Cannibalisation the only way to beat cheaper competitors, says professor

The only way traditional businesses like newspapers and even the Harvard Business School can survive the threat of cheaper competitors is to cannibalise themselves, according to a professor at the august institution.

"What causes successful companies to fail is competitors come into the market, not with a better product but a worse product, but it is so affordable so many more people buy that product," said Harvard Business School professor Clayton Christensen during a recent visit to Hong Kong.

Japan prospered from the 1950s to the 1970s because Japanese firms like Toyota Motor Corp made cars that were so affordable even college students could buy one, Christensen said.

"In the 1990s, Japan stopped investing in making cheap products, and then its economy levelled out," he said. "It's the same reason why China has become prosperous. Chinese companies like Huawei [Technologies] came in at the bottom of the market and disrupted companies like Cisco Systems. It's always the low end that wins."

Cisco was one of the pioneers of the internet, having invented the router, which links computers to the internet. Huawei came in with a lower-quality but more affordable product, Christensen said. "People who couldn't afford a router now can."

To ward off cheaper competitors like Huawei, Cisco kept improving its products. "Every time Cisco developed a better product, its profitability improved. In order to survive, you keep making better products," Christensen said. "If Cisco goes to the bottom of the market like Huawei, it will kill Cisco's profit margins."