Alejandro Ruelas-Gossi has spent more than a decade writing about the same symptom, seen from different angles: companies — and entire countries — that confuse efficiency with strategy, and end up competing on price alone.
He calls it "corporate anorexia": the habit of pouring all of a leadership team's effort into the denominator of the profitability equation — cutting costs — instead of the numerator — raising the value a customer is willing to pay for. It's an understandable trap, because cutting costs is faster to execute and easier to measure than creating new value. But it's a trap all the same: a company can become steadily more efficient at producing something that matters less and less to fewer and fewer people.
The pattern repeats at different scales. At the level of a single company, Ruelas-Gossi documents four obsessions that hold back real innovation: the obsession with cutting costs, the obsession with "listening to the customer" — which in practice usually means asking the customer how cheap they want it, instead of surprising them with something they didn't know they needed — the obsession with incremental improvement on the existing portfolio, and the obsession with buying innovation through acquisitions instead of building it in-house. None of the four is bad on its own; the challenge is holding onto the underlying question alongside them: what new value are we creating?
At the country level, the same pattern has a very concrete name and geography: the maquiladora model. For decades, the development strategy of much of Latin America — Mexico foremost — has been to plug into global value chains by offering cheap labor and low-value-added activities. It works as long as the local cost stays the lowest available; it stopped working for Costa Rica when Intel found cheaper labor in Asia and took 1,500 jobs with it. Ruelas-Gossi contrasts that race to the bottom with an alternative model — a "race to the top" — built on making a region's distinctive resources more sophisticated (think New Zealand, the Basque Country, or Chile) instead of making them cheaper.
The common thread between these stories, whether at the company or the country level, is that the low-cost trap rarely looks like a decision: it looks like common sense. Cutting expenses seems prudent. Competing on price seems realistic. The limit of that strategy is that there will always be someone willing to charge less, and when that's the only terrain of competition, winning means growing poorer a little more slowly than everyone else.
The alternative is clear: a competitive cost is still a condition for entry, but the conversation can't stop there. That calls for asking a different question than the one that dominates most leadership committees: instead of "how do we lower the cost of this?", ask "what would we, as customers, be willing to pay extra for a better version of this?" That's the question that opens the door to executing an initiative built on value, instead of managing, once again, next quarter's cost cut.
Based on: Ruelas-Gossi, A., "The Dark Age of Imagination" (2018), "Escape the Low-Cost Trap & Enhance Value for Your Business" (2017), "4 Things Your Innovation Efforts Shouldn't Focus On" (Harvard Business Review, 2017), "Mexico's Maquiladora Syndrome" (Harvard Business Review, 2010) and "Race-to-the-Top Strategy Paradigm" (AIB Insights).