Chinese companies have been more successful in catching up with and sometimes surpassing, their global competitors in some industries but not all of them. This holds true for markets in China and international markets. In this article, we show how both the demand and the supply sides of an industry explain these differences, in terms of the existence of market and capability ladders that can help a new competitor climb from the low end, though the middle, and to the top. We then propose several alternative strategies that multinational companies can follow to respond to growing Chinese competition and recommend strategies with the most potential for a particular market and industry.

Most companies find it extremely difficult to achieve high organizational fluidity—even leading firms like Cisco and Microsoft. However, Huawei has made significant strides toward closing the gap between internal flexibility and the rate of external market change. The authors of this article carried out face-to-face interviews in Shenzhen over a period of five weeks, beginning in September 2015, with 15 former senior executives of Huawei, including seven vice presidents, two senior vice presidents, and one executive vice president. So how does Huawei achieve superfluidity? First, Huawei is structured primarily around customer needs so as to ensure the customer is at the centre of everything. Second, its support functions are built around flexible platforms. Third, its management-level employees are continually rotated between different jobs. Fourth, its culture is one obsessed with maintaining the pace of change. Huawei’s recipe for creating a superfluid organization is radical. It overturns the conventional wisdom that manufacturing companies need to be structured as a matrix of product-based business units, functions, and geographic subsidiaries, in favour of the kind of project-based organization used by construction companies, consultants, and investment banks.

On September 12, 2017, just as Apple's Tim Cook was unveiling the iPhone X, Richard Yu, CEO of Huawei's Consumer Business Group (CBG), and Glory Cheung, his Chief Marketing Officer, were discussing some key strategic issues regarding Huawei's smartphone business. Established in 1987, Huawei was the largest telecom equipment company in the world. Huawei established the CBG in 2012 to focus on Huawei-branded smartphone models, and within five years had risen to be the No. 3 player in the market in terms of shipments; next only to Apple and Samsung. As they finished watching Cook's presentation, Yu and Cheung thought about the Mate 10 series, Huawei's most advanced smartphone that would be launched on October 16, 2017 in Germany. The new models would include Huawei's proprietary Kirin 970 chipset, which boasted having the world's first artificial intelligence (AI) mobile processor. They had to decide how to position, communicate and price the new phones. Yet beyond these near term decisions, a major challenge facing Huawei was how to make good on Yu's bold vision to overtake Apple and Samsung in market share within three to five years, while maintaining healthy profits. This task seemed particularly daunting given the difficulties the company had encountered in penetrating the lucrative US market. What would it take for Huawei to be the number 1 smartphone brand globally?

This is an MIT Sloan Management Review article. Chinese companies are opening up a new front in global competition based on reengineering R&D and innovation processes to make new product development dramatically faster and less costly. This new emphasis is unlikely to generate stunning technological breakthroughs, but it allows Chinese competitors to reduce the time it takes to bring innovative products and services to market. It also represents a different way of deploying Chinese cost and volume advantages in global competition. Chinese companies, including manufacturers such as Lenovo Group Ltd. and Guangzhou Pearl River Piano Group Co. Ltd. and Internet players such as Tencent Inc., are pioneering new ways of industrializing innovation. They are pushing the boundaries of simultaneous engineering, leveraging rapid "launch-test-improve" cycles and combining vertical hierarchy with horizontal flexibility. For example, when Lenovo acquired IBM's personal computer business in 2005, its new product development cycle was 12 to 18 months. Since then, Lenovo has managed to cut that cycle in half. Accelerated innovation and many of the processes and techniques it draws upon are not unique to Chinese companies, authors Peter J. Williamson and Eden Yin concede. What's noteworthy is how Chinese companies have learned to accelerate innovation across a wide range of industries, using rapid scale-up, low cost and "good enough" quality. Even if the results don't lead to breakthroughs, the innovations can powerfully disrupt incumbents' profit models. The authors describe three ways that non-Chinese companies can respond. The first way is to reengineer the company's own innovation processes based on the principles pioneered in China. The second way is to task their R&D units in China to focus on time-sensitive projects and by hiring local staff. The third approach is to develop alliances with Chinese players in order to tap into accelerated innovation know-how.