The threat of competition from Asia worries Western executives in nearly every product and service industry. The chief concern for many is the impact of low-cost Chinese manufacturing and Indian services on global pricing. Focusing on this concern alone represents a profound misunderstanding of the nature of the competitive threat.

As this issue of The McKinsey Quarterly makes clear, Asia is no longer merely a source of comparative advantage based on low-cost labor; it is fast becoming a source of competitive advantage based on management innovation. The implication is clear: Asia can now compete on much more than price.

Emerging markets might seem an implausible wellspring of innovation. Certainly, most of their companies must overcome significant obstacles to threaten those in developed ones. Yet the challenges of serving the developing world's harder-to-reach, more cost-conscious consumers—who are also typically less loyal to established brands—can force companies to design and deliver products comparable to the offerings of developed nations for as little as one-fifth the price. Doing so requires big changes to the design of products and processes, and these changes may soon affect developed markets dramatically.

In "Innovation blowback: Disruptive management practices from Asia," John Seely Brown and John...