Emerging Economy Copycats

A R T I C L E S

Emerging Economy Copycats:Capability, Environment, and Strategyby Yadong Luo, Jinyun Sun, and Stephanie Lu Wang

Executive OverviewEmerging economy enterprises nowadays relentlessly scale the value chain in a quest to compete on theworld stage in part by copying the products of others. They develop new products and services that aredramatically less expensive than their Western equivalents. In this article we discuss what these copycatsare and how they have grown in their unique trajectory. We emphasize their unique capabilities andweaknesses, internal and external conditions that foster growth, and strategies and paths that transformthem along a continuum from duplicative imitators to creative imitators and ultimately to novel innova-tors. To this end, we present the CHAIN Framework (combinative, hardship-surviving, absorptive,intelligence, and networking) capabilities to showcase the copycats’ capabilities and discuss STORMconditions (social, technological, organizational, regulatory, and market) that spur their growth. Finally, wepresent four case studies of copycats and discuss future research on this issue.

In the past two decades, the economic and man-agement arena has witnessed the emergence,growth, and dominance of a growing number of

firms from emerging economies. However, our un-derstanding of such emerging market competitorsremains limited. As a result, there is growing rec-ognition that we need a better model for business,one that reaches out further temporally, geograph-ically, and ideologically (Cappelli, Singh, Singh,& Useem, 2010; Chen & Miller, 2010). A keyfeature defining most emerging economy enter-prises is that they begin with imitation and laterprogress toward innovation. We refer to thesecompanies as emerging economy copycats (EECs).

In this paper we examine the strategy of such firmsand lay out a research agenda for us to furtherunderstand such businesses.

To illustrate the strategy, consider these well-known companies. Samsung leapfrogged from be-ing a mere assembler of discrete devices to a majorplayer in dynamic random-access memory(DRAM) chips in only a decade. Once India’slargest pharmaceutical company, Ranbaxy (nowowned by Daiichi Sankyo), followed a similartrajectory from duplicative imitation to creativeimitation, enabling them to move up the valuechain of pharmaceutical R&D. Brazil’s Embraer istoday the third largest global aircraft company; itreached this position after a long period of cre-ative imitation through global partnerships. Rus-The authors would like to thank Professor Garry Bruton and several

anonymous reviewers for their valuable comments and suggestions.

* Yadong Luo ([email protected]) is Professor of Management and Emery M. Findley Jr. Distinguished Chair, Department of Manage-ment, School of Business Administration, University of Miami. He is also a distinguished honorary professor of Sun Yat-Sen BusinessSchool, Sun Yat-Sen University, China.Jinyun Sun ([email protected]) is a doctoral student at the School of Management, Fudan University, Shanghai, China, and a visitingscholar at the School of Business Administration, University of Miami.Stephanie Lu Wang ([email protected]) is a doctoral student in the Department of Management, School of BusinessAdministration, University of Miami.

2011 37Luo, Sun, and Wang

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sian conglomerates Metal Loinvest, Suek, andRusal quickly evolved from imitators to listed pow-erhouses by challenging major Western multination-als and gaining market share in low-end and mid-range markets. All of these companies masterfullycompete locally, regionally, and globally producing,selling, and exporting cost-effective products.

A recent study and report by the Economist(2010) suggested that emerging economies arebecoming hotbeds of business innovation in muchthe same way Japan was in the 1950s. Not only arethey creating novel products broadly equivalent tothe products of Western companies, but they aredoing so at a fraction of the cost. By reinventingproduction and distribution systems and experi-menting with the way they use available resourcesand networks, EECs are creating entirely newbusiness models. Thus, emerging economy firmsoffer a unique mix of copying and innovating thatoffers a major challenge to existing business.

So are these entirely new business models? Whatare the unique capabilities and strengths of thesecopycats that enable them to maintain unique com-petitive advantages over Western counterparts?Why are emerging economy copycats that were untilrecently discounted as merely sources of cheap labornow becoming such powerful global competitors?What are the driving forces behind their revolution-ary strategies and business models? Probing theseunderstudied questions will help us better under-stand firms that are challenging and overturning theprevailing Western paradigms (Bruton, Ahlstrom,& Obloj, 2008; Cappelli et al., 2010; Chen &Miller, 2010; Guillen & Garcia-Canal, 2009; Im-melt, Govindarajan, & Trimble, 2009; Prahalad& Mashelkar, 2010). This is particularly criticalsince existing theories on innovation basedmainly on Western companies do not fully applyto ever-evolving firms in emerging economies.

We set out to explore these issues, providing ananalytical framework for EECs’ environment, ca-pability, and strategy. To do so we examine fourcompanies: two from China, one from Brazil, andone from India, each representing a different typeof copycat. Among leading emerging economies,China, India, and Brazil furnish a rich researchfield of EECs. Although plagued with controver-sial debates ranging from foreign exchange rate

intervention to Internet censorship, an increasinggap between the wealthy and poor to rampantcorruption, these countries are at the forefront ofrapidly rising emerging markets, and we believethey will play a definitive role in leading the wayout of the current global recession as the momen-tum of emerging economies continues to grow.

DefiningEmergingEconomyCopycats

Emerging economy copycats are enterprisesbased in emerging economies that significantlymimic a market leader or pioneer’s products.

EECs often imitate existing technologies, designs,and functions. This definition does not necessarilyentail a negative connotation, and does not nec-essarily refer to the imitators that illicitly andillegitimately infringe a pioneer’s intellectual andindustrial property rights, such as brand, trade-mark, and patent. Korea’s rapid industrializationstemmed largely from imitation, which does notnecessarily imply illegal counterfeits or clones offoreign goods; it can also be legal, involving nei-ther patent infringement nor pirating proprietaryknow-how (Kim, 1997). Those companies thatcause billions of dollars in losses for innovativeglobal businesses by manufacturing and marketingcounterfeits are referred to as “business pirates”and are not included in our study.

The distinction between the two groups, how-ever, is not always easy to delineate. It can bedifficult to appraise the legality and legitimacy ofEECs’ imitation as imitation itself is not black andwhite but instead falls within a “zone of accep-tance” (Deephouse & Suchman, 2008). StevenSchnaars (1994) categorized several distinct imi-tations: counterfeits (or pirate products), knock-offs (or clones), design copies, creative adapta-tions, technological leapfrogging, and adaptationto another industry. Pirate firms are excluded fromour definition of copycatting. Smaller and newercopycats often remain in the pure imitation phase(knockoff or design imitation), while more estab-lished copycats evolve to become innovativeimitators (creative adaptation) or even novel inno-vators leapfrogging technology and adapting tech-nology to other industries. Some EECs imitate apioneer’s product designs and appearance; othersmimic product performance and technology, brand

38 MayAcademy of Management Perspectives

names, images, and even slogans. EECs tend to treatimitation as an early-stage stepping-stone to surveya targeted market before expanding toward inno-vation. In the majority of cases, products are imi-tated through reverse engineering, patent purchasethrough licensing, the purchase of key componentsin open markets, and joint development throughpartnerships. To further explicate what EECs are, wenow turn to common characteristics of EECs.

First, EECs tend to remain in either a pure/duplicative imitation stage (early phase) or in acreative/innovative imitation stage (later phase).The products offered imitate a successful incum-bent’s existing products and services. EECs oftenbegin with reverse engineering and imitation,without proprietary core technology, know-how,brands, and reputation, but quickly evolve fromduplicative imitation to creative or innovativeimitation (improvement included) and finallyproduce innovative products of their own (oftenfocusing on new designs, functions, and speed).Once an EEC surpasses duplicative and innova-tive imitation stages, it is no longer considered acopycat. Two former copycats, China’s Huawei, aleading global telecommunications solutions pro-vider, and India’s Arcelor Mittal, a leader in theglobal steel market, have evolved to become novelinnovators with enormous investments in R&D.

