higher in quality and price is not always warranted (Chandy and Tellis, 1998;
Leifer et al., 2000). For instance, Chandy and Tellis (1998) measured RI as
being high in both “newness of technology” (e.g., new features) and “customer
need fulfillment per dollar” (e.g., low cost). Leifer and colleagues (2000) took RI
as meeting one of three criteria: (1) an entirely new set of performance features;
(2) improvements in known features of five times or greater, and (3) a significant
(30% or greater) reduction in cost. Hence, it is possible for RI to have a lower
price, and even to be of inferior quality in the extant features as long as it has a
superior quality in at least one new feature (Utterback and Acee, 2005).
However, I take issue with the perspective that RI must have “an entirely new
set of performance features” (Leifer et al., 2000), or be new in both technology
and market (Chandy and Tellis, 1998; Garcia and Calantone, 2002). This is
because it is virtually impossible to have a product/service or process with an
entirely new set of features, and it is also rare to be novel in both technology and
market (Garcia and Calantone, 2002). Consistent with the exploitation-­
exploration framework (March, 1991), I reframe “breakthrough” (Chandy and
Tellis, 1998), “really new,” and “discontinuous” innovations as RI (in addition
to the rare type of RI mentioned above). Further, I reframe RI as new-­feature
innovation, in contrast to enhanced-­feature innovation (i.e., performance
improvement and cost reduction) as II (cf. Leifer et al., 2000). To broaden the
concept of RI, I include both product/service RI and process RI (e.g., Ford
assembly line; Toyota JIT system, and Dell model). Finally, I classify both RI
 Introduction   7
and II into top-­down (higher price, thus not DI) and bottom-­up (lower price as
DI) types. The essence of DI is to target the non-­mainstream market via lower
price in a bottom-­up (never top-­down) process (Schmidt and Druehl, 2008). In
this sense, both mobile phones and digital cameras should be taken as top-­down
RI rather than DI (bottom-­up RI) due to their initially high prices. In sum, DI is
the bottom-­up form of destruction, including both bottom-­up RI and II, in con-
trast to the top-­down RI and II, thus clarifying the distinctions and links between
various types of innovation. This implies that we can apply the market-­oriented
dimension of top-­down and bottom-­up innovations to a new typology of global
innovations.
The third major root cause of the current conceptual confusion is the lack of a
compelling rationale to explain why DI disrupts. I posit that the essence of DI is
its bottom-­up novel value proposition as the core of business-­model innovation,
reflected in a bottom-­up process with the initial sub-­standard (inferior perform-
ance at lower price) and emerging future standard (new or even enhanced fea-
tures) as two embodiments of the novel value proposition which partially replace
the extant mainstream standard and incumbents. Hence, I treat “sub-­standard”
(at lower price) and “future standard” as the two defining qualities of DI. By
challenging the notions of “low-­end” and “high-­end” DI, I provide a solution to
their conceptual confusions by highlighting the theme of bottom-­up novel value
proposition (cf. Christensen et al., 2004; Schmidt and Druehl, 2008). Building
upon this theme, the notion of “future standard” bears two implications.
Although evaluated as lower in quality by the extant mainstream standard, DI
could be higher in quality if judged by the emerging future standard. Further,
because the bottom-­up novel value proposition cannot prevail initially, it must
start with a lower price. This notion is consistent with the recent definition of DI
as “an innovation that cannot be used by customers in mainstream markets. It
defines a new performance trajectory by defining new dimensions of perform-
ance compared to existing innovations” (Christensen et al., 2004: 293). I posit
that, while the initial sub-­standard and emerging future standard are the core
mechanisms for the success of latecomers, the motives and abilities in paradigm
conflict are the underlying mechanisms for the failure of incumbents as inertia
(cf. Barnett and Pontikes, 2008; Rumelt, 1995). In other words, latecomers and
incumbents are affected by DI in different patterns via distinctive mechanisms.
It is worth noting that all innovations entail novel value propositions, which
are the core of all business models that integrate technology and market (Ches-
brough and Rosenbloom, 2002). Innovation and business models share the
common theme of integrating technology with the market (Chandy and Tellis,
1998; Freeman and Soete, 1997; Garcia and Calantone, 2002), in sharp contrast
to technological invention. In other words, innovation and business models are
two sides of the same coin. I define a business model as a business strategy
delineated by resource configuration, as well as task coordination, as the means
for the ends of strategic intent and thrust (Li, 2003, 2007; Teece, 2007; see Zolt,
Amit and Massa, 2011 for a review). Later, I will discuss further the overall link
between DI and business models, as well as their links with other issues. In sum,
8   P. P. Li
it is the two qualities of the initial sub-­standard (the lack of motive on the part of
incumbents so as to ignore the threat of DI) and the emerging future standard
(the lack of ability on the part of incumbents so as to be paralyzed by DI) that
define the downfall of incumbents in the context of DI.
The fourth major cause of the current conceptual confusion is the lack of
explicit criteria to judge if an innovation is disruptive, particularly ex ante crite-
ria (Danneels, 2004). If we only have the ex post criteria of actually substituting
the old standard and incumbents, we could not predict where and when DI might
occur (Tellis, 2006). A directly related concern relates to at which point of “dis-
ruptiveness” we can regard an innovation disruptive (Danneels, 2004). Most
scholars would agree that DI does not have to replace incumbents, but DI should
have an ultimate impact on an extant market without totally replacing it (e.g.,
Chandy and Tellis, 1998; Markides, 2006; Schmidt and Druehl, 2008). I extend
the above views by positing that novel value proposition, as the theme of DI,
should provide the key to the above concerns. First, the ex ante criteria of DI
could be the two defining qualities of sub-­standard and future standard, with the
last quality as the compelling rationale and criterion for disruption. Second, the
two ex ante criteria imply that DI will have a major bottom-­up disruptive impact
on the old standard as well as on the incumbents, but will not necessarily replace
them. In other words, it is not possible to specify any perfect ex ante criteria to
predict DI, but we can adopt the two defining qualities as approximate ex ante
criteria to gauge the potential of DI in terms of its likely strong or weak impact
on the old standard as well as on the incumbents (cf. Christensen et al., 2004;
Gonindarajan and Kopalle, 2006a; also see Schmidt and Druehl, 2008 for a
method to estimate the potential impact of DI). Building upon the theme of bot-
tom-­up novel value proposition, I propose three ex ante criteria in terms of three
questions: (1) Is there an actual or potential new feature (e.g., smaller size of PC
for personal use)?; (2) Is the new feature potentially imperative so that it can
emerge as a new future standard (e.g., portability of PC)?; and (3) Is the new
standard so incompatible with the old standard that the two will be in paradigm
conflict (e.g., the conflict between the core business models for chemical and
digital photography)? If only the first answer is positive, the potential impact of
DI is minimal; if the answers to all three questions are positive, the potential
impact is maximal; if the first two answers are positive, the potential impact is
moderate. It is worth noting that it is hard to adequately gauge the potential
impact of DI at the initial stage because any novel product/service or process
tends to be initially immature, even in the case of high-­end RI, so it takes time to
prevail along an S-­curve (Foster, 1986).
The last key cause of the current conceptual confusion is the lack of clarity
on the content of DI in terms of technology, market, product/service, or
process (cf. Christensen and Raynor, 2003; Danneels, 2004). I agree that DI
can occur in both technology and business models (Christensen and Raynor,
2003), and that DI is a problem for incumbents more in terms of business
model than in terms of technology (Christensen, 2006; Govindarajan and
Kopalle, 2006a), but I do take issue with attempts to separate the two elements
 Introduction   9
as independent types of DI (e.g., Markides, 2006). Distinctive from technolog-
ical invention, innovation is an application of technology to market by taking
the concrete forms of a novel product/service or process as the primary ele-
ments of a business model (OECD, 1997). In this sense, it is problematic to
group innovation into technological and market types (e.g., Garcia and Calan-
tone, 2002; Markides, 2006). I share the view that innovation should contain
technological and market elements, as two sides of the same coin (Chandy and
Tellis, 1998; Freeman and Soete, 1997), so the debate over DI as related to
technology, product, or business model is largely misplaced. For instance, in
the case of “low-­end” DI, the source of disruption is lower price without much
technological innovation, thus largely market innovation; in the case of “new-­
market” DI, the source of disruption is a blend of technological and market
innovations (Christensen and Raynor, 2003). In order to cover all types of DI
and have both technological (supply) and market (demand) elements, I posit
that technological and market elements must be incorporated into DI as busi-
ness model innovation with novel value proposition as its core in the forms of
product/service or process. I embrace the inevit­able overlap, rather than the
sharp and fixed boundaries, between paired constructs, including those of
mainstream and marginal, non-­consumption (unserved) and under-­consumption
(under-­served), standard and sub-­standard, technology and market, superior
and inferior, high and low, bottom-­up and top-­down, supply and demand, and
new and old, all as dualities. Duality refers to a pair of contrary (contradictory)
yet complementary (compatible) elements as opposites-­in-unity which mutu-
ally negate and affirm to different degrees in different aspects at different times
(Li, 1998, 2008, 2012a). Finally, I suggest that we gauge the potential for dis-
ruptiveness at the industry (macro) level, rather than at the firm (micro) level,
because the latter can be problematic (cf. Garcia and Calantone, 2002). For
instance, an imitation at the industry level could be taken as an innovation
(even RI) at the firm level since the imitation is “novel” (“radical” and “explor-
atory”) to the imitating firm (cf. Wu, Ma and Shi, 2010), thus resulting in
unnecessary conceptual confusion. In sum, I propose to delineate DI as a
duality of initial sub-­standard (at the lower price) and emerging future stand-
ard so as to embody the theme of bottom-­up novel value proposition:

