To Succeed, ‘Latecomers’ Must Balance Imitation and Innovation
by Alli Romano
Many startups launch with big, bold ideas to revolutionize their sector, but success often begins with imitation. According to new research by Cornell SC Johnson College of Business assistant professor Sungyong Chang, successful latecomers—startups or companies entering a field for the first time—thrive by mimicking established competitors before pivoting to innovation. Rushing the process increases the risks of failure, while emulating the market leader lays a foundation for success.
“Imitation isn’t just copying; it can launch a business,” Chang explained. “Once a latecomer’s product gets traction, revenue can go to further advancement and personnel.”
In a paper recently published in Research Policy, Chang and his coauthors used computer modeling to analyze business outcomes according to how firms allocate their capital to imitation and innovation. If a firm focuses too much on innovation, it can’t establish a viable product and build resources; if it spends too much on imitation, there’s no room to develop new tech.
The study concluded that the most successful latecomers used a balanced approach. They invested in research and development and staff to catch up to the market leader while directing sufficient capital to develop new products and eventually dethrone the leader. The ideal mix? Firms that allocate a larger share of their resources to imitation and smaller amount to innovation are most likely to overtake their rivals.
In some contexts, imitation may have negative connotations, but Chang said it is vital to success. He advises latecomers to carefully study the market leader’s process; reverse-engineer its technology; and replicate the best research, development, and production practices.
People are essential, too. Chang said latecomers can accelerate imitation and innovation by hiring key staff from competitors, particularly engineers.
“It’s the people who develop the technology,” Chang said. “Bring in talented engineers and incentivize them to be part of your startup and catch up and overtake the leader.”
The semiconductor industry offers a window into how small startups can balance imitation and innovation. Chang said the Taiwan Semiconductor Manufacturing Co. (TSMC) is a market behemoth, commanding a 68 percent market share. Competitor Samsung Electronics is a well-known technology producer but a relative newcomer to semiconductors.
Samsung once claimed a 20 percent market share but dropped to about 11 percent after overemphasizing innovation too quickly. Meanwhile, TSMC continually invests in R&D, extending its dominance. Chang noted that Samsung would be more competitive if it focused more on imitation.
“Samsung wanted to disrupt the industry, which is commendable, but you have to learn about best practices,” he said. “Otherwise, it is difficult to attract customers.”
While a large, established company like Samsung can absorb some losses, the stakes are higher for startups with limited financial resources. Imitation isn’t just practical; survival is on the line.
The same trajectory applies to other industries, including automotive, retail, and pharmaceuticals.
“Latecomers need to learn the best parts of their business, or they won’t know what part to attack,” he explained.
How does a latecomer know when it is closing in on the leader? Chang says the tipping point is a reliable product and stable profits. As the gap narrows, he observed, the latecomer shifts to innovation to “run faster than their target” and overtake them.
Market leaders must be vigilant when dealing with intrepid startups. The paper advises them to reinvest in robust R&D and talent retention to maintain their position; innovation is just as crucial for them.
“As the latecomer strives to narrow the technological gap by assimilating the leader’s technologies, the leader often introduces even more sophisticated technologies, further widening the gap,” Chang noted.
He points to Nvidia as a recent example. Nvidia is the market leader in artificial intelligence hardware and infrastructure and commands an 80 percent market share. As Nvidia builds its resources, it can continually invest in R&D, making it harder for challengers ever to catch up.
While the research has broad business applications, it is also a tool for SC Johnson College of Business students. Chang teaches an entrepreneurship course where students develop ideas for new businesses, and he uses the study to underscore the importance of balancing imitation and product development.
“Learning about best practices gives them a foundation,” he said. “The best innovation comes from imitation.”