Low‐cost strategy through product architecture: lessons from China

Abstract

PurposeThe article shows how changes in product architecture have become the driving force behind a breakthrough strategy that has enabled Chinese carmakers to produce vehicles that are broadly equivalent to the products of western carmakers but at a fraction of the price.Design/methodology/approachThe article presents an analysis of the development of a strategy based in an innovative product architecture used by a Chinese carmaker. The analysis covers the period between 1998 and 2006 and presents the results of a longitudinal study carried out by one of the authors in China between 2002 and 2007.FindingsThe article uses the literature on product architecture and breakthrough strategy to describe a quasi‐open modular product architecture used by Chinese carmakers. It provides an historical account of one company's approach to car making using this strategy and describes how it has allowed it to move from being a manufacturer of refrigerators to the ninth largest carmaker in China in period of ten years.Practical implicationsThe article highlights the strategic potential of innovations in product architecture in general and that of quasi‐open modular architectures in particular. It also highlights the role of the emerging markets in China as the source of potential drivers for breakthrough strategies and as a threat to the current position of western carmakers.Originality/valueThis article uses evidence based on direct observation to describe a novel approach to product architecture that has been pioneered in the emergent markets in China.