DI is a business model innovation involving product/service and/or process

innovations to initially target the global non-­mainstream market (in refer-
ence to TOP as the global mainstream market) via initial sub-­standard and
emerging future standard to embody a bottom-­up novel value proposition.

Based upon the above definition, it is reason­able to argue that DI at BOP is

similar to reverse or blowback innovation in many aspects, but different in other
aspects. The primary distinction lies in the necessary requirement for a disrup-
tive effect in terms of challenging global incumbents on the part of DI at BOP,
in contrast to the lack of such a requirement on the part of reverse or blowback
innovation. I will explain this distinction in more detail next.
10   P. P. Li
An integrative typology

Toward an integrative typology

By definition, DI should be inferior to the mainstream standard, but it has good
potential because it offers a novel value proposition by initially targeting non-­
served and ill-­served customers. Be default, almost all innovations at BOP
qualify as DI simply because they serve the “mainstream” market at BOP with
products and service not avail­able at TOP, including both new-­feature DI and
enhanced-­feature DI. Further, though DI at BOP is partially imitative, it is also
partially innovative, with a bottom-­up value proposition for the unique local
context at BOP (cf. Kim, 1997; Wu et al., 2010), especially reverse or blowback
innovation as new-­feature DI at BOP (Govindarajan and Ramamurti, 2011;
Govindarajan and Trimble, 2012; Hagel and Brown, 2005; Immelt et al., 2009).
New-­feature DI at BOP initially targets the local market at BOP, but later
expands into a new niche market, or even the mainstream market, at TOP. New-­
feature DI can be initiated by global incumbents (e.g., GE for port­able ultra-
sound scanner) as well as local entrepreneurs (e.g., Acer for netbook computer).
Enhanced-­feature DI at BOP, often an adaptive (imitative) version of TOP’s
innovation at a distinctly lower price (e.g., the adaptive “shanzhai” or “bandit”
versions of mobile phone in China; The Economist, 2010), also contains a novel
value proposition, often in the form of low-­cost process innovation in terms of
production or delivery (e.g., BYD’s labor-­intensive or low-­automation process
for making batteries and cars). Hence, DI at BOP is different from DI at MOP
not only due to the different income levels of customers on the demand side (cf.
Adner, 2002), but also due to the different cost levels of the production and
delivery processes on the supply side (cf. Li, 2007, 2010). The differences on
both the demand and the supply sides can be captured by the two defining quali-
ties (i.e., initial sub-­standard and emerging future standard) to embody the theme
of DI (i.e., bottom-­up novel value proposition).
Bottom-­up novel value proposition is unique because it adapts to the local
context of indigenous innovation, which tends to takes the form of imitative inno-
vation (He, Lim and Wong, 2006; Ouyang, 2010; cf. Wu et al., 2010). In order to
distinguish it from the form of DI at BOP initiated by global incumbents, I take the
form of DI at BOP initiated by local challengers as leapfrogging innovation, with
five key connotations. First, it crystallizes the theme of bottom-­up novel value
proposition (innovation content). Second, it also symbolizes a bottom-­up process
with a low-­to-high trajectory of innovation (innovation process). Third, it reflects
an indigenous demand as adaptive to the unique local contexts in the emerging
markets (innovation context). Fourth, it adopts the perspective of local firms from
the emerging markets as latecomers aiming to catch up and leapfrog the global
incumbents, in contrast to the perspective of local subsidiaries of global incumbents
operating in the emerging markets (innovation agency). Fifth, it implies that not all
types of disruptive potential can be fully realized (innovation outcome). Hence,
integrating the notions of reverse, blowback, frugal, and indigenous innovations,
 Introduction   11
leapfrogging innovation consists of both new-­feature DI (I refer to it as leapfrog-
ging innovation in terms of path-­creating innovation) and enhanced-­feature DI (I
refer to it as catching-­up innovation in terms of path-­skipping innovation; cf. Lee
and Lim, 2001). The notion of leapfrogging innovation also covers the holistic and
dynamic functions of DI from being sub-­standard to being future standard, which
integrates technology (product/service or process) and market (business model).
Hereafter I refer to the special type of DI initiated by local challengers at BOP as
leapfrogging innovation with two sub-­types, i.e., catching-­up and leapfrogging
innovation (cf. Hobday, 1995; Lee and Lim, 2001; Kim, 1997; Mu and Lee, 2005;
Wu et al., 2010; Xie and Wu, 2003; Yu, 2007).
Further, by taking the mainstream market at TOP (including its three seg-
ments, i.e., high-­end, mid-­end, and low-­end) as the benchmark, and by taking
the reframed constructs of DI and BOP as the components, I propose an integra-
tive typology of global innovations (see T­able 1.1). This typology integrates the
dimension of sustaining-­disruptive innovation with the dimension of radical-­
incremental innovation. The dimension of sustaining-­disruptive innovation
focuses on the domain of technology, while the dimension of radical-­incremental
innovation focuses on the domain of the market; together, the two dimensions
delineate four ideal-­types of global innovation. The standards of quality and
price in the mainstream market at TOP are used as the benchmarks for compar-
ing the qualities and prices of global innovations across both TOP and BOP.
Finally, in addition to the above “spatial” content of DI, this typology implies a
dynamic process of DI in terms of a general trajectory involving all four cells,
from leapfrogging innovation to DI at TOP and then from DI to SI. This process
is recursive in nature. In sum, this typology sheds light on the nature, rationale,
and criteria of global innovations in general.

