A Harvard professor has a tip for entrepreneurs looking for the next big thing: Check out the electric-car market in China

Clay Christensen Headshot

In China, the electric-car market is "booming."
That's according to Clayton Christensen, a Harvard Business School professor and an author of "The Prosperity Paradox."
Christensen said low-speed electric cars in China are examples of "market-creating innovations," in that they make a product affordable and accessible to a broader swath of the population.
This article is part of Business Insider's ongoing series on Better Capitalism.

In his new book, "The Prosperity Paradox," coauthored with Efosa Ojomo and Karen Dillon, Harvard Business School professor Clayton Christensen provides a framework for marrying successful entrepreneurship with effective economic development. That's exactly what electric-car makers in China have done.

Christensen is the author of the 1997 classic "The Innovator's Dilemma," in which he popularized the term (and the idea) of "disruptive innovation." But more than two decades before that, Christensen was a Mormon missionary in South Korea, which, as he and his coauthors write in "The Prosperity Paradox," was one of the poorest nations in Asia. Today, it's among the richest countries in the world.

The authors argue that most any country can undergo a similar shift — and it's not necessarily a matter of receiving billions of dollars in aid. It has more to do with thoughtful innovation. In fact, the "prosperity paradox" refers to the idea that countries typically don't see improvements in their economic, social, and political well-being when other nations flood them with resources to "fix" poverty. Instead, these improvements often happen when new markets are created within these countries.

That means there's an opportunity for ambitious entrepreneurs around the world to simultaneously start a thriving business and bolster the economy.

Electric cars in China are a 'market-creating innovation'

A prime example of that kind of innovation is the electric-car market in China, Christensen told Business Insider. He explained that low-speed electric cars in Beijing are narrow and made of plastic. That's because many people in Beijing work on narrow streets and need a vehicle to deliver products to their clients.

Low-speed electric cars in China fall under the category of what Christensen labels "market-creating innovations." In the book, Christensen and his coauthors write that market-creating innovations have served "as a foundation for many of today's wealthy economies, and have helped lift millions of people out of poverty in the process."

The key to market-creating innovation is spotting would-be consumers who are unable to use a particular product either because it's unaffordable or because it's inaccessible. "In a sense," the authors write, "market-creating innovations democratize previously exclusive products and services." Not only do they make products available to more people; they also create many new local jobs.

"The market-creating innovation in China is to make this little vehicle affordable and accessible," Christensen said. The people delivering products on those narrow city streets can do their job more easily, and the companies making those vehicles thrive. "The market is just booming," Christensen said.

(To be sure, tiny electric cars in China have their downsides. The Wall Street Journal reported that they tend to use cheap lead-acid batteries, which are bad for the environment and have no crash protection.)

Electric cars in China are also a disruptive innovation

Compare these car companies to Tesla. Christensen previously told Business Insider's Matt DeBord that Tesla is not, as is commonly believed, a disruptive innovator. That's largely because Tesla is working backward. DeBord reported that, instead of making a desirable product more accessible to more people, Tesla started out making a product that was inaccessible to most consumers and is now trying to make it more accessible.

Christensen told DeBord that electric cars in China, on the other hand, are an example of a disruptive technology. "They enable access for a larger population who historically didn't have access," Christensen told DeBord.

In a 2015 Harvard Business Review article, Christensen, along with Michael Raynor and Rory McDonald, wrote that "disruptive innovation" has become a vague buzzword. But it really describes the process through which a smaller company with fewer resources challenges an established business "by successfully targeting … overlooked segments, gaining a foothold by delivering more-suitable functionality—frequently at a lower price." The newer company then moves upmarket, and mainstream consumers start using the product or service.

That's what electric-car companies have done in China. In the United States, on the other hand, electric cars are sustaining innovation, meaning they offer better performance at a higher price.

In Mexico, there could be another huge opportunity for electric cars

Christensen said low-speed electric cars could revolutionize the Mexican economy the same way. That's because Mexican cities tend to be similarly crowded and people have a hard time making deliveries.

What's more, Christensen said, there might be an opportunity to make electric cars an "experience" for consumers. "If you make an electric car affordable, it becomes a jukebox for teenagers," he said, and they'd take the car on short trips to visit friends.

"If a company in Mexico would come to the bottom of the market making electric products affordable and accessible for a new population, boy, I think it would really be creating exciting potential."

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