Second, most EECs are privately owned enter-prises (POEs). Unlike state-owned enterprises(SOEs), POEs lack government protection and crit-ical access to government-controlled resources.They, however, maintain high levels of opera-tional flexibility, market knowledge, and aggres-sive opportunity-seeking ambition. This entrepre-neurial spirit enables them to adopt prompt,novel, and realistic tactics without running afoulof government policies and legal provisions.

Third, EECs are evolutionary. Equipped withthe learning advantage of newness, many EECsparticipate in fierce competition with domesticand global firms early in their life cycles and haveinherent learning advantages over late entrantsbecause they possess fewer deeply embedded rou-tines (Autio, Sapienza, & Almeida, 2000). More-over, they face fewer structural constraints, such asorganizational inertia, corporate politics, and in-ternal bureaucracies, resulting in the ability to

seize new opportunities in blue-ocean or uncon-tested markets (Kim & Mauborgne, 2005).

Fourth, successful EECs are characterized byspeed of design, production, and marketing and theirability to quickly adapt to mass markets. China’sHaier, Mexico’s Mabe, and Turkey’s Arcelik aresuccessful copycats, characterized by rapid learning,innovative imitation, and mass production in theearly stage of international expansion (Bonaglia,Goldstein, & Mathews, 2007). In less than a decade,Tianyu, China’s third largest cell phone maker, hasengineered a design process significantly faster thanthose of globally recognized leaders Nokia andMotorola. Tianyu produces mobile phones in lessthan one third of the time of these mobile tele-communications giants. Today, the companylaunches more than 100 new cell phone modelseach year. EECs like Tianyu develop productswith easy-to-use functions at extremely affordableprices for masses of price-sensitive consumers.

Last, EECs are heterogeneous: They differ in boththeir evolutionary stage and in their imitative traits.MyTrip.com, India’s leading travel agency Website—listed on the NASDAQ in 2010—adopted abusiness model and management process system verysimilar to that of Expedia.com. Sany, China’s largestconcrete machine manufacturer, took a different ap-proach. For Sany, reverse engineering was a vitalearly step that accelerated its creative imitation. Thecompany identified and analyzed every possible areathat could be imitated, learned, and assimilated toachieve its current status as a market leader. Today,Sany operates both a national research center and apostdoctorate research station in China, as well asresearch and manufacturing bases in Germany, theUnited States, and India. This notable former copy-cat now owns 536 patents and hundreds more know-how technologies.

Through extensive field studies and interviews,we observed that EECs possess three competitiveadvantages: cost, channel, and speed. These advan-tages mutually reinforce one another. EECs have anedge in “cost innovation” (Zeng & Williamson,2007) by delivering suitable technology at a low costby leveraging inexpensive R&D resources, bettingon low-cost alternative technologies, and using therise of open architecture to dismantle competitors’high-margin proprietary systems. These companies


offer customers substantial variety at mass-marketprices by focusing on process innovation and recom-bination of existing technologies. EECs apply scale-based technology to specialty products and thustransform businesses by dramatically reducing costsand prices, hence increasing volume. The sheer sizeof the EECs’ home market makes this possible.

Channel advantage is the EECs’ unique strengthin identifying, developing, and utilizing all channelnetworks needed for both primary and support ac-tivities. These channels include market informationchannels, government channels, supply chain chan-nels, distribution and marketing channels, interme-diary production or services channels, and outsourc-ing channels. To leverage their learning advantagesof newness while dispelling the liabilities of lateness,many EECs develop a unique ability to identifywhere to secure critical resources, raw materials, keycomponents, government support, important em-ployees, and distribution networks. As a result, theyquickly create new businesses or introduce new prod-ucts. Although often EECs do not own original orcore technologies, their ability to license, purchase,or outsource standard technologies, key compo-nents, and specialized service providers in an openmarket makes it possible to circumvent their weak-

ness in proprietary innovation and lack of in-houseR&D. Improved inbound and outbound logisticsservices also fortify their channel advantage. ManyEECs in consumer products industries remove de-sign and component manufacturing to specializedoutsiders through inshore outsourcing after build-ing their own supply channels and necessary net-works. This not only bolsters their cost advantagebut also increases their ability to get products tomarket quickly.

EECs possess a speed advantage. Their entrepre-neurial orientation, combined with their learningadvantage, channel advantage, and improved openmarkets in specialized services and important re-sources, increases their ability to quickly identifymarket opportunities, respond to market needs, andintroduce and deliver products to the market. Hardwork propels speed too. Lax labor laws permitaround-the-clock production, and it is not uncom-mon to see 24-hour design and manufacturing oper-ations in EECs. In fact, this pressure has pushed theirspeed advantage to a higher level in recent years. Tomarket leaders, fast imitation by followers undercutsthe durability of their first-mover advantages (Lee,Smith, Grimm, & Schomburg, 2000).

Figure 1 offers a typology of EECs in three distinct

Figure1Typologyof EmergingEconomyCopycats

II IV

I III

Duplicative Innovative Novel Imitation Imitation Innovation

IMITATIVENESS

MA

RK

ET

SH

AR

E

Smal

l

L

arge

Duplicating Wildcat: (Li Ning)

Mocking Kitten:(Video

Brinquedo)

EmulatingHousecat:

(Dr. Reddy’s)

AdaptiveJunglecat:

(Tianyu)

World-stageInnovator:(Destination)

Novel Specialist: (Destination)

1st Generation 2nd Generation 3rd Generation


phases: duplicative (or pure) imitation, innovative(or creative) imitation, and novel innovation. An-other dimension used in this typology is a copycat’smarket share or its market influence. This 2�3 ma-trix produces six cells or identities, which will befurther illustrated in our case study section. Thethree phases are often linked to the developmentalphases of the respective national economies. In the1970s and 1980s, weak intellectual property rights(IPR) protection in India facilitated duplicativeimitation. Conversely, countries with strong IPRlegal regimes must take a more novel or indepen-dent approach. Duplicative imitation may be anastute strategy in the early industrialization of alow-wage country as duplicative imitation of ma-ture technology is relatively easy to undertake(Kim, 1997). Many EECs’ imitative acts are tech-nically and legally ambiguous, eroding a targetpioneer’s market share and profitability. Lack of awell-established and well-enforced legal system toprotect IPR can make counteracting EECs’ imita-tive acts difficult and costly.

Relatedly, copycatting itself involves manyrisks, one of the most common of which is legalambiguity. Because their products reach consum-ers in many nations, including developed coun-tries where legal systems and IPR safeguards aremuch more established, navigating legal issues canbe challenging. More often than not, market lead-ers do not allow EECs to easily enter and competein these markets, and they tactically positionthemselves to outmaneuver copycatting behavior.

Yet another risk is brand image. Consumers per-sistently perceive copycats as low-end, low-qual-ity, cheap product manufacturers. Thus, changingthe image from copycat to innovator after the firmbegins developing its own proprietary technologyand independent innovation has proven difficult.Altering this view can be formidable, time-con-suming, and expensive.

Copycat Capabilities: CHAINFramework

How have EECs built the above advantages?Our answer rests in the capabilities of theCHAIN Framework (see Figure 2). EECs’

cost advantage, channel advantage, and speedadvantage are a function of the manner inwhich the company possesses, leverages, andupgrades the five CHAIN capabilities: combi-native, hardship-surviving, absorptive, intelli-gence, and networking.