Novel qualities of DI at BOP by latecomers as leapfrogging

innovation
As implied in T­able 1.1, the potentially path-­breaking contribution of DI at BOP,
which is leapfrogging innovation, is that it offers the most solid anchor for DI as
it has a clear definition without the conceptual confusions and ambiguities in the
extant conceptualization of DI. As shown in T­able 1.1, leapfrogging innovation
is explicitly distinctive from DI at MOP (cf. Christensen and Raynor, 2003)
because leapfrogging innovation (with novel value propositions for the unique
local needs at BOP) differentiates both new-­feature and enhanced-­feature DI
from both new-­market and low-­end DI at MOP. The “low-­end” DI with low-­cost
structure in the same “value network” cannot disrupt (cf. Christensen and
Raynor, 2003). When reframed as the “lower-­end” DI at MOP below TOP, this
type primarily targets under-­consumption. As the “lower-­end” DI focuses on
under-­consumption, I take it as a weak form of DI because of its smaller disrup-
tive impact on the mainstream market and incumbents. I also regard enhanced-­
feature DI as a weak form of DI because it relies more on low-­cost process
innovation than on product/service innovation, and thus has a smaller disruptive
T­able 1.1 An integrative typology of global innovation

The Mainstream Market Radical Innovation Incremental Innovation

At TOP as the Reference (Initially large gap in quality (Initially small gap in quality
(high, mid & low ends) with new features for with enhanced features for
major market expansions) minor market expansions)
Traditional Direction: Top-down Radical Top-down Incremental
Top-down innovation Radical-sustaining at TOP Enhanced-feature (value) at TOP
(Initially higher price: (e.g., mobile phone; HDTV) (e.g., high-end CPU; high-end car)
For the global mainstream market at TOP) Radical-destructive at TOP
(e.g., CD; iPod; digital camera; Toyota JIT;
Dell model)

Emerging Direction: Bottom-up Radical (strong DI) Bottom-up Incremental (weak DI)
Bottom-up innovation New-feature at MOP Enhanced-feature (cost) at MOP
(Initially lower price: (e.g., PC; eBay) (e.g., Hyundai car; Wal-Mart)
For the global non-mainstream markets at BOP New-feature at BOP Enhanced-feature (cost) at BOP
and MOP, especially at BOP) (e.g., GE port­able ultrasound; Acer netbook (e.g., BYD production process & adaptive
computer as strong leapfrogging innovation) “shanzhai” in China as weak leapfrogging
innovation)

