name
Where Economists Meet Since 1968

Copycats: How Smart Companies use Imitation to Gain Strategic Edge
by Oded Shenkar
2/17/2011

Rapporteur: Meg Doherty

Dr. Shenkar recently published the book Copycats: How Smart Companies use Imitation to Gain Strategic Edge, which looks at imitation practices in the US and abroad, the stigma attached, and their historical significance and implications for the future. For this talk, he highlighted some of the key points of his book.

He started off with a few questions: What was the first fast food company? (White Castle.) What was the first credit card company? (Diners’ Club.) Both are now relatively small players in their respective markets, which are now very expansive. But, they were the ones who laid the foundation and they had to do a lot of ground work initially to get their products off the ground. For instance, Diners’ Club had to convince customers to use a plastic card instead of cash, and had to convince merchants to accept these cards and pay a monthly fee for the luxury.   The imitators had the upper-hand in getting their products off the ground once these pioneers paved the way.

Shenkar noted a quote made by Theodore Levitt in 1966: “Imitation is not only more abundant than innovation, but actually a more prevalent road to business growth and profits.” The percentage value of innovation that is actually captured by the innovator is quite low, but imitators can make great gains from it.

In the US in particular, we are bombarded with the need to innovate, innovate, innovate. However, Shenkar points out that the imitator’s edge is quite large and includes a free ride on research and development, as well as marketing. It also gives the benefits of hindsight, lowers overall cost, and enables a shorter time span to market in many instances.  A good example of this is in the pharmaceutical market. The generic drug makers only manufacture the ‘winners’ that have been FDA approved. Roughly only one out of ten drugs makes it past the approval stage. The generic makers then use an imitation strategy to create generics of the approved drugs.  This is clearly a smart strategy; about 60% of the drugs in the US are generics.

On the other hand, the innovator/pioneer advantage is ‘questionable, often marginal, and recedes over time’. It tends to be overly-exalted in the management field because there is a survival bias (they only look at the innovations that survived), innovation cost is rarely calculated, innovation risk is rarely captured, and ‘early movers’ get lumped in with the true pioneers.  Most importantly, imitation carries a stigma, which is why most imitators avoid using the term “imitation”. China denies imitating products across the board, even though they very much do so- in one instance of selling trains to the US, they made exact replications of US trains and changed the paint to call it “re-innovation.” 

Shenkar points out that imitation is often confused with incremental innovation. However, many imitations are ‘as is’, stripped down to include fewer features- we see this a lot with China’s imitation of western products- or there is a horizontal-like adaptation for a particular market, rather than incremental innovation.

 The speed of imitation has dramatically increased over the years and it is now quite fast. It took a millennium for Europeans to figure out how to imitate porcelain, a Chinese invention. China had invented it as early as 618; Europe finally figured it out in 1663. From 1870-1939, it took about 40 years to imitate something. Now it takes on average five years to imitate something; generic drugs only take on average two months.

Though Shenkar believes imitation is an important strategy to use, he does note that companies need to know how to do imitation in conjunction with imitation. Although his book is focused on legal forms of imitation, he notes the IPR infringement is an extremely important issue. In US-China relations, intellectual property rights are very important. Shenkar feels that unfortunately the US did not come up with a good strategy for negotiation of this in talks with the WTO. However, if companies respect intellectual property rights and other concerns, and use imitation as a strategy, they can be quite successful.

Biography
Oded Shenkar is currently the Ford Motor Company Chair in Global Business Management and Professor of Management and Human Resources at the Fisher College of Business, The Ohio State University, where he heads the international business area, and is also a member of the Centers for Chinese Studies and for Near East Studies. Professor Shenkar has been a Senior Fellow at the University of Cambridge, and has taught at the Chinese University of Hong Kong, Hong Kong University of Science & Technology, Peking University, University of International Business and Economics (Beijing), and the International University of Japan, among many others.
He holds degrees in East-Asian (Chinese) Studies and Sociology from the Hebrew University of Jerusalem and a PhD from Columbia University, where his dissertation on the Chinese bureaucracy involved work in the department of Sociology, the Graduate School of Business, and the East-Asian Institute. He is the author of several books in the  including The Chinese Century, which has been translated into twelve languages.

 

 

 

 

 

National Economists Club
P.O. Box 19281
Washington, DC 20036
703-493-8824
info@national-economists.org