CombinativeCapability

Combinative capability is an EEC’s distinctiveability to combine outside technologies, key com-ponents, and specialized services available fromopen markets with its own resources, designs,and/or production to offer better performance fea-tures, lower cost, and/or other improved attri-butes. EECs are often inferior in creating a novelset of product offerings (idea, design, function,technology, brand, etc.) but superior in combin-ing and integrating outside technologies withtheir own resource base. This capability is the

Figure2EmergingEconomyCopycat’s Capabilities: TheCHAINFramework

Copycat’s Compe��ve Advantage

• Cost Advantage • Channel Advantage • Speed Advantage

Combina�ve

Capability

Absorp�ve

Capability

Networking

Capability

Intelligence

Capability

Hardship-Surviving

Capability


main source of cost advantage and speed advan-tage. Savvy EECs, skillful in combinative capa-bility, can deliver products even at an earlystage of their life cycle. The availability of openmarkets in key components, technology, design,and assembly facilitates the development ofcombinative capability.

Careful consideration of the target market andculture is imperative to success when imitating orcopying a product from a developed country. Fur-ther, imitation requires a considerable degree ofcombinative capability in terms of adaptation(Yoon, 1998). This explains in part why manyEECs competent in combinative capability cansuccessfully evolve from duplicative to creativeimitation. Emerging modularization for manyproducts (e.g., household appliances and telecom-munication products) has also simplified the pro-cess of imitation and utilizing combinative capa-bility (Pil & Cohen, 2006). Since MediaTek, aleading semiconductor company based in Taiwannow investing in mainland China, offered a totalsolution and technology package combining mo-bile chips and software, hundreds of Chinesecopycats have been using this package, deliveringcell phones with more product choices and per-formance features than even Nokia and Motorolaprovide.

Hardship-SurvivingCapability

This capability represents an EEC’s distinctiveability to both operate and survive in an institu-tionally austere environment and to deal withdemanding business stakeholders (e.g., govern-mental institutions) that impose significant con-straints on business activities. In major emergingeconomies, political, economic, and administra-tive decentralization, originally aimed at unclog-ging blockages in the central bureaucracy, has ledto a more fragmented economy, redundant pro-duction capacity, and heightened formal and in-formal barriers to domestic trade (Boisot & Meyer,2008). Such unintended consequences, togetherwith long-standing challenges in the institu-tional environment, including regulatory hin-drance, policy uncertainty, weak legal protection,ubiquitous corruption, and poor public services,

have added to existing institutional hardship inmany emerging economies.

While hardship increases a firm’s transactioncosts and even destroys some firms, establishedcopycats often survive under economicallyfragmented and institutionally harsh conditions(Cuervo-Cazurra & Genc, 2008; Luo & Rui,2009). Private ownership, organizational resil-ience, learning advantage, and lower innovationinvestment costs allow copycats to learn and adaptfaster than others in responding to institutionalausterity. When seeking out new opportunities innew geographic regions (domestic and inter-national), EECs can leverage their institutionalarbitrage advantages (Boisot & Meyer, 2008;Cuervo-Cazurra & Genc, 2008). EECs tend to bemore successful in investing and marketing indeveloping countries than in developed ones.

AbsorptiveCapability

This capability demonstrates an EEC’s distinctiveability to value, assimilate, and apply new knowl-edge. It involves a broad set of skills needed todeal with the tacit component of transferredknowledge and the need to modify the knowledgeimported (Cohen & Levinthal, 1989, 1990;Mowery & Oxley, 1995). Speed is made possiblethrough an EEC’s absorptive capability: Followersinvest in absorptive capacity to facilitate learningfrom others and accelerate implementation. Fol-lowers with strong absorptive capacity delay com-mitment and collect better information withoutcompromising their ability to respond. Absorp-tive capacity extends the window for effectiveaction, reducing the risk that the firm willimitate too early or too late, and allows forimproved decision-making processes (Lieber-man & Asaba, 2006). Many successful EECsequipped with sharpened skills assimilate anduse technological skills and process the knowl-edge of market leaders. In fact, a large propor-tion of EECs are led by those with sciencedegrees and industrial experience in researchand development (Hu & Mathews, 2008). Inaddition, their superior background in reverseengineering enhances a solid foundation for fur-ther developing their absorptive capability.


IntelligenceCapability

Intelligence capability is an EEC’s distinctive abil-ity to identify, collect, analyze, and interpret busi-ness information pertaining to market, technol-ogy, competition, standards, and regulationsneeded for its duplicative or innovative imita-tions. Among the three competitive advantagesmentioned above, speed and channel advantagesparticularly benefit from this ability. Intelligencegathering helps an EEC gain the requisite insightsto gain a competitive advantage (cost, speed, orchannel) associated with duplicative or innova-tive imitation and increase the quality of itsstrategic decisions. Further, it helps the firmformulate imitative and innovative plans and in-vestment priorities. Intelligence capability makesit possible for EECs to know what to do, whileother capabilities in Figure 2 show them how. Forexample, intelligence capability has advanced theability of many Indian pharmaceutical firms tobetter predict global demand for generic drugs,analyze critical markets, choose target firms toacquire, and secure inbound and outbound net-works vital to success in foreign markets.

NetworkingCapability

This is an EEC’s distinctive ability to obtain thenecessary resources from outside institutions (e.g.,government, suppliers, buyers, partners, competi-tors, or vendors) through both formal and infor-mal networks. Networking is one of the majorstrategies pursued by emerging market enterprisesto gain access to resources and cope with environ-mental uncertainty and impediments to their op-erations (Hoskisson, Eden, Lau, & Wright, 2000).When organizations are linked by stronger net-work ties, they are more likely to have detailedinformation about each other, which facilitatesimitation (Gulati, Nohria, & Zaheer, 2000). Im-itation tends to be socially beneficial and poten-tially profitable in situations where imitators com-plement each other, which often arise inenvironments with network externalities or ag-glomeration economies (Lieberman & Asaba,2006).

Social networking helps EECs draw on con-nections in business relationships, and a firm’s

ability to do so has been identified as a powerfultool in helping it maintain a competitive ad-vantage and achieve superior performance. Eco-nomic fragmentation and institutional obsta-cles, combined with cumbersome governmentcontrol over critical resources and market entry,put copycats at a disadvantage compared withestablished state-owned rivals that are largelyprotected by the central or local governments.This in turn prompts copycats to rely moreheavily on formal and informal networks. Evenfor mature copycats that have passed the dupli-cative imitation stage and progressed to inno-vative imitation and even novel innovationphases, networking capability remains key tofirm growth, domestically and internationally.

CopycatGrowth: STORMConditions

Capability endowment, as explained above, is anecessary but not sufficient condition for EECgrowth. As Figure 3 shows, five conditions,

termed here as STORM (social, technological,organizational, regulatory, and market) condi-tions, facilitate EEC development.

Social Conditions

Many emerging economies rely on imitative re-search of foreign inventions to maintain indus-trial competitiveness (Kim, 1997). Emergingeconomy societies tend to be apathetic to intel-lectual property rights protection, thus allowingsocial acceptance of imitation (and even counter-feits to some degree). Fragmentation and disparityin economic development, real income, social jus-tice, public service, and infrastructure conditionsare common characteristics of large emergingeconomy countries. Such fragmentation and dis-parity foster the popularity of wild imitation andeven counterfeits in underdeveloped regions andfor low-income populations. Further, nationalismencourages indigenous companies to imitate, pro-duce, and deliver products to replace those origi-nally developed by well-known foreign multination-als. Import substitution, a government-enactedpolicy adopted in many developing countries fordecades, fuels growth for localized imitation inthese countries.

During economic and social transformation,


these societies also tend to become increasinglydemoralized, often allowing copycatting and evensome immoral business practices to prevail. Moraldegradation—the process of a society’s progressiveloss or weakening of morality and ethics—sociallyand culturally upholds imitation. This view isconsistent with the premise of institutional ano-mie theory (e.g., Messner & Rosenfeld, 1997),which suggests that cultural and social driversresult in conditions in which pressures for goalachievement through any means—legitimate ornot—displace normative control mechanisms. In-stitutional and cultural changes associated with

modernization encouraged a decline in traditionalsocial controls based on family and communalrelationships, a resultant weakening of norms,and, in turn, increased deviance. Moral degrada-tion provides fertile soil for the growth of theanomic pressures associated with market arrange-ments. In an anomic organizational context, pres-sure exists to take any path necessary to achieveperformance goals.

