Disruptive Innovation and Latecomer's Catching-Up Dilemma: Toward a Demand-side Perspective of Frugal Entrepreneurship

Different from general start-up with limited initial resources, latecomer firms always face an idiosyncratic catching-up dilemma: strong conflicts between intrinsic pressure of rapid technological catching-up and severe constraints of available technological capability. In the recent past, some entrepreneurial Chinese latecomer firms like Sany and Chery have developed frugal entrepreneurship as a more affordable way of value creation and capture to pursuit hitherto unexploited opportunity and to proactively change the rules of game in emerging economies. How do those latecomer firms solve their catching-up dilemma by frugal entrepreneurship in emerging economies? Based on inductive theory building from multiple cases, we find that the large, fast-growing and diverse market in emerging economies provides unique opportunities for latecomer firms to proactively creating market newness through new-feature disruptive innovation and enhanced-feature disruptive innovation. In this way, latecomer firms accumulatively build competitive advantages from comparative cost advantage to cost-based competitive advantage, and to value-based competitive advantage. Overall, this paper makes two contributions: elaborating the demand-side perspective of disruptive innovation within the emerging economies context, and developing the demand-side perspective of frugal entrepreneurship to explain the mechanisms underlying the competitive market driving process of entrepreneurial latecomer firms, which have been neglected in the literature.