Catch-Down Innovation in Developing Countries and the Strategy of Japanese Companies: The Case of Karasawa Seisakusho, Ltd. in the Chinese electric bicycle industry

The electric bicycle industry emerged in China in the late 1990s, and it is now a huge market which exceeds that of conventional bicycles, though such product has never existed in developed countries. This type of technological development, which diverts from the path of developed countries, is what we call "catch-down innovation" in this paper. We find several cases of catch-down innovation in China and India that have been made to cater to the demand and to adapt to the social environment and income level of these countries. China's electric bicycles have their technological origin in Japanese electrically-assisted bicycles, but they are made simpler and cheaper and are a market that is nearly 100 times larger than the latter. Japanese companies tend to think that there is no chance of selling their products and services to those who are engaged in catch-down innovation. However, there is a small Japanese company which has more than 40 percent market share of electric bicycle brakes in China. Based on a detailed case study of this company, we discuss the Japanese companies' strategies to find business opportunities in developing countries.