China’s electronics industry went from copying the West to being a global leader in innovation. One of the ways that this has happened is through the country’s unique system of manufacturing, dubbed “shanzhai.”
When China first entered the global high tech space it was known for copycatting the designs of other countries. In the early days the country’s manufacturers became notorious for Nokia and Motorola knock-offs, while later on Apple became the main source for replication. Although, as the country’s high tech manufacturers became better equipped and evolved higher capabilities, along with new markets with different needs opening up around the world, China’s high tech knock-off culture quickly transitioned to become a catalyst for innovative design and production — so much so that its vast grassroots manufacturing network is now out-competing with some of the world’s biggest brands in some markets.
The heart of China’s high tech manufacturing empire is divided into two parallel ventricles that compete with and feed off each other. One is that of more traditional manufacturers like Huawei and Lenovo, along with big international brands like Apple and Samsung who produce large amounts of their products in China. The other is a widespread, decentralized network of thousands of smaller factories and design houses who operate in an openly cooperative fashion that have been dubbed as “shanzhai.”
Shanzhai literally means “mountain stronghold,” as in the hideout of bandits. Its use was really thrown into the common usage by the 12th century legend of a noble band of Song Dynasty outlaws who lived on a mountain that sprung up from the marshes of Shandong Province. In contemporary slang, the word shanzhai began being used to mean “to copy” or “to parody,” and just prior to the Beijing Olympics in 2008 it was applied to knock-off goods. Perhaps as a combination of these two meanings, the term shanzhai is now used for China’s massive copycat industry and the unique network of design and manufacturing that sprouted from it.
“Shanzhai started as a copycat. Forget about the respect for intellectual property,” David Li, the co-founder of China’s first makerspace, XinCheJian, explained. “So if someone does one a design, more often than not if it is useful it is going to get copied.”
Shanzhai has evolved from its copycat roots into a complex ecosystem that very much resembles a Chinese take on open source hardware production. Shanzhai has its own code of ethics and its own culture, and the sharing of designs, know-how, and materials is at the heart of it. “The whole system is cooperative. . . meaning people want to share,” David Li explained.
“So what I mean by open sharing is that what is a very common practice in that shanzhai ecosystem is what started out as sort of like a copying kind of mechanism and practice and culture rooted in Hong Kong based factories, family run industries around retail copying that morphed into an innovation ecosystem that is rooted in open sharing,” Silvia Lindtner, professor at the University of Michigan who has researched the shanzhai extensively, explained. “So people and these different entities would share, for example, the bill of materials. This list of materials that go into producing any type of device. They share schematics, often devices that had been produced, and reference boards.”
A demand opened up in emerging markets around the world for high-tech manufacturers who could produce products faster, better, and cheaper, and shanzhai, with it’s massive bottom-up cooperative design and manufacturing network, its flexibility to provide for smaller niches, and it’s lack of observance of the traditional rules of commerce, was able to step in and claim a huge share of the global hardware market.
The big break for shanzhai happened around 2003 or 2004 with the explosion in the global demand for cell phones. The industry leaders at that time were Nokia and Motorola, who were putting out feature phones in the $800 to thousand dollar range — well beyond the purchasing ability of most of the planet. A massive demand soon arose in massive regions like Africa, Latin America, Southeast Asia, India, and mainland China for cheaper phones. Due to their cooperative, low cost system of manufacturing China’s shanzhai were able to step into this space and drastically undercut the market, selling phones for under $100 retail. “If you look at what happened to Motorola and Nokia, they didn’t really get killed by Apple. . . they all got killed by shanzhai,” David Li claimed.
While the big brands have money, resources, highly skilled design teams, and massive market pull, shanzhai has an entire ecosystem of people collaborating together and building upon the work of each other. This is an extremely powerful force when it’s taken into account that there are upwards of 20 to 25 thousand shanzhai companies operating in Shenzhen alone who are currently providing over 300 million cell phones per year, a quarter of the world’s supply.
Due to its decentralized nature and focus on the local, shanzhai manufacturers obtain a competitive advantage by going after a large array of niche markets that are too small to be exploited by the big tech companies. “They find a problem, they fix the problem,” David Li explained.
One example of this kind of adaption was the addition of a second SIM card slot in cell phones. As China has over 250 million migrant workers who live in one place but work in another along with other masses of people who travel regularly across telecom zones, the demand for a phone that could function on multiple local plans to avoid expensive roaming charges was huge. Shanzhai filled this need by making phones with two SIM slots, allowing users to toggle back and forth between local cards depending on their location.
Other examples of shanzhai’s innovations include phones with extra loud speakers so users can listen to music without needing headphones, speakers, or another device, phones with built in UV lights for people working in service industries that regularly scan IDs and currency to detect counterfeits, phones with compasses which point to Mecca which are marketed to users in Muslim countries, phones with outer shells designed off of popular cartoon characters or kitsch, among numerous other additions and adaptions.
“The main advantage for them [shanzhai] is to do it super fast. So Shenzhen production is super agile,” said Silvia Lindtner. “They put on the market small batch production of like 3,000 devices and sees if it flies and if it goes they produce more of that. They play with new markets and basically design no-brand or what they often call in Chinese white brand of devices that are bought by foreign companies that put their own label on them.”
Another point of confusion about shanzhai is that many of its copycat products oftentimes only appear to be knock-offs. While the outer casings of these products will often be designed to look like the products of big brands, this is only superficial, as the insides are completely different. What’s more is that these internal components are generally IP compliant, relying on open source boards and chips from companies like Arduino, MediaTek, and even Intel, who have built big businesses around supplying China’s open source shanzhai ecosystem. Basically, the same stuff can be found on the inside of a “knock-off” shanzhai iPhone as a phone molded in the likeness of Hello Kitty.
What started out in China as legions of copycat manufacturers is now pushing the boundaries of innovation and niche market adaption around the world. Shanzhai has proved itself to be more commercially nimble, adaptable, faster, and cheaper than many of the big monolithic, mass market, IP hoarding traditional tech companies, and this success is manifested by multi-million dollar companies like Xiaomi and Tinno who grew out of this grassroots network. Shanzhai has evolved to be a force that can dominate markets, out-compete the biggest tech players, and become a cornerstone of global innovation — it’s not all about copying anymore.
A version of this article originally appeared in the South China Morning Post at China’s copycat manufacturers are now pushing innovation.
About the Author: VBJ
I am the founder and editor of Vagabond Journey. I’ve been traveling the world since 1999, through 90 countries. I am the author of the book, Ghost Cities of China and have written for The Guardian, Forbes, Bloomberg, The Diplomat, the South China Morning Post, and other publications. VBJ has written 3679 posts on Vagabond Journey. Contact the author.
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