Notes
1 An innovation is an application of technology to a new product/service and process for a novel value proposition. Value proposition is the core of business model,
which entails product/service or process innovations.
2 This typology contains four ideal-typical innovations on the dimensions of technology-based “radical-incremental innovation” and market-based “top-down-bottom-
up innovation” as two continuums.
3 Creative destruction can derive from two dimensions: (1) the market directions of top-down and bottom-up innovations, and (2) the technology styles of radical and
incremental innovations.
4 The “top-down radical” type is a strong and immediate RI with initially higher quantity and quality of new features, while the “bottom-up radical” type is a weak
and long-term RI with initially lower quantity and quality of new features.
5 The nature, rationale, and criterion of DI, as the bottom-up destruction, derive from a bottom-up novel value proposition embodied by sub-standard and future
standard as two defining qualities of DI.
6 Since DI is a bottom-up process from sub-standard to new standard, BOP is the better context for DI relative to MOP. DI is more likely to occur at BOP than MOP
due to the indigenous need for a bottom-up novel value proposition. The special type of DI at BOP by local entrepreneurs and EMNEs is leapfrogging innovation.
7 The typical trajectory for local entrepreneurs and EMNEs is from “bottom-up incremental” to “bottom-up radical” as well as from “bottom-up” to “top-down”,
while the typical trajectory for DMNEs as the global incumbents is from “top-down” to “bottom-up” as their reactions to leapfrogging innovation.
 Introduction   13
impact on the mainstream market and incumbents. This type of leapfrogging
innovation is primarily effective for latecomers to catch up with, rather than
leapfrog, the incumbents. In contrast, I regard new-­feature DI at MOP and new-­
feature leapfrogging innovation as strong forms of DI due to their much larger
disruptive impact on the mainstream market and incumbents (tied to their natures
as bottom-­up RI). This type of leapfrogging innovation is primarily effective for
latecomers to leapfrog, rather than catch up with, the incumbents. It is worth
noting that the impact of DI is the ex ante potential rather than the ex post
reality; the size or degree of potential impact as the measure of strong or weak
form of DI can be gauged by the degree of novelty in value proposition, reflect-
ing the potential to disrupt even the mid-­end and high-­end mainstream segments
at TOP beyond its low-­end segment. Consequently, both types of leapfrogging
innovation (i.e., new-­feature DI and enhanced-­feature DI) are “new” since they
target the non-­consumption at BOP (in contrast to the DI at MOP for under-­
consumption) (London and Hart, 2011; Prahalad, 2009). This unique quality of
leapfrogging innovation best highlights the defining qualities and theme of DI.
In sum, because leapfrogging innovation best captures the nature, rationale, and
criterion of DI in general, there is no more confusion or ambiguity in the con-
ceptualization of DI.
Further, leapfrogging innovation represents the most compelling rationales
and criteria to fully explain why and how DI actually occurs and functions. Such
rationales and criteria derive from the distinctions between DI at BOP and DI at
MOP, not only in the income level of their respective targeted customers, but
also in the unique content of their respective business models. The two distinc-
tions are directly related to business-­model innovation rather than technological
innovation. While they share the qualities and theme of DI in general, leapfrog-
ging innovation can serve non-­consumption, in contrast to DI at MOP serving
both under-­consumption and non-­consumption. Also, leapfrogging innovation
must be adaptive to the indigenous contexts at BOP, including the unique eco-
nomic and cultural contexts. It is this need to adapt to the indigenous context at
BOP that drives the demand for leapfrogging innovation to be indigenous in its
value proposition. Hence, instead of characterizing leapfrogging innovation as
“imitative,” I regard leapfrogging innovation as “indigenous,” which refers to
the adaptation of product/service and process to the unique local context. In this
sense, leapfrogging innovation can be understood as indigenous in nature with
new-­feature (leapfrogging) DI and enhanced-­feature (catching-­up) DI as the two
essential forms. Hence, the root rationale and criterion for leapfrogging innova-
tion to explain why and how DI occurs and functions lie primarily in the indige-
nous context of leapfrogging innovation (Li, 2007, 2010). For instance, the
potential for disruptive impact of leapfrogging innovation tends to be much
larger than DI at MOP because the local context at BOP is more fertile for both
new-­feature and enhanced-­feature DI, including the contextual factors of a large
and fast-­growing market of non-­consumption, state support, and unique demand
at some of the BOP markets (Mu and Lee, 2005; The Economist, 2010; Wu et
al., 2010; Xie and Wu, 2003; Yu, 2007). This is similar to the experiences of the
14   P. P. Li
former latecomers (Cho, Kim and Rhee, 1998; Kim, 1997; Lee and Lim, 2001;
Li, 1994; Sohn, Chang and Song, 2009).
To adapt to the indigenous context at BOP, the two forms of leapfrogging
innovation have unique qualities distinctive from DI at MOP. For new-­feature
leapfrogging innovation, it is expected that this type of DI will disrupt the main-
stream market and incumbents to a larger extent because, by definition, its value
proposition will be more novel. As the strong form of DI, new-­feature leapfrog-
ging innovation has the dual-­role function of being both DI and RI (i.e., the
radical-­disruptive type), so it can leverage the strength of DI with the strength of
RI. Given that role, new-­feature leapfrogging innovation will have the greater
potential to disrupt the mainstream market and incumbents than new-­feature DI
at MOP, since the former provides indigenously novel product/service innova-
tions for the unique local demands at BOP, which are highly unlikely to occur at
MOP (e.g., GE port­able ultrasound scanner; Acer netbook computer). In addi-
tion, enhanced-­feature leapfrogging innovation can disrupt the mainstream
market and incumbents more than enhanced-­feature DI at MOP because the
former can provide an indigenously novel process innovation that is unlikely to
occur at MOP due to the unique local supply at BOP (e.g., BYD’s labor-­
intensive/low-­automation production system; China’s “shanzhai” products). It is
enhanced-­feature catching-­up innovation that highlights the importance of
process innovation, in addition to product/service innovation. Focusing on prod-
ucts and services related to RI and DI at MOP, the extant literature often neglects
process innovation as the secondary innovation (OECD, 1997). In contrast,
enhanced-­feature leapfrogging innovation can best showcase the unique ration-
ale and criterion of process innovation from the low-­cost perspective. For
instance, BYD, China’s largest maker of batteries and electric cars, is a good
example of enhanced-­feature leapfrogging innovation with a unique labor-­
intensive (low-­automation) production system as a major low-­cost process inno-
vation (Gunther, 2009). It is BYD’s business model innovation (with process
innovation as the critical part), rather than its technology or market approach,
that makes it a likely disruptive challenger. It is worth noting that BYD was
recently ranked as the eighth most innovative firm in the world (Newsweek,
2010). However, it is necessary to point out that, while enhanced-­feature DI (as
low-­cost, in most cases) may help latecomers catch up with incumbents, it is
new-­feature DI that is uniquely cap­able of helping latecomers leapfrog incum-
bents. Hence, I can take “path-­skipping” as the weak form of leapfrogging, and
“path-­creating” as the strong form of leapfrogging (cf. Lee and Lim, 2001). This
distinction is implicitly supported by the evidence that both path-­following and
path-­skipping share the same character of involving private effort only, while
path-­creating has the unique need for private-­public collaboration (Lee and Lim,
2001). In other words, path-­creating (path-­breaking) leapfrogging can be taken
as exploration for a paradigm shift with the new rules of the game (e.g., new-­
feature DI), while path-­skipping (path-­dependent) leapfrogging can be regarded
as exploitation with the same rules of the game (e.g., enhanced-­feature DI) and
without any paradigm shift (Dosi, 1982; Li, 2010; March, 1991).
 Introduction   15
To further explain the uniqueness of leapfrogging innovation, we differentiate
enhanced-­feature leapfrogging innovation from the “lower-­end,” “immediate-­
market,” and “fringe-­market” innovations in three aspects (cf. Schmidt and
Druehl, 2008). First, while DI at MOP targets those marginal customers with
under-­consumption at MOP, low-­cost leapfrogging innovation targets the “main-
stream” customers with non-­consumption at BOP. Second, while DI at MOP
needs to moderately reduce costs via a minor process innovation, the low-­cost
leapfrogging innovation must substantially reduce costs via a significant DI in
process innovation (e.g., BYD’s labor-­intensive/low-­automation system in
China). Third, it is doubtful whether DI at MOP qualifies as innovation if it does
not involve process innovation. It should be reframed as a minor process innova-
tion in order to be qualified as innovation. In sum, the proposed integrative
typology solves the conceptual confusions and ambiguities about the types of DI
in particular and the rationales and criteria of DI in general.
As a caveat for the integrative typology, we need to realize that, as a process
from sub-­standard to future standard, DI in general (and leapfrogging innovation in
particular) does not have to fully or completely replace the old standard and incum-
bents. If a bottom-­up innovation successfully enters the mainstream market (includ-
ing its low-­end segment) by establishing a new standard as one of multiple options
for the mainstream market, this innovation qualifies as DI (e.g., Acer netbook com-
puter and GE port­able ultrasound scanner). In other words, the extent of disruption
or disruptiveness can range from strong (high) to weak (low). For instance, GE’s
port­able ultrasound scanner is a strong DI by a global incumbent, but it is unlikely
to replace the high-­end ultrasound systems at TOP. Acer netbook computer can be
a strong DI by a local latecomer at BOP, but it is unlikely to replace the high-­end
notebook computers at TOP. Also, BYD’s electric cars and the electric bikes in
China, which have the potential to become the strong form of DI at BOP, are
unlikely to replace their high-­end counterparts at TOP any time soon. Finally, those
“shanzhai” products, including the mobile phones built with the integrated chip by
MediaTek (Sun, Chen, and Pleggenkuhle-­Miles, 2010), could be a weak form of DI
by local latecomers at BOP when they are well adapted to the local context as imi-
tative innovations (i.e., enhanced-­feature DI), but they are even less likely to replace
the high-­end products at TOP than new-­feature DI.