Technological Conditions

International supply chains are increasingly mod-ular, many activities are now outsourced, and

Figure3Conditions FosteringCopycatGrowth: The STORMFramework

Social Condi�ons

• Apathy to intellectual property rights protec�on • Tolerance for counterfeiting • Asymmetric informa�on fostering fake goods • Blind na�onalism encouraging knockoffs • Herding effect enlarging all condi�ons above

Emerging Economy Copycats

Mo�va�on of Copycats � Seeking mass-market opportunity for low-end and

mid-range consumers � Seeking high volume with low margin

Behavior of Copycats � Imita�on of product offering � Evolu�on from complete to crea�ve imita�on

Organiza�onal Condi�ons

• Flat organiza�onal structure • Entrepreneurial orienta�on • Performance-based culture and incen�ves • Learning advantage of newness

Technological Condi�ons

• Standardiza�on and modulariza�on

• Availability of open market for key technology, components, and design

• Rise of specialized intermediaries

• Convergence of technical norms

Market Condi�ons

• Presence of mass market for copycat products

• Social acceptance of copycat products in many countries

• Increasing sensi�vity to price-value ra�o

• Improved logis�cs, channels, and networks

• Low entry barriers or low startup/exit costs

Regulatory and Legal Condi�ons

• Lack of a clear dis�nc�on between legal and illegal copycat products

• Ambiguous IPR systems • Weak enforcement of IPR protec�on and weak

punishment for IPR infringement • Inadequate puni�ve regula�ons for counterfeits


global markets for capital, knowledge, and acqui-sitions are more open, reducing the entry barriersfaced by EECs (Zeng & Williamson, 2007). Mod-ularity—the degree to which a supply chainsystem’s components may be separated and recom-bined—is positively related to the speed of prod-uct design imitation, which allows EECs to exploittechnological opportunities and to react to evolv-ing market opportunities through recombination,modular innovation, and outsourcing (Pil & Co-hen, 2006; Thomke & Reinertsen, 1998). Increas-ingly, open global markets for key componentsand technologies facilitate an EEC’s ability toimitate, thus reducing the burden to invest heav-ily in R&D. This enables mass manufacturingwith standardized technology and offsets techno-logical weaknesses. Austin, Texas-based SiliconLaboratories supplies semiconductor chips for cel-lular phones and computer modems to severallarge EECs including China’s TCL and Brazil’sEmbratel Participacoes. In the personal computer(PC) market, the latest technologies developedin Silicon Valley can reach China within amonth or so. This swift transfer of technologyallows Dongguan, a small city in the Guangdongprovince with the world’s highest concentrationof component manufacturers, to provide Chi-nese PC markets with a ready supply of world-class technology.

Today, well-established open global marketsin applied technology, advanced machinery andequipment, latest instruments, and sophisticatedmaterials and components make EECs much morepath independent. In addition, convergence andstandardization of technical norms, pushed inpart by international organizations such as theInternational Organization for Standardization(ISO), encourages EECs to distribute productsin multiple markets and countries. The Internethelps EECs access critical information andstrengthen their ability to identify market op-portunities. Finally, the willingness of advancedmarket multinationals to sell (e.g., via licens-ing) or share (e.g., via a joint venture) technol-ogy, brands, or other assets provides EECs withan additional channel to purchase or acquirecritical resources they need.

Organizational Conditions

Success of EECs is augmented by a series of orga-nizational catalysts, such as flat organizationalstructure, entrepreneurial orientation, task-ori-ented corporate culture, and learning advantage ofnewness. Due to private ownership and entrepre-neurial propensity, copycats respond easily to out-side opportunities. In doing so, they maintain aflat, nonhierarchical structure. This gives employ-ees incentives to perform a wide range of tasks andinitiatives with greater autonomy and flexibility.Entrepreneurial orientation, often comprising in-novativeness, risk taking, competitive aggressive-ness, and a proactive approach (Lumpkin & Dess,1996; Miller, 1983), is a critical trait allowingEECs to interact with institutional legacies andthe competitive environment of emerging econo-mies. Corporate executives at EECs must skillfullymaneuver strategic choices, seeking out ways togarner the political support that allows the free-dom and support to pursue appropriate growthstrategies. Successful EECs are often led by exec-utives with sharp vision and a pragmatic approachto tap into new markets first through duplicativeimitation and subsequently through innovativeimitation. Moreover, EECs are often managed bya task-oriented corporate culture that uses out-come- or performance-based incentives to evalu-ate and reward employees. This approach directlysupports EECs’ hardship-surviving capability andgenerates high productivity. Last, the learning ad-vantage of newness fuels EEC growth. These firmshave fewer deeply embedded routines and faceless cognitive complexity and structural rigidity,which allows them to easily recognize and respondto new opportunities.

RegulatoryConditions

Undoubtedly, lax regulatory and legal conditions,especially in protecting IPR, help EECs imitate.Legal protection of legitimate business activitiesand IPR is weak in emerging economies. Al-though legislative and governmental bodies inemerging economies have begun to enact morecommercial laws and regulations, they are gener-ally not strictly enforced for a variety of political,socio-cultural, institutional, and historical rea-


sons. This enforcement uncertainty and variabil-ity can be partly ascribed to long traditions ofuntrustworthy legal and governmental systems,lack of independent law enforcement, deficiencyof supervision mechanisms, and frequent unjusti-fied law changes. These weak systems cause enor-mous “appropriability hazards” (a term in transac-tion cost economics that indicates possible lossesfrom uncompensated knowledge leakages or prop-erty right infringements by others) for originalinnovators.

With weak legal protection, a victim of IPRinfringement has very little legal recourse. Un-der ambiguous IPR systems in emerging markets,“legitimacy” of imitation is better viewed not asa binary concept but rather as a “zone of accept-ability” within which copycats vary in the de-gree of imitation (Deephouse & Suchman,2008; Zuckerman, 1999). Most copycats operatesomewhere within this zone. Meanwhile, looseenforcement of IPR protection and weak pun-ishment over IPR infringement lessen the fearof piracy. EECs’ compliance costs are far greaterin countries where IPR legal protection isstrictly enforced. Shuanghuan, the Chinese au-tomotive maker, copied three famous car de-signs but won a lawsuit in China’s local court, inpart due to legal ambiguity in IPR and lack ofIPR knowledge by local judges.

MarketConditions

Despite considerable differences within thisgroup, emerging markets are economic territo-ries in national economies that grow rapidly;their industries structurally change, the marketsare promising but volatile, regulatory regimesfavor economic liberalization and adoption of afree-market system, and governments reducebureaucratic and administrative control overbusiness activities (Luo, 2002). Despite theirvast size and strong demand, these markets re-main extremely fragmented and segmented,marred by disparity of real income and purchas-ing power and marked by diversity of consump-tion preference and behaviors of consumers.According to World Bank statistics (WorldBank, 2009), in BRIC (Brazil, Russia, India, andChina) and MIT (Mexico, Indonesia, and Tur-

key) countries, the Gini index (a measure of theinequality of a country’s wealth distribution)over the past several years ranged from 37 (In-dia) to 57 (Brazil), with other countries fallingsomewhere in between. From 1992 to 2007, therichest 10% held 28.4% of the nation’s totalincome in Russia, 43% in Brazil, and over 30%in India and China. These statistics show thatmost inhabitants in these countries remain atthe bottom of the wealth pyramid, earning lowsalaries and facing social injustice. Since copy-cat products are more affordable for these in-habitants, who are indifferent to brands buthighly sensitive to prices, EECs’ products andservices are well-suited to their needs. WhileEECs’ cost advantage gives them leadership inserving this large number of low-end consumers,their channel advantage facilitates economiesof scale in distributing products to geographi-cally dispersed consumers.

