Ask leading senior executives in the United States, Western Europe or Japan how they intend to cope with the challenges of China and India, and you’ll get a familiar response: “We shall move higher in the value-added chain.” China might be the “world’s factory” and India the “world’s back office”, but the conventional wisdom reassuringly says, “Cheap manufacturing may migrate to China and cheap services to India—but innovation will remain in America.”

The conventional wisdom is a myth. Emerging multinationals in China and India are no longer satisfied with imitating. Instead, they seek to convert cost advantages to more sustainable competitive advantages—often through innovation.

Competition for Innovation