Toward a theory of leapfrogging innovation

The character of leapfrogging innovation can be captured by the five basic dimen-
sions of “spatial” content of MNE evolution, including ultimate intent, external
context, internal profile, strategic choice, and market effect (Li, 2003). First, leap-
frogging innovation will greatly depend on the ambitious strategic intent as the
long-­term goal. Without such ambitions, DI will not even occur, due to a lack of
motivation. EMNEs are good at DI since they are eager, and are also under great
pressure to innovate in the disruptive manner. Second, leapfrogging innovation
depends on the unique local context of EMNEs, including large size, fast growth,
and diverse demand in the local market, as well as cheap labor supply, and state
16   P. P. Li
policy incentives, as in the case of China (Li, 2007; Xie and Wu, 2003). It is imper-
ative that large size, fast growth and diverse demand in the local market provide a
unique chance for the trial and error necessary for DI. A cheap labor supply, includ-
ing both low-­skilled and high-­skilled labor, provides the strongest base for low cost
innovation. State policy incentives offer a new motive for DI. Further, leapfrogging
innovation will depend on the external context of global supply chain, modulariza-
tion, and open innovation, all of which make it much easier and faster for EMNEs
to benefit from the global network. Third, leapfrogging innovation will ultimately
depend upon the internal profile of latecomers, including a lack of resources, which
tends to put greater pressure on latecomers to engage in innovation. In this sense, a
lack of resources results in a higher likelihood of leapfrogging innovation. For
instance, the lack of natural resources in Japan and South Korea forced them to rely
more on human resources by promoting education and teamwork (Cho et al., 1998;
Sohn et al., 2009). In sum, the above three factors delineate the general contexts for
EMNEs to engage in leapfrogging innovation. Based on the above discussion, we
can develop three propositions concerning the initiating and enabling contexts for
leapfrogging innovation:

Proposition 1 The more ambitious ultimate intent (motive) of a latecomer

to engage in entrepreneurial leapfrogging will be associated with a higher
frequency and quality of leapfrogging innovation by the latecomer.

Proposition 2 The more conducive internal profile (e.g., latecomer status,

lack of core resources, and aggressive culture) for a latecomer for entre-
preneurial leapfrogging will be associated with a higher frequency and
quality of leapfrogging innovation by the latecomer.

Proposition 3 The more conducive external context (e.g., large, fast

growing and diverse home market; limited technology and capital at home;
cheap labor at home; strong state support at home; mature status of global
industry, and global outsourcing network) for a latecomer for entrepre-
neurial leapfrogging will be associated with a higher frequency and quality
of leapfrogging innovation by the latecomer.

Fourth, in addition to the above “spatial” factors of DI, there are also tempo-
ral factors, which must reflect the accelerated trajectory of entrepreneurial leap-
frogging. For instance, leapfrogging innovation often involves a sequential
process from reverse engineering to technology licensing (often as a key part of
OEM contract manufacturing), and also from internal R&D to R&D alliance (Li,
 Introduction   17
2010). This learning path requires a unique R&D model with an emphasis on
both imitative innovation and learning from alliance partners. Hence, it is
reason­able for latecomers to engage in business model innovation with three
core features: (1) it will target BOP before MOP and TOP; (2) it will customize
products/services according to the unique indigenous context at BOP with the
higher value-­price ratios; and (3) it will focus on the low-­cost process system by
taking full advantage of cheap labor (so-­called people power), especially in the
core functional domains of R&D and marketing, as well as by innovatively com-
bining extant technologies. In particular, DI at BOP can take advantage of con-
venience in design as new-­feature innovation with the values of compactness
and portability (e.g., GE port­able ultrasound scanner and Acer netbook compu-
ter). The notion of convenience is critical to DI at BOP in the sense that it is the
third core product feature—besides functionality, reliability, and cost—in the
product evolution model of the Buying Hierarchy (Christensen, 1997: 217). This
model posits that customers tend to make their buying decisions by following
the normal trajectory from functionality to reliability, then convenience, and
finally to cost. However, I posit that, given its bottom-­up nature, DI in general,
and leapfrogging innovation in particular, will most likely start with the feature
of cost (enhanced feature), then convenience (new feature), before moving up to
the core features of functionality and reliability, in contrast to the normal trajec-
tory at TOP. For example, Huawei, a telecommunications equipment manufac-
turer from China, designed a compact and port­able distribution base station
called Single-­RAN, which helped Huawei win two large contracts in Europe (the
Netherlands in 2004 and Norway in 2009). Due to the features of convenience
and cost, this new-­feature leapfrogging innovation has become the new standard
for the incumbents to adopt. This standard, however, may not be in paradigm
conflict with the old standard, so it remains to be seen if Huawei will be ­able to
replace the incumbents as a result of this new standard. This is a good example
of path-­creating leapfrogging DI (exploration), in contrast to path-­skipping leap-
frogging DI (exploitation). Fifth and finally, the market effect of learning about
the emerging markets can be quicker and stronger for latecomers than their
learning about the established markets. This limitation supports the view that
EMNEs tend to have unique advantages in leapfrogging innovation as DI at BOP
rather than DI at TOP. After their initial success in leapfrogging innovation,
EMNEs will inevitably move up to DI at MOP. There is still a long way to go
before any latecomers reach the top-­end of TOP, but they has proven to be com-
petitive at MOP, and also increasingly competitive at the low-­end of TOP. Based
upon the above discussion, we have developed further propositions about the
stages and mechanisms of leapfrogging innovation:

Proposition 4 Leapfrogging innovation mediates between the first three

“spatial” factors (i.e., ultimate intent, external context and internal profile)
as the input, and the last “spatial” factor of market effect as the output.
18   P. P. Li

Proposition 5 Latecomers will follow a trajectory from low-­cost

enhanced-­feature DI to high-­value new-­feature DI (convenience) at BOP
and then to MOP, and finally to RI and II at TOP.

Proposition 6 The potential disruptiveness will be greatest if new-­feature

DI emerges as the future standard in a paradigm conflict with the old
standard.