Copycats’ StrategiesandTransformationEEC Strategies

Although this article was not designed to con-cretely discuss EECs’ strategies, it is worthnoting several strategic behaviors unique to

EECs. At the corporate level, most successfulEECs use a single or dominant strategy instead ofa diversified one. A vast local market and enor-mous export potentials are the premise of theirsingle/dominant strategy. China’s Galanz pro-duces only microwave ovens and holds approxi-mately 50% of the global market share. ManyEECs that diversified into different businesseshave failed (e.g., the failure of China’s Delong isprimarily a result of overdiversification). In theearly stages of development, EECs use greenfieldinvestment and networks or alliances rather thanjoint ventures (due to the necessity for control) orM&As (due to their small size and lack of finan-cial resources). As they mature and evolve intocreative imitation and novel innovation phases,EECs progressively diversify product categoriesand product offerings. In these stages EECs oftenproactively engage in mergers and acquisitions todiversify and embark on outward foreign directinvestment (FDI).


At the business level, many successful EECsestablish competitive advantages (cost, speed, andchannel) in several ways.

First, these companies begin by seeking outpromising massive low-cost markets where theyaccumulate experience in operations and market-ing and build market share by focusing on limitedproduct lines.

Second, they diligently research the right mar-ket to target for imitation. Targets often includemass-produced products, standardized technology(not advanced), and easy-to-reverse-engineer orcash-cow market leaders. To accomplish the mis-sion these companies often hire former employeesfrom a market leader, search for low-cost substi-tutes for main components or technology, cutcosts through economies of scale, and build net-works with specialized providers offering standard-ized or modular components or services. Next,they begin to build their own small-scale R&Dcapabilities as they progress from duplicative toinnovative imitation.

Third, successful EECs maintain an acceleratedpace in closing the gap with market leaders. AsEECs mature, they aggressively leverage and inte-grate their established capabilities: using combi-native capability to sharpen creative imitationand develop new designs, using intelligence capa-bility to identify new opportunities, using networkcapability to benefit from comparative competi-tive advantages contributed by a multitude of spe-cialized service providers, and using absorptivecapability to assimilate new technologies and cre-ate new designs and performance features.

Finally, EECs excel in managing value chainsystems, from which they benefit and further re-inforce their cost, speed, and channel advantages.In conducting support activities such as humanresource management, EECs empower employeesand offer more incentives than their rivals.Through networks, EECs subcontract and out-source activities in which they do not have acompetitive edge. Through combinative and in-telligence capabilities, copycats quickly deliver fi-nal products with new designs and performancefeatures appealing to mass consumers.

On an international level, EECs recognize thatsuccess depends on their domestic performance

and the ability to launch worldwide operationsfrom the manufacturing center. Home countrymarkets remain the primary focus of operations,but international venturing generates lucrativeopportunities for growth. The long-term successand viability of EECs lies in their ability to simul-taneously leverage core competencies at home andexplore new opportunities abroad. In particular,EECs use international venturing to cash in ontheir competitive advantage in additional emerg-ing and developing markets. Mass production ca-pabilities, experience, and low-cost advantagesdrive the manufacture of technologically stan-dardized products in new emerging and develop-ing markets where great demand exists. This low-cost position allows them to offer local consumersvery attractive prices. It then results in marketshare gains over companies from advanced andindustrialized countries operating in the samemarket. To upgrade imitated products, EECs oftenemploy technology newly acquired through inter-national expansion to both improve domesticmanufacturing and develop new products for in-ternational markets.

During international expansion, EECs leverageboth inward internationalization and institutionalarbitrages. EECs actively conduct inward interna-tionalization in numerous ways, such as interna-tional licensing, original equipment manufactur-ing, cooperative alliances, equity joint ventures,brand purchasing, and relationship building withforeign firms. As they develop their knowledgebase, these firms become competitors of compa-nies from advanced economies (Mudambi, 2008).Inward internationalization provides both oppor-tunities to learn and exposure to foreign businesspractices and markets.

Many EECs embark on outward FDI as part oftheir growth strategy after gaining adequate inter-national experience through inward cooperationwith their foreign partners. Finally, EECs leveragetheir institutional arbitrage, the term capturing afirm’s pursuit of efficient institutions outside itshome country. The disadvantages previously suf-fered at home can be overcome by investing andoperating in other developing countries becausethey are experienced in operating in “difficult”


governance conditions (Boisot & Meyer 2008;Cuervo-Cazurra & Genc, 2008).

EEC Transformation

As Figure 1 illustrates, EECs transform along severalpaths. Along with the shift from duplicative (orpure) imitation to innovative (or creative) imitationand ultimately to novel innovation, EECs can optfor several road maps to grow and evolve: (1) im-prove creation and innovation (a horizontal path),(2) increase market share (a vertical path), and (3)strengthen both innovation and market share (adiagonal path). As a latecomer approaches the tech-nological frontier, its strategies have to shift fromimitation to innovation (Kim, 1997). This has beenthe case for many Asian Tigers: First were those fromJapan (e.g., Hitachi, Sharp, and Toshiba), followedby those from South Korea (e.g., Samsung and LG),then Taiwan and Singapore, and now leadingemerging economies. Many Korean firms began du-plicative imitation during the 1960s and 1970s andevolved to innovative imitation in the 1980s and1990s as the economy became more industrialized(Kim, 1997). Numerous Indian pharmaceuticalcompanies share a similar trajectory, starting withduplicative imitation and progressing to innovativeimitation and today to novel innovation (Chittoor,Sarkar, Ray, & Aulakh, 2009; Kale & Little, 2007).

While most new copycats begin in the pureimitation stage, more established EECs have re-cently advanced to the innovative imitationphase. A handful, including India’s Ranbaxy andChina’s Huawei, have even propelled themselvesto the novel innovation stage. Today, most EECsstrive to collect returns from creative and innova-tive imitation. Often, they incorporate high tech-nology in low-cost products, offer more productchoices, and even turn high-end specialty prod-ucts into low-cost, high-volume items (Zeng &Williamson, 2007). Creative or innovative imita-tion is aimed at generating facsimile products butwith new performance features. It involves notonly activities like benchmarking but also notablelearning through substantial investment in R&Dactivities to create imitative products, which mayhave significantly better performance featuresthan the original (Kim, 1997; Shenkar, 2010).

Creative adaptations and technological leap-

frogging are generic forms of innovative imitation.Still, all forms of innovative imitation begin withreverse engineering, which involves purposivesearching of relevant information, effective co-operation among technical members of projectteams and with marketing and production depart-ments, strong and effective relationships with sup-pliers and customers, and trial and error in devel-oping a satisfactory result (Kale & Little, 2007).

Samsung’s catch-up with Sony may be a lesson toEECs seeking to move forward from creative imita-tion to novel innovation: In the mid-1990s Samsungcaught up with Sony in number of patents, and sincethen has gone beyond simply imitating and applyingSony’s technology (Chang, 2008). Interestingly,Samsung caught up with Sony in terms of corpo-rate value and brand value only after the 2000s,suggesting that technological catch-up precedescorporate value- and brand value-based catch-up.

