Tag Archives: price

Idea and book review – Cost Innovation

Book cover
Dragons at Your Door - Cost Innovation in China

Ming Zeng and Peter Williamson have researched the phenomenon of Chinese low-cost high-performance products. Twenty years ago, that was a paradox, almost a joke. However, not many are laughing at Maytag Refrigerators when the Chinese Haier delivers superior quality and broader product range to a lower price. The same goes with upcoming world players like Huawei, the world leader sea-container producer CMCI etc. They wrote an intriguing book about it: “Dragons at Your Door”.
The recurring pattern is that these Chinese companies are able to manage products and production in a flexible way to achieve mass-production costs (low cost) with a broad range (low volume per product type). Zeng calls it “Cost Innovation”. Part of the cost advantage is of course the lower salaries and lower taxation in China, but after comprehensive research, the authors conclude that this is of minor importance. More important is that the manufacturing system is designed for flexibility and low capital investment. Furthermore, the product development is fully adapted to the manufacturing capabilities: The standard question is “what variants can we make with no change of machinery?” In a sense, most innovation has been in manufacturing and in organization structure.

[As a contrast, at my company, we are setting up a product development center thousands of kilometers away from the nearest factory. The research center is in a different country far away from any manufacturing site. The interaction between product and production is minimized, which sometimes leads to miscommunication and delays. We have some things to learn from our Chinese competitors! ]

Zeng shows in a convincing way that the Chinese companies have been able to catch up quickly thanks to modularization and standardization of components and technologies. A key question is what happens right now when these companies take the lead in their respective niches? One of the recurring newslights in the last year have been acquisitions of medium sized European technology companies by cash-heavy Chinese competitors, to get access to brands, technologies and market channels. Is this incidental or will it continue to increase? We will see…

Container Innovation at Low Cost
CIMC - Container Innovation at Low Cost

Thanks to the authors unique insights in the researched companies, the book is full of concrete examples how specific problems have been resolved in innovative ways – very inspiring!

The Gas Station in China

Gas Station in China
Gas Station Sinopec

Look at the picture and see what is different from any gas station you are used to from Europe or the US or most places in the world. Of course the Chinese characters are different, but that is mere cosmetics.

I think the most interesting visual item of the gas station as a roadside landmark is the absence of price. It is nowhere written how much the gas costs. Because it is the same everywhere.

In Sweden, where I grew up, the gas price varies around 5-10% between different gas stations, and it is a convenience trade-off, whether to take the full-service gas station along the highway with it’s cozy shoplet, or to stand in the wind at the JET station with no human being in sight. Convenience for cash, as the universal trade-off.

Not in China.

The ministry sets the price for each type of fuel, and that is that. No matter if it is a Sinopec, CNOOC, or any other “branded” gas station, the price is not theirs to determine. Therefore, neither for the customer or the gas station owner, there is any interest in displaying the current gasoline price.