Proposition 7 Not all leapfrogging innovations will fully disrupt all global
incumbents.

Proposition 8 Latecomers will initially confront the greater competition at

TOP, especially in terms of the unique challenges of exploring access to
the market at TOP.

Proposition 9 Incumbents will initially confront the greater competition at

BOP, especially in terms of the unique challenges of exploring access to
the market at BOP.

Proposition 10 Incumbents and latecomers will benefit the most from their
inter-­group alliance initially at BOP, then at MOP, and finally at TOP.

Discussion and conclusion

Discussion of critical contributions and implications

Applied to BOP, DI bears unique strategic implications for both local entrepre-
neurs in the emerging economies and global incumbents in the developed econo-
mies. The future landscape of global competition can be dramatically reshaped
by DI at BOP as leapfrogging innovation. It is increasingly clear that leapfrog-
ging innovation has the greatest potential to make the world much “flatter”
(Friedman, 2007) and also much more sustain­able (London and Hart, 2011;
Samli, 2008). This exploratory study has made two contributions to the research
 Introduction   19
on leapfrogging innovation by reframing the constructs of DI and BOP, propos-
ing an integrative typology of global innovations, and building a tentative model
of leapfrogging innovation. First, this study has tentatively settled the key
debates regarding DI and BOP, thus paving the way for an integrative typology
of global innovations on two dimensions. Second, this study has tentatively built
a theory of leapfrogging innovation to explain why and how leapfrogging inno-
vation serves as the mechanism underlying the trajectories of catching up and
leapfrogging by EMNEs. In other words, this study has the potential to bridge
the literatures on international business, entrepreneurship, innovation, and busi-
ness model, and therefore has critical implications for research and practice
across diverse research streams.
Leapfrogging innovation has two primary implications for future research.
First, leapfrogging innovation has the potential to settle the debates over the
nature and process of DI by clarifying the conceptual ambiguities and confu-
sions. This is because DI is most likely to occur at BOP because of the indige-
nous requirements for special novel value propositions to be embodied by
sub-­standard and future standard as the two defining qualities of DI. For
instance, due to the salience of China as the largest, fastest growing, and most
complex economy at BOP, DI in the indigenous context of China will bear far-­
reaching implications for both local entrepreneurs in China and global incum-
bents operating in China. Hence, research into leapfrogging innovation can
greatly enrich the theories concerning emerging EMNEs, with key insights into
the unique competitive advantages and strategies for local latecomers relative to
those of global incumbents, including the holistic contents of ultimate intent,
external context, internal profile, strategic choice, and market effect in a dynamic
process of accelerated latecomer innovation. Further, research into leapfrogging
innovation can shed light on the historical patterns by which Japanese firms (e.g.,
Toyota and Sony) caught up with Western incumbents, as well as how those
firms from newly industrializing economies in East Asia (e.g., South Korea and
Taiwan) have been catching up with Japanese firms. This is the central theme of
the latecomer model in Asia, and potentially the standard latecomer model for
all emerging economies, if history is a worthy guide (Freeman and Soete, 1997;
Hart and Christensen, 2002).
Hence, longitudinal comparative case studies are necessary to identify
detailed holistic contents and dynamic processes of leapfrogging innovation, and
then compare them with the features of DI at MOP. Since it takes two to tango—
or two sides to form a single coin as a duality—we should examine the core
mechanisms for both latecomers and incumbents in order to understand the
holistic contents and dynamic processes of destruction in general and disruption
(leapfrogging innovation) in particular. In this sense, it is more effective to
compare the cases in contrasting pairs, as suggested by the Yin-­Yang Method of
case study (Li, 2012c), with a latecomer being matched with an incumbent being
targeted for disruption by the latecomers. This unique method has the potential
to identify the distinctive contents and processes of DI as a duality. I call for
more comparative case studies (especially via the Yin-­Yang Method) to explore
20   P. P. Li
the mechanisms for latecomers to disrupt incumbents as a means to catch up and
leapfrog.
It is equally critical that the research on leapfrogging innovation can clarify
the conceptual confusions regarding DI in particular and innovation in general.
This can be readily achieved by focusing on the two defining qualities (i.e., sub-­
standard and future standard) of the theme (i.e., bottom-­up novel value proposi-
tion) of leapfrogging innovation. The qualities and theme suggest the litmus test
of DI by evoking three criteria to measure the potential for disruptive impact
(i.e., a new feature, its attractiveness toward the future standard, and the para-
digm conflict between the old and new standards). Consequently, the challenge
of top-­down creative destruction lies in a lack of ability on the part of incum-
bents to engage in a paradigm shift, while the challenge of DI as bottom-­up crea-
tive destruction lies in an initial lack of motive, as well as a later lack of ability.
Finally, research into leapfrogging innovation can help enrich and integrate types
of innovations in terms of both innovation content (e.g., product/service and
process; technological and business model) and innovation process (e.g., RI and
II; DI and SI). As a result, research into leapfrogging innovation can expand our
knowledge about the distinction and link between the management in general
and innovation in particular at BOP as well as those at TOP, including their criti-
cal implications for the competition between EMNEs and DMNEs. It is worth
repeating that the real key to global competition lies in dynamic capability,
which is embedded in business model innovation so as to overcome paradigm
conflict. While the three criteria of disruptive impact suggest the absence of
ability (and also of motive), dynamic capability implies the presence of ability
(and also of motive). The absence and presence of ability and motive constitute
two more dualities. This is consistent with the paradox that the home-­based
capability of an MNE can enhance the absorptive capacity of that MNE, but it
also reduces its motivation to outsource knowledge from the host countries, thus
leading to an inverted U-­shaped balance between the home-­based capability and
knowledge sourcing from the host country (Song and Shin, 2008). In sum, the
new research on leapfrogging innovation has the potential to enrich and enhance
the research on DI by clarifying various conceptual confusions, as well as by
contextualizing DI as a global phenomenon.
Further, to complement cross-­fertilization from the research stream of glo-
balization to that of innovation, the latter has the potential to enrich and enhance
the former. This two-­way cross-­fertilization is imperative, especially when the
extant research on cross-­border R&D has largely “missed the opportunity for
theoretical advancement that might arise from drawing upon more general theo-
ries of innovation and technological process in organizations” (Frost, 2001: 101).
In particular, despite the fast-­growing significance of EMNEs in global competi-
tion (Li, 2007; The Economist, 2010), there is little work on leapfrogging inno-
vation, especially the key mechanisms underlying the trajectory of catching-­up
and leapfrogging. The extant research on the globalization of innovation or R&D