In the process to improve innovative imitation,EECs leverage low-cost R&D into mass marketsand bet on low-cost and disruptive technologies(Zeng & Williamson, 2007). Cost-cutting initia-tives, simplified operations, and lower labor costsunderpin these enterprises’ survival and success inmassive, fast-growing markets. Built on such low-cost advantages, EECs continue exploiting hightechnology in low-cost novel ways establishedglobal competitors have yet to envision or finddifficult to conduct. As a result, EECs offer prod-ucts with incremental innovations in ever-shorterproduct life cycles—typically at prices global rivalsfind hard to match.

Dawning, a high-performing Chinese computermanufacturer, succeeded in selling high-end prod-ucts to middle and low-end markets with highervolume and lower prices than competitors. BYD, aChinese battery manufacturer, holds more than 30%of the global battery market share and producesbatteries at 20% of the cost of its Japanese rivals.These EECs are experts in tailoring products to theneeds and budgets of local consumers. They are alsogood at driving innovations from one market toanother. For example, Shinco gained its market po-sition in China’s video compact disc (VCD) marketby creating a superior error correction ability thatenables consumers to play all kinds of discs—evenpirated ones. Later, the company successfully ex-


panded into the digital versatile disk (DVD) marketthroughout the world.

But not all copycats thrive; in fact, many EECsterminate operations, liquidate assets, and end upfiling for bankruptcy. Failure to evolve and trans-form in ever-changing markets tops the list ofreasons for failure. Many EECs learn not only frommarket pioneers but from their own failures andsuccesses. Despite the apparent weaknesses andhandicaps EECs face, few experts doubt that theirgrowth will accelerate.

Case Studies

Each of the four cases here represents a differenttype of EEC. Two cases are from China (LiNing and Tianyu), one is from India (Dr. Red-

dy’s), and one is from Brazil (Video Brinquedo).We chose these companies after extensive fieldstudies and desk research. Since 2005 we havebeen conducting nationwide field studies andinterviews in China to collect the needed in-formation for the two Chinese cases. The infor-mation for Dr. Reddy’s and Video Brinquedowas obtained through thorough desk research,including identifying and cross-checking rele-vant information from dozens of online sources.We finally opted for these four cases becausethey met our selection criteria: (1) they vary insize and age, (2) they vary in market share andscale of operations, (3) they belong to differenttypes of copycats proposed in this study, (4)their imitation is not illegal, and (5) they offersufficient insight into critical practices relativeto imitation and its evolution. Table 1 high-lights the profile of these four cases.

China, India, and Brazil are among the fastestgrowing emerging economies, with an average realgross domestic product (GDP) growth rate of10%, 8%, and 5% respectively from 2006 to 2008(World Bank, 2009). While the number of inter-national patents owned by Chinese firms is farsmaller than those owned by firms in G7 countries(Canada, France, Germany, Italy, Japan, theUnited States, and the United Kingdom), manyEECs in these three countries exhibit steadygrowth in filing patents and registering trademarks(annual growth of over 20% in such filings, ac-

cording to a report by the World IntellectualProperty Organization in 2009).

MockingKitten: VideoBrinquedo

Founded in 1994, Video Brinquedo is an anima-tion video company based in Sao Paulo, Brazil.Predominantly owned (90%) by a British offshorecompany called RXSG Media Group Ltd., thecompany is led by Silvana Aparecida da Silva,who holds the remaining 10%. Video Brinquedo’sabsorptive and intelligence capabilities appear toplay a critical role in fostering the firm’s growth.The recent availability of computer-generatedimagery (CGI) software and increased computerspeed has made it possible for individual artistsand small companies to produce professional-level films and games from their home comput-ers. The company produced low-cost films byadeptly imitating established international ri-vals such as Disney-Pixar and DreamWorks. Bytaking advantage of Brazil’s state-of-the-art 3-Drendering and booming CGI animation tech-nology, Video Brinquedo was able to quickly an-alyze and reproduce new releases by establishedinternational rivals and then distribute VideoBrinquedo’s version almost simultaneously withthe original movie’s release (judging from thedates of the New York Times reviews). For exam-ple, as noted on the Web site of Brazil’s Ministryof Culture, Ratatoing, the cartoon film by VideoBrinquedo, which was distributed in North Amer-ica by Branscome International, was recognized asbeing very similar to the famous 2007 Pixar filmRatatouille. Likewise, The Little Cars series byVideo Brinquedo closely resembles the Pixar filmCars, Heavy Weight Panda resembled Kung FuPanda, and Gladiformers resembled Transformers.

Armed with advantages in both cost and speed,Video Brinquedo adopted a well-matched nichedistribution strategy, namely direct to video, un-der which films were released to the public onhome video formats before or without being re-leased in movie theaters or on broadcast televi-sion. These direct-to-video releases are well-suitedto Video Brinquedo’s niche in lower technical orpoorer artistic quality and fewer content restric-tions. In this way, Video Brinquedo managed to


Table1Case Summary

Company Video Brinquedo Li Ning Dr. Reddy’s TianyuYear founded 1994 1990 1984 2002Home country Brazil China India ChinaOwnership Private Publicly listed Publicly listed PrivateSize n/a 6,200 retail stores 10,000 employees 1,100 employeesRevenue (USD) n/a 635 million (2008) 854.6 million (2008) 1,150 million (2008)Sales growth(05–09)

n/a 37.7% 26.05% 45.5%

Major business Animation Sporting goods Pharmaceuticals Mobile phonesDomestic marketshare

n/a 11.1% (2008) 2% (2008) 14% (2008)

CHAIN FrameworkCombinative

capability● Imitated multiple targets

separately (e.g., Disney-Pixar, DreamWorks)

● Identified and imitatedcompetitors’ brandmanagement and marketingstrategies

● Hunted talents fromsophisticated MNEs

● Quickly reverse-engineeredgeneric drugs

● Delivered high-quality drugofferings

● Achieved successfulintegration via sequentialM&As

● Excelled in utilization outsidecore technologies (e.g., theturnkey model invention)

● Was skillful in delivering avariety of products

Hardship-survivingcapability

● Survived in underdevelopeddomestic market bycompeting withsophisticated internationalcompetitors

● Survived as a latecomer in anindustry occupied by well-known foreign brands

● Survived under hyper-competition in local genericdrug market

● Survived under hyper-competition in domesticmobile market

Absorptivecapability

● Developed analogous butdifferent key elements(e.g., character design,animation, scenery, andvoice acting)

● Adopted new forms ofmarketing and channel (e.g.,the ambush marketingstrategy of the 2008 Olympics)

● Had a distinctive ability todevelop new generic drugswith public patentinformation

● Established research centersin India, the U.S., and theU.K.

● Quickly and continuouslylaunched newly designedmodels with improvedfeatures

Intelligencecapability

● Aware of opportunisticpotential of new releases byestablished internationalrivals

● Prioritized marketing and shoedesign research

● Used timely celebritymarketing

● Built online sales channels

● Could foresee and respondto local IPR policy changes

● Had first-moveradvantages resulting fromthe Waxman-Hatch Act inthe U.S.

● Catered to rapidly changingconsumer preferences

● Had first-mover advantageof related license andchannel partnership

Networkingcapability

● Focused on direct-to-videochannel

● Built online sales channel● Maintained partnerships or

sales agents in severalcountries

● Undertook collaborative R&Dprojects with universities andMNEs

● Maintained close affiliationwith related authoritiesthrough sponsorship programs

● Had good connections withlocal and global venturecapitalists and otherinvestors

● Maintained excellentcollaborative R&D withother research-focusedfirms

● Had close connection withdistributors and retailers


satisfy the needs of price-sensitive customers un-concerned with brand affiliation.

