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20 The McKinsey Mind

to go to suppliers in China or India unless we lowered our
prices. We had four alternatives: (1) reduce costs to match
China and India, (2) buy from China and India and resell to
our customers, (3) introduce new products (one of which
was close at hand), or (4) do a combination of the above. My
hypothesis was that we could best minimize the price pres-
sure by introducing new products. Sure enough, when we
walked into the Big 3 to introduce the new product, they
were excited; we could practically charge whatever we
wanted. After that, they were much less concerned about
beating us up on price, even on the established products, as
long as we kept generating new products. Therefore, the
hypothesis worked out.

Bob compared his hypothesis against other options available to
his company:

We could have taken one of the other approaches and tried
to cut costs to beat India and China. In fact, several of our
key managers thought cost reduction was the only answer, as
it had been in the past. Well, good luck; you can’t beat China
and India on costs with U.S.–made products. Naturally, cost
reduction was part of the answer for the long term; we
launched a cost reduction effort, but we never got down to
Chinese or Indian costs.
The other option, purchasing from China and India and
reselling to Kmart, Wal-Mart, and Target, while popular
with a small faction of management, made no sense to me.
All we would be doing was setting up a distribution system
for the Asian manufacturers and, once established, they
would go directly to the buyers and cut us out. Because of
constant price pressure, this option will continue to be on the