focuses on the perspective of DMNEs (e.g., Castellani and Zanfei, 2006;
Dunning, 2002; Loof, 2009; Nieto and Rodriguez, 2011; Patel and Vega, 1999),
 Introduction   21
including R&D activities located in the emerging economies and their spillover
effect (e.g., Asakawa and Som, 2008; Gorodnichenko et al., 2010; Lewin and
Couto, 2007; Li and Zhong, 2003; Mahmood and Zheng, 2009; Manolopoulos,
Papanastassiou and Pearce, 2007). What is largely missing is the cross-­border
R&D efforts by EMNEs, especially the R&D efforts in developed economies
(Li, 2007, 2010; Di Minin and Zhang, 2010; Ester et al., 2010; Liu, Wang and
Zheng, 2010). In light of this gap, this study is one of the first attempts to take
advantage of this missed opportunity by focusing on leapfrogging innovation as
one of the best conduits for cross-­fertilization from the research on innovation to
that of globalization.
In addition to clarifying and contextualizing the construct of DI, the second
contribution of this study is to explain why and how leapfrogging innovation is
the core mechanism underlying the trajectory of catching-­up and leapfrogging
by EMNEs. Specifically, the extant literature on the globalization of innovation
does suggest a theme we can evoke to help develop a theory of leapfrogging
innovation, namely the effect of competition via the presence of DMNEs in the
emerging economies upon the intensified innovation by local firms, and the
effect of spillover from the R&D activities of DMNEs that operate in the emerg-
ing economies upon the enhanced innovation by local firms (Gorodnichenko et
al., 2010), especially when the competition and R&D activities are not only for
the purpose of adapting existing products to the local market, but also for the
objective of inventing for the global markets (Asakawa and Som, 2008; Li and
Zhong, 2003; also see Immelt et al., 2009; Manolopoulos et al., 2007). This is
consistent with the trend for DMNEs to shift their R&D focus from home-­based
exploitation to host-­based exploration (Castellani and Zanfei, 2006; Dunning,
2002; Frost, 2001; Kuemmerle, 1999; Nieto and Rodriguez, 2011), given the
growing need for sourcing talent on a global scale (Lewin and Couto, 2007).
Further, this is also paradoxically consistent with the emerging evidence that
local R&D activities by DMNEs tend to reap greater benefits when they estab-
lish alliances with local firms for the purpose of targeting the local market (Cas-
tellani and Zanfei, 2006; Loof, 2009).
Based upon the above discussion, I go further to posit that EMNEs can benefit
a lot from the competition and R&D activities of DMNEs at home, which provide
opportunities for EMNEs to learn at home initially, and then later venture abroad
via the acquired absorptive capacity to learn more along an accelerated trajectory
(Li, 2003, 2007, 2010). This trajectory of learning can be further analyzed as a
duality with two basic patterns: path-­skipping innovation via exploitation of
acquired capability, and path-­creating innovation via exploration of novel capa-
bilities. This duality can be integrated with the duality of centrifugal (global and
slippery) and centripetal (local and sticky) forces (Dunning, 2002; also see Song
and Shin, 2008). From this perspective, global R&D activities show two parallel
patterns: (1) the trickle-­down global spillover from the developed economies to
the emerging economies (also from headquarters to subsidiaries), and (2) the
trickle-­up spillover from the emerging economies to the developed economies
(also from subsidiaries to headquarters) as reverse (blowback) and leapfrogging
22   P. P. Li
innovations (Govindarajan and Ramamurti, 2011; Govindarajan and Trimble,
2012; Hegal and Brown, 2005; Immelt et al., 2009). In the pattern of trickle-­up
spillover, DI at BOP is the key mechanism for EMNE to catch up and leapfrog
DMNEs. Given the conflicting anecdotal evidence for the trajectories of cross-­
border R&D activities by EMNEs (cf. Di Minin and Zhang, 2010; Li, 2007; Liu
et al., 2010), it is imperative to focus more on the specific nature of R&D activi-
ties, such as that of DI or II. For instance, as the underlying mechanism to catch
up or leapfrog, leapfrogging innovation tends to start by imitating the key features
of functionality and reliability (the first and second features in the Buying Hierar-
chy) from the existing products or services, and then shifts to an exploration of
the new features of convenience and cost (the third and fourth features in the
Buying Hierarchy). I posit that, while the weak form of leapfrogging innovation
is related only to enhanced-­feature DI (e.g., the feature of cost), the strong form
of leapfrogging innovation requires new-­feature DI (most likely deriving from the
feature of convenience, such as compact and port­able design). In sum, leapfrog-
ging innovation bears implications for the two-­way cross-­fertilization between the
research streams on both globalization and innovation.
The research on leapfrogging innovation also bears some practical implica-
tions, so this research presents a useful juncture for scholars to connect with
practitioners. Specifically, the research bears major practical implications for
both local entrepreneurs (EMNEs) and global incumbents (DMNEs). While
leapfrogging innovation presents a great opportunity for local entrepreneurs to
catch up with and leapfrog DMNEs, it poses a serious threat to global incum-
bents. However, these two groups can also complement each other as alliance
partners in order to share the core benefits of leapfrogging innovation. In other
words, these two groups could be two sides of the same coin, as a duality.
First, local entrepreneurs at BOP can take advantage of leapfrogging innova-
tion by using it to challenge global incumbents at BOP initially, before moving
up to MOP and TOP. Local entrepreneurs can focus on new-­feature leapfrogging
innovations for non-­consumption, and also enhanced-­feature ones for under-­
consumption if they are ignored by global incumbents. Local entrepreneurs often
grow at home first, but they do not stop there. They can and will leverage their
learned capabilities at BOP to aggressively enter MOP and TOP later (Hagel and
Brown, 2005; Hart and Christensen, 2002). In other words, local entrepreneurs
could grow into EMNEs and become formid­able challengers to DMNEs faster
than most have anticipated due to the unique benefits of DI. This is particularly
true for those EMNEs from large emerging economies such as China and India
(Li, 2007; Luo and Tung, 2007; Zeng and Williamson, 2007), primarily due to
their diverse and competitive markets at home. This accelerated catch-­up effort
by local entrepreneurs as a bottom-­up strategy bears far-­reaching economic,
political, and social implications (Samli, 2008), which extend beyond the
debated role of DMNEs applying a top-­down strategy (cf. Karnani, 2007; Praha-
lad, 2009). It seems that local entrepreneurs tend to have the upper hand in alle-
viating poverty at BOP relative to global incumbents, largely due to their
inherent advantage in having the best value-­price ratios for products/services, as
 Introduction   23
is required for survival at BOP. The value-­price ratio can be achieved by open
innovation with diverse partners in alliance networks (Chesbrough, 2003; Li,
2010). However, local latecomers also experience some disadvantages, particu-
larly a lack of resources other than low-­skilled labor and a potential home
market. The co-­existence of advantages and disadvantages for local latecomers
at BOP further suggests the need for taking all complex issues as dualities in
order to capture the holistic and dynamic balances between the opposing forces.
Second, some global incumbents (e.g., GE) realize not only the threats from,
but also the opportunities in, DI at BOP, so they can protect themselves from,
and take advantage of, such DI. DI at BOP that is initially targeted at the emerg-
ing markets can be taken globally, thus reversing the typical sequence from TOP
to BOP as reverse or blowback innovation (Govindarajan and Ramamurti, 2011;
Govindarajan and Trimble, 2012; Hagel and Brown, 2005; Immelt et al., 2009).
However, there are many special challenges to global incumbents, as docu-
mented by Christensen and colleague(s) (2003, 2004). Global incumbents con-
front critical challenges because their past experiences at home have not
prepared them to achieve the aggressive value-­price ratio typically required at
BOP. Further, global incumbents are not sensitive to the unique demands at BOP
due to the resource constraints encountered there. In other words, global incum-
bents have the inherent disadvantage in DI at BOP. This is especially true for
global incumbents operating in China and India, largely due to the uniquely
diverse and competitive markets in those countries. It is worth noting that “infe-
rior” quality implies not only sub-­standard performance, but also distinctive fea-
tures which embody a novel value proposition, rather than a simplified version
of a mainstream product/service with the old value proposition. In other words,
leapfrogging innovation represents a bottom-­up process of innovation from an
initial sub-­standard to an emerging future standard, which is a great opportunity
for EMNEs but a great threat to DMNEs. However, global incumbents have
many advantages, including technological and financial resources. The co-­
existence of advantage and disadvantage on the part of global incumbents shows
the critical need for taking complex issues as dualities.
Third, given the lack of resources on the part of local latecomers and the
abundance of resources on the part of global incumbents, there is a huge oppor-
tunity for the two groups to be strategic partners in their joint pursuit of DI (cf.
Zeng and Williamson, 2007). For local latecomers and global incumbents to
emphasize competition and cooperation as equally imperative, rather than either/
or dualism, represents a special duality. However, such a duality should never be
interpreted as a symmetrical 50/50 balance between the opposing issues. A truly
dual balance is asymmetrical, with one opposite as the dominant factor, needing
to be balanced in a curvilinear pattern (an inverted U-­shaped curve) by the other
opposite as the subordinate factor (Li, 2012b). In other words, the subordinate
opposite can balance the dominant opposite as complementary for synergy in the
low-­to-mid level portion, but the former will turn into contrary for trade-­off once
it extends beyond the threshold into the mid-­to-high part of the inverted U-­shape
curve (e.g., Song and Shin, 2008).
24   P. P. Li
Conclusion
In this introductory chapter, I have provided a tentative sketch of a model of
leapfrogging innovation by clarifying and contextualizing DI, as well as by spec-
ifying and positioning DI at BOP by EMNEs as the core mechanism underlying
the trajectory of catch-­up and leapfrogging. Leapfrogging innovation displays a
number of unique qualities, including the theme of bottom-­up novel value prop-
osition (innovation content); the bottom-­up process with a low-­to-high trajectory
(innovation process); indigenous demand adaptive to the unique local contexts in
the emerging markets (innovation context); the perspective of local latecomers
from the emerging markets to catch up and leapfrog, as well as that of local sub-
sidiaries of global incumbents operating within the emerging markets (innova-
tion agency); and, finally, the possible failure of leapfrogging innovation
(innovation effect). In essence, leapfrogging innovation is an overall duality,
with specific dual features such as low price and new features; initial sub-­
standard and emerging future standard; bottom-­up and top-­down; high-­end and
low-­end; technology and business model; potential and realized; motive and
ability; latecomer and incumbent; local and global; BOP and TOP; paradigm
shift and paradigm conflict; inertia and dynamic capability; exploration and
exploitation; core competence and core rigidity; competition and cooperation;
opportunity and threat; and success and failure. The key is to keep the holistic
and dynamic balances between the opposites-­in-unity as a duality.
Equipped with the above qualities of duality, leapfrogging innovation has
great potential to contribute to two broad areas. First, it can enrich and integrate
the currently separate research streams on DI and BOP by reframing leapfrog-
ging innovation as an ideal-­type of innovation in the special context of BOP.
Hence, it can cross-­fertilize from the research on globalization to that on innova-
tion in general, and DI and business model innovation in particular, by clarifying
the current conceptual confusions and contextualizing the notion of DI with its
global implications. Second, it can enrich and integrate the research streams
related to globalization, especially the emerging issues of BOP and EMNEs.
Hence, it can cross-­fertilize from the research stream on innovation to that on
globalization in general, and BOP and EMNEs in particular, by specifying the
core trajectories and mechanisms of catching up and leapfrogging. Future
research should take advantage of this great opportunity for rich cross-­
fertilization between globalization and innovation. In particular, those largely
separated research streams on entrepreneurship, dynamic capability, business
model, and the theory of the firm could be well integrated by highlighting novel
value proposition and global context as their shared theme. This is one of the
most exciting times to study DI at BOP in general, and leapfrogging innovation
in particular, not only because it is novel and in need of research, but also
because it has great potential to directly challenge the prevailing paradigm as
well as facilitate the required paradigm shift (see Christensen et al., 2010;
Govindarajan and Ramamurti, 2011; Li, 2007, 2010; Ricart et al., 2004; Sarkar,
2011).
 Introduction   25
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1 Introduction: disruptive innovation

from the bottom of the pyramid: the
strategic implications for local
challengers and global incumbents

Adner, R. 2002. When are technologies disruptive? A demand-

based view of the emer

gence of competition. Strategic Management Journal, 23:

667–688.

Aharoni, Y. and Brock, D.M. International business

research: Looking back and looking

forward. Journal of International Management, 16: 5–15.

Ahuja, G., Lampert, C.M. and Tandon, V. 2008. Moving beyond

Schumpeter: Manage

ment research on the determinants of technological

innovation. Academy of Manage

ment Annals, 2: 1–98

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epistemology: The philosoph

ical underpinnings of the study of entrepreneurial

opportunities. Academy of Manage

ment Annals, 4: 557–583.

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role of willingness to cannibalize. Journal of Marketing

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Chesbrough, H. 2003. Open innovation: The new imperative

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from technology. Cambridge, MA: Harvard Business School

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business model in capturing

value from innovation: evidence from Xerox Corporation’s

technology. Industrial and

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theoretical extension? Management and Organization Review,

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theory of disruption. Journal

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special issue. IEEE Transac

tions on Engineering Management, 57 (1): 4–8.

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framework of organizational

innovation: A systematic review of the literature. Journal

of Management Studies, 47:

1154–1191.

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critique and research agenda.

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