Not surprisingly, with an excessive focus onimitation, Video Brinquedo’s films are plaguedwith a less than stellar reputation. For instance,over 70,000 negative comments have been postedfor the trailer of Video Brinquedo’s Ratatoing andover 50,000 for Heavy Weight Panda on YouTube.Nevertheless, aside from largely imitated centralconcepts and characters, Brinquedo managed todeliver a certain style of its own (e.g., onlineordering of the combination of DVDs and char-acter toys) and contributed to Brazil’s CGI indus-try by helping bolster the country’s animation andentertainment production. In order to survive andthrive in the movie industry this mocking kittenneeds to work hard to shed its gloomy reputationfor plagiarism and innovate by incorporating moreoriginal content and creating a signature style.

DuplicatingWildcat: LiNing

Li Ning is an outstanding Chinese “gym prince”who won six gold medals in the sixth WorldGymnastics Championships in 1982. His com-pany, Li Ning, is now recognized as the largestChinese sporting goods company, rivaling theU.S.’s Nike and Germany’s Adidas in China. Es-tablished in 1990 after Li Ning’s retirement, thecompany operates more than 6,200 retail stores inChina, 1,012 of which opened in 2008. To ensuresuccessful marketing strategies, the company fol-lowed an approach similar to that of sophisticatedcompetitors such as Nike and Adidas. It closelymimicked the famous Adidas slogan “Impossible isnothing” when crafting its own slogan “Anythingis possible,” and its logo closely resembles Nike’sfamous swoosh.

The company has demonstrated a remarkableability to actively and creatively follow and ex-tend marketing strategies from established coun-terparts. For example, it sponsored four Chinesenational teams (table tennis, diving, gymnastics,and shooting), as well as the Spanish, Swedish,and Argentinean national basketball teams. Indoing so the brand expanded into internationalmarkets in Russia, Southeast Asia, and Spain. LiNing signed a variety of celebrities such as profes-sional tennis player Ivan Ljubicic, pole-vaulter

Yelena Isinbayeva, and several high-profile NBAplayers, including Shaquille O’Neal, Baron Davis,Chuck Hayes, and Damon Jones, to compete withrivals Nike, Adidas, and Reebok. Like Nike, LiNing hosted college basketball games in 2005,building brand familiarity with more than 10,000students from 120 different universities.

On the management side, founder Li Ning hastapped talent from sophisticated multinationalcompanies. The firm’s chief financial officer hailsfrom Reuters Group, the chief marketing officerbrings his expertise from Coca-Cola, its publicrelations director came from DuPont, and one ofits vice presidents transferred from Procter andGamble. The company continues to evolve, striv-ing to rise along the imitation-innovation curve.It has also increased its R&D and innovationcapabilities. In 1998, the company set up its firstR&D center. In 2004, the company collaboratedwith Hong Kong Chinese University to build aresearch database for footwear style and design.

The company purchases core technologies andpatents for style design and color application andkeeps costs down by outsourcing its manufacturingoperations. To capture growth from direct-to-con-sumer channels, it expanded online sales bylaunching a Web site in 2009. Meanwhile, thecompany opened its first overseas flagship store inSingapore and is projected to open 70 to 100overseas outlets for badminton and related equip-ment. Li Ning’s main challenges include its per-ception as a copycat brand and competition fromestablished international brands. Nevertheless, LiNing is successfully emerging from its status asduplicative copycat and showing strong signs ofbecoming an adaptive and creative copycat, hold-ing a substantial market share in China.

EmulationHousecat: Dr. Reddy’s

Founded in 1984, Dr. Reddy’s has evolved from asmall private firm to a leading Indian pharmaceu-tical company with global impact. Among the firstAsian pharmaceutical companies listed on theNew York Stock Exchange (NYSE), Dr. Reddy’shas enjoyed a soaring growth rate in both salesrevenue and profit (26% and 78% respectively) inthe last five years, according to Dr. Reddy’s finan-cial statements reported to the NYSE. After India


abrogated laws respecting international pharma-ceutical patents through its Patents Act in 1970(this act removed composition patents from foodand drugs), the pharmaceutical industry becamehypercompetitive, with 20,000 or so local firmscompeting in the domestic market, which is theworld’s second largest pharmaceutical market to-day by volume. By 1990, Dr. Reddy’s survived byboasting a wide range of imitative drugs in itsportfolio and by buttressing its strong reverse-engineering and hardship-surviving capabilities.

With its high intelligence capability, Dr. Red-dy’s carefully scrutinized the U.S. market—theworld’s largest pharmaceutical market, accountingfor half of global sales. It aggressively copiedblockbuster drugs and searched for potentialanomalies or loopholes in the patents by hiring ateam of experienced and specialized lawyers. Be-tween 2002 and 2004, Dr. Reddy’s was involved inat least seven lawsuits for drug patent violation,two of which involved patented drugs with ex-pected sales of more than US$700 million, ac-cording to various news reports. In 2002 Dr. Red-dy’s succeeded in defeating Pfizer in a New Jerseycourtroom and was allowed to produce and sell thepatented drug Norvasc, with annual sales ofUS$3.7 billion. This success helped Dr. Reddy’sreposition itself and get a foothold in the lucrative“branded generic” segment of the massive U.S.pharmaceutical market.

While Dr. Reddy’s began by copying existingtop-selling drugs, technological advances triggeredits ability to develop new molecules and apply forits own patents. In 2001, when the Waxman-Hatch Act took effect, allowing generics compa-nies to undertake preparatory actions to fileregistration applications before the patents oforiginators expire, Dr. Reddy’s appeared as the“first to file” and quickly moved to the U.S. mar-ket with its well-prepared abbreviated new drugapplications. One example of these successes is itsUS$56 million profit from producing and sellingEli Lilly’s off-patent drug Prozac.

Dr. Reddy’s successfully expanded internation-ally by following a strategy that focused on merg-ers and acquisitions as well as R&D (a combina-tive capability). Dr. Reddy’s first expanded toother developing countries in Eastern Europe,

Southeast Asia, and Latin America. With accu-mulated rich cash reserves, the company laterexpanded domestically and internationallythrough a series of mergers and acquisitions tostrengthen its manufacturing capacity, foreignsales channels, and most important, patents andtechnology. Dr. Reddy’s acquired Benzex Labora-tories in India, Trigenesis and American Reme-dies in the United States, BMS Laboratories andMeridian Healthcare in the United Kingdom, be-tapharm Arzneimittel GmbH in Germany, andRoche’s API plant in Mexico. It has nine Foodand Drug Administration-approved plants (six inIndia and one each in the U.K., U.S., and Mex-ico), five research centers (two in India, one inthe U.K., and two in the U.S.), and seven strate-gic business units.

Adaptive Junglecat: Tianyu

Founded in April 2002 as a mobile phone salesagent, Tianyu performed well compared with itspeers, selling approximately 50% of Samsung’smobile phones in China. The turnkey model in-vention by MediaTek, a leading Taiwanese chipdesign company, made low-cost integration ofmultiple chip functions possible in 2006. Thisactivity spurred low-cost mobile phone produc-tion. Since then hundreds of Chinese knockoff(shanzhai in Mandarin) phone manufacturers haveemerged. Approximately 50% of Chinese consum-ers favor shanzhai phones because they includelarger screens and more features at a price signif-icantly lower than high-priced brands from Nokia,Motorola, and Sony. By the end of 2003, Chineseknockoffs accounted for 60% of the market.

In 2006 Tianyu became further entrenched inthe mobile phone manufacturing market, quicklytransforming its operations from pure imitation toinnovative imitation. Given fierce competition inthe mobile phone market, the company quicklyrealized that pure imitation would not be sustain-able and that profit margins arising from pureimitation would constantly drop due to increasingmodularization and standardization. Thus, thecompany emphasized its strength in creative imi-tation, increasing creative components in its prod-uct design and also taking a creative approach tomarket distribution and customization. It aban-


doned its colossal hierarchical distribution net-work model and instead willingly shared almosthalf of its profit margin with its direct sales agents.Tianyu focused on the design, appearance, andperformance of its products rather than original,basic research. Under a strong, consolidated, andrigorous management, Tianyu now introducesmore than 100 new products to market each year.It takes merely 45 days on average from an idea toproduction at Tianyu, compared to at least sixmonths at its global rivals such as Motorola andNokia. Tianyu boasts a strong applied researchand development workforce (more than 600employees in this area), 40% of them holdinggraduate degrees. Innovative imitation and its fur-ther push into novel innovation have propelledTianyu into the limelight at record speed, withUS$1.15 billion in revenues in 2009 and 75.4%average growth rate.

