In 1969 I caught a fever that swept through New York like a pandemic: Mets fever. That was the year the once-hapless New York Mets racked up a 100-win season for the first time and went on to beat the Baltimore Orioles in one of the greatest upsets in World Series history. My parents bought me an inexpensive little transistor radio, a Panasonic (manufactured by a then-unknown company called Matsushita, so I could keep up with the Miracle Mets. During the Series I would even sneak out of school to listen to the games.
Fast-forward a few years to 1972. That was the year my father brought home our first Japanese car—a funny little thing called a Datsun (built by another then-unknown company called Nissan (NSANY)).
For many Europeans and Americans—not to mention Japanese—it's hard to remember when Japanese products were mere curiosities. In the 1960s, "Made in Japan" often meant inexpensive "tchotchkes" or junk to U.S. consumers; by 1990 it meant world-class quality.
Americans born after the mid-1960s probably can't remember life without Japanese cars and electronics. Those born prior to then were probably introduced to Japanese goods in the form of cheap ceramic trinkets, inexpensive toys, transistor radios, or those little cocktail umbrellas at Chinese restaurants.
In the 1960s, most U.S. businesses were in a state of denial about Japan. They looked at Nissan, Honda (HMC), Toyota (TM), Sony (SNE), and Matsushita as cheap imitators and would-be copycats not to be taken seriously. They failed or refused to recognize a world that was changing around them. Many didn't recognize Japan's growing capabilities and success, let alone anticipate Japanese industry's many later successes. They are still paying the price for this nonchalance.
While much has changed in the intervening years, mindsets haven't. Many top and middle managers today view China and India the way the 1960s generation viewed Japan: They see them as backward countries whose companies do low-cost "subcontracting" for U.S. and other Western companies, and as manufacturers of low-end goods we no longer can produce profitably ourselves.
We continue to underestimate that companies from China, India, and other developing markets have the capability to challenge us, giving these companies time to sharpen their skills, enhance their marketing capabilities, become serious innovators, gobble up Western knowhow and companies, and set their sights on global markets, including the lucrative U.S. market.
But things are different this time. The Japanese invasion was the coming of age of a relative handful of little-known "challenger" companies from a single, low-cost country with a postwar population that, according to the World Bank, didn't reach 100 million until 1967.
Like the Japanese challengers U.S. companies faced in the 1960s and 1970s, the next wave of competitors is hungry, low-cost, and ingenious. But this wave will be much bigger, more like a tsunami, with more than 3.5 billion people and hundreds (and eventually thousands) of challenger companies. These companies will have easier access to the U.S. and the world than the Japanese had in the 1960s, thanks to transportation advances, the Internet and information technology revolution, liberalized trade policies, and the ability to outsource globally to obtain what they need to achieve competitive advantage. Most of the new challengers also are fluent in the lingua franca of the world: English.
When Toyota made the decision to go head-to-head with Chrysler, Ford (F), and Volkswagen (VOWG), it was difficult for the company to gauge the tastes and needs of the U.S. market—and its first U.S. import was far from a hit. When a Chinese or Indian automaker makes its move, it can acquire whatever expertise it needs by outsourcing—by working with an experienced styling shop in Los Angeles or Rome, for example.
Get Ahead of the Wave
The next wave is already here. Think of Embraer (ERJ), the Brazilian airline manufacturer that was nearly bankrupt in 1995 but today is the third-largest commercial aircraft manufacturer in the world after Boeing (BA) and Airbus. Think of Tata Motors, the Indian automaker that recently purchased the Jaguar and Land Rover luxury brands from Ford. Or think of Goodbaby, a Chinese manufacturer of baby strollers (it has a 28% share of the U.S. baby stroller market) and other products for infants and children that develops new products at a dizzying pace.
What should you do? You can wait and get hit—and possibly knocked over—by this new wave, you can try to ride it, or you can get ahead of it. The choice is yours.
If you choose the latter, here are three things you should do:
First: Understand who your potential competitors are and take them seriously. Some will never become a threat. They will flash and fizzle like a Fourth of July firecracker. Others are the 2008 equivalents of Sony in 1958 and Nissan and Toyota in 1969. Make it your business to know the coming challengers in your industry.
Second: Make it your business to know their business. By this I mean, to the best of your ability, try to understand what they do, how they do it, and what their long-term capabilities and objectives may be. This will help you determine whether they are potential suppliers, customers, collaborators, takeover targets, or competitors—and help determine a course of action.
General Electric (GE) CEO Jeffrey Immelt understood this when he read our first report on the emerging global challengers back in 2006. He and other top GE managers reviewed the list carefully, dividing the companies into four categories: customers, suppliers, competitors, and others. "Our goal," he told a major magazine, "is to have lots of customers, lots of suppliers. And no competitors."
Third: Visit them. Get close. Build relationships. Recognize the rise of Argentina, Brazil, China, India, Mexico, Poland, Turkey, Vietnam, and other rapidly developing countries as an opportunity—and recognize the rapidly growing businesses emerging from these countries as more than just a threat. As you get to know the companies, decide what you want to do with each: buy them, co-opt them, use them as suppliers, sell to them, or view them as long-term competitors and find ways to neutralize their potential advantages and immunize yourself against possible attacks.
Take an Interest
The Japanese are still learning and still building relationships. In July I met in Japan with the CEOs of several companies, and they are taking nothing for granted. The CEO of an equipment manufacturer, for example, expressed keen interest in his potential competitors from China as he looks to build his brand among consumers in the developing world.
The worst possible strategy is to ignore the challengers in the hope they'll ignore you—they won't. The best strategy is to get ahead of them, determine whether you want to work with them or compete with them, and decide the best way to achieve your goals. In most cases, you still have the opportunity to be in the driver's seat. But if you wait, you may lose control of where you can go.