FutureResearchandConclusion

The developing world is rapidly surpassing thedeveloped world in terms of economic size,with EECs playing a major role in this trans-

formation. These enterprises are latecomers to theworld stage, having started rather unceremoni-ously. Yet following a considerable period of de-velopment, EECs are now beginning to challengeglobal industry leadership positions. The breadthand impact of EECs is quickly intensifying, andsome rank among the leaders in their respectivefields.

This study seeks to deliver an overarchingframework to better understand EECs’ patterns,types, behaviors, strategies, and evolution. Al-though most have not yet reached global status,many have fashioned unconventional businessmodels and brought an innovative approach todeveloping products, marketing, engaging custom-ers, and growing market share. Many elements ofmodern business, from supply chain managementto recruitment and retention, are being retooledin one emerging market or another. EECs’ growthalong the continuum from pure imitation to cre-ative imitation and finally to novel innovationparallels the growth of many Japanese and Koreanfirms three to four decades ago. Still, as this study

shows, EECs differ from their Japanese and Koreanpredecessors in several traits and strategies.

By presenting conceptual models and four casestudies, we hope to shed light on why and howEECs have experienced rapid growth in recentyears. We contribute to the growing stream ofresearch on emerging economy copycats by delin-eating these firms’ capabilities, competitive ad-vantages, internal and external conditions thatfacilitate growth and progression, and correspond-ing strategies underlying their imitation-innovationcurve. We suggest that EECs’ unique capabilities(combinative capability, hardship-surviving capabil-ity, absorptive capability, intelligence capability, andnetworking capability) and distinctive competitiveadvantages (cost, speed, and channel) are what setthem apart from their rivals in other countries. Thisis made possible by a new set of social, technological,organizational, regulatory and legal, and market con-ditions they face.

This study may also provide insight and impli-cations for practitioners. It may be useful for ex-ecutives to rethink conventional innovation.Many firms in developed countries equate inno-vation with technological breakthroughs, embod-ied in revolutionary new products designed formid-range to high-end consumers. Lessons fromEECs suggest that innovations also consist of in-cremental improvements to products and pro-cesses aimed at the middle or bottom of the in-come pyramid. In the economic downturn, suchlessons become particularly critical. It is true thatmany EECs have failed, and many more will faildue to their inherent weaknesses. But from alearning perspective, cost advantage, speed advan-tage, and channel advantage are important notonly to EECs but to Western companies thatintend to successfully cope with today’s economicand market conditions.

Furthermore, EECs’ innovative imitation in-volves rethinking entire production processes andbusiness models. To this end, many successfulEECs actively use specialized vendors and subcon-tractors for modularized or standardized compo-nents, design, or services; use existing technologyin imaginative new ways; and apply mass-produc-tion techniques to serve the masses on the bottomof the income pyramid. Emerging economy entre-


preneurs may find a developmental path under theguidance of the framework presented above andlearn important lessons from pioneering copycats.Entrepreneurs must also realize that future successdepends on the continuous improvement of cre-ative imitation and ongoing transformation fromimitation to innovation. Without continuous im-provement, today’s entrepreneurs can lose theirposition and shares to next-generation copycatsfrom countries with even less expensive producers(e.g., Vietnam).

ResearchAgenda

This study has aided in setting the groundwork forfurther research. It represents an important stepthat analyzes unique strengths, strategies, prac-tices, and environments for firms in emergingeconomies. A logical extension of our researchwould be to verify this framework empirically. It isalso important to follow up on EECs’ evolutionand transformation as they continue to grow do-mestically and internationally. Our four cases arerather limited and thus not representative of di-verse EECs from a large number of emerging econ-omies. Even among BRIC countries, EECs arequite different in their capabilities, strategies,and performance (Ramamurti & Singh, 2009).To address this bias, new research examiningand contrasting EECs from different emergingeconomies is warranted. Also, the lines demar-cating the typology of EECs are constantly shift-ing, and some companies may move from onecategory to another.

Imitation is an intelligent search for cause andeffect, rather than mindless repetition (Shenkar,2010). Research needs to address imitation from arational, deliberate, and process perspective. It isparticularly interesting to unpack the black box ofhow creative imitation is initiated, continued, ex-ecuted, and succeeded. For instance, EECs’ intel-ligence-gathering capability may foster their iden-tification of where, what, when, and how to copy,while other unique capabilities we discussed heremay stimulate their speedy implementation of in-novative imitation. Important too, transforma-tional process from imitation to innovation meritsscholarly attention because successful copycats inevery industry and market view imitation not as

the end but as a process-based means by which toultimately establish their own competitive edge.Only when transcending is ultimately achievedwill EECs thrive, but this transformation requiresa full set of organizational architecture (e.g., cul-ture, reward system, routines, and ethics) thatincubates and supports continuous learning andimprovement. This process is a critical lacunawarranting future inquiry.

Conditioning factors that facilitate creativeimitation and further transition to novel innova-tion must be examined as well. These factors mayexplain and predict why copycatting behaviorsvary across countries, industries, and organiza-tions. Research should look at such factors from amultilevel (micro, meso, macro, and meta) lens.This article renders a parsimonious framework onsome of these forces yet does not go as far asarticulating specific ways in which they affect theprocess and consequence of imitation and itstransformation. Two fascinating paths for futureresearch are (1) to theorize and verify under whatcircumstances copycatting flourishes in the face ofcompetition and globalization and (2) to investi-gate how it contributes to the financial return ofthe firm and the well-being of the society.

When applied to emerging economy enter-prises, resource-based, knowledge-based, and dy-namic-capability theories may be enriched by in-corporating the tacit and inimitable knowledge ofdeveloping innovative imitation and upgradingfrom imitation to novel innovation. Good imita-tion is difficult and requires intelligence and imag-ination (Shenkar, 2010). Another worthy avenuefor future research is to explore what creativeimitation-related competencies can produce a sus-tained competitive advantage for EECs. We doc-ument that much of copycats’ success has to dowith unique processes associated with intelligentsearch, target aiming, cost reduction, product of-fering, business networking, and marketing strat-egies. These processes are difficult to substituteand mimic and are often achieved by proprietarylearning. To unveil such processes, one could in-tegrate entrepreneurial, learning, and ambidex-trous insights into capability possession, deploy-ment, and upgrading needed to attain sustained


competencies in creative imitation and innova-tive transformation over time.

Another fruitful avenue for future research liesin conceptualization of imitation itself. As noted,this concept is a spectrum, varying in magnitude(degree of imitativeness vs. creativeness), scope(breadth of copying vs. new features), and domain(area of imitation, such as technology, design,process, brands, or marketing). This feature entailsmethodological and empirical repercussions asit determines research design and measurementconcerning imitation and innovation. Re-searchers should be inspired to use several prox-ies or variables to define the multiplicity andmultidimensionality of copycatting acts. Like-wise, consequences of such acts are multileveland multifaceted, meriting a well-rounded de-sign that can derive profitability, stability, andsustainability as well as legitimacy, credibility,and reputation.

In sum, our understanding of emerging marketcopycats is far from complete, and further assess-ments are warranted. We humbly hope this articlewill serve as a starting point for additional re-search, for imitation is rich in research possibili-ties and implications.

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Emerging